2020

Markets were higher on Wednesday as the S&P 500 was up 2.3% and Toronto was up 2.5%.

Apparently the Congress in the U.S. is set to roll out more stimulus.

The latest rail car loading reports show another week of decline in the U.S. with traffic down by roughly 23%. The picture in Canada which had looked better than the U.S. is now looking more similar.

Markets were down somewhat on Tuesday as the S&P 500 and Toronto each fell 3.1%.

Futures at the moment suggest the markets will open slightly higher on Wednesday morning.

After the close TFI International reported Q1 earnings and gave an update for the current situation. Not much detail was provided about the current situation but they listed some cost-cutting initiatives which indicates their business has declined. They haul a lot to various retailers so it is not surprising that their business is down. A conference call tomorrow, before the open of trading will likely yield more details.

RioCan released some details about it current situation. While they withdrew guidance they also focused on their balance sheet strength and indicated they don’t expect to lose much rent although some will be deferred.

U.S. markets gave back a little today with the S&P 500 down 1.8%. But Toronto managed a 0.2% gain.

Most stocks were down by Shopify gained another 6.7%. It is certainly pricing in a ton of growth and future profitability. And perhaps with the shutdown of much of the bricks and mortar retail, it can achieve such growth. But it is certainly expensive in terms of a price to sales ratio. I will plan to look at its numbers again after it next reports earnings. 

Oil prices went negative becasue supply exceeds demand and apparently storage is about full. This is very bad for Alberta. There will be little or no relief until economies begin to open up in a major way.

AutoCanada gave an update after the close. They express a good deal of confidence about emerging strongly from the current situation. But meanwhile they are suspending the dividend. The market should not be too surprised by that since their revenues will have been very sharply reduced.  There was a lot of information in the update. Some aspects were certainly positive. The stock is speculative…

Linamar also gave an update. While the company has a strong balance sheet and will survive, the update was negative in that they indicated that most of their plants in North America and Europe are not operating at this time. Plants in China are 95% operating. Markets can often surprise but my guess is that the stock will be down on this news.

Toll Brothers announced it plans a rental apartment building in Boston with a joint venture  partner. That would seem to be a sign of confidence which is good to see.

So, what to buy?

Markets have generally recovered a lot from the March 23 lows. Much of the world economy remains shutdown but there are certainly hopes for a reopening. Overall, I cautions on stocks and not eager to buy. 

For investments dedicated to fixed income, there is the Intact financial perpetual preferred share that was just added to our list. It has been volatile. I like it at $22 and under.

I’d like to add to VISA but am hoping for a somewhat lower price. 

Dollarama is updated and rated (lower) Buy at $43.15. See report.

Market rose again on Friday probably due to expectations of the economy opening before long.

The S&P 500 was up 2.7% and Toronto was up 3.3%

Shopify surged another 12% after its Chief Technology Officer said they have been helping thousands of businesses move on line and that traffic is at “Black Friday” levels every day and it won’t be long before traffic has doubled or more.

After the close, the Melcor REIT “announced that as of today, it has collected 71% of April rents. By asset class, Retail tenants paid 58% of their total rent due, Office tenants paid 79%, Industrial tenants paid 99% and we received 100% of rents in our residential property.” They also indicated that “We are proactively working with tenants on a case by case basis and making arrangement for deferrals where appropriate, depending on the tenant’s financial need and potential to access government relief programs. As such, we want to caution unitholders that April rent collections may not be representative of collections going forward.”

It’s rather disturbing that 42% of their retail tenants reneged on the their April rent. Many of their tenants are well established chains as opposed to mom-and-pop operations. It is disturbing that any substantial business would fail to have enough cash in the bank to cover even one month of lost revenue. It may also be however that expected federal bail outs have led retailers to conclude that it is simply acceptable to renege on rents since the government will likely bail out the landlords. And a new federal government program is going to provide loans (that are partially forgivable) to landlords who lower or forgo commercial rent payments from April through June. This could encourage even more tenants to renege on their leases. Tenants will want free rent even as the likes of Melcor REIT may not know how much money they can get from the government and how much will be a loan rather than a grant. Melcor REIT seems to be warning that rent collections in May could be even lower. It’s interesting that 100% of residential rents were collected. Residential REITs will likely fare far far better than office and retail REITS during this time as far as rent collection goes.

Here’s a (potentially) great interactive chart from Statistics Canada where you can select the “radio buttons” to see how different sectors and indicators of the economy are faring during this shutdown. Unfortunately most of the different sectors are updated only to January and so don’t yet show the drop off the cliff that so many sectors have experienced. Unemployment and hours worked are two indicators that are updated.

Regarding the forecast level for the Canadian dollar, Knightsbridge Financial has summarized what the big banks are forecasting.

Scotia, CIBC and National are more pessimistic and forecast about 68 to 70 cents this quarter and rising about a penny in Q3. TD and BMO forecast a higher dollar close to 73 cents in Q2 and 74.5 in Q3. The Canadian dollar is currently at 71.2 cents. A lower Canadian dollar increases the value of U.S. investments when measured in Canadian dollars.

Markets were somewhat lower most of Thursday but strengthened near the close. The S&P 500 finished the day up 0.6% while Toronto was down 0.4%.

Amazon continues to soar as did Shopify. 

Costco was up 3.6% after its dividend announcement. Costco is a fantastic company. But I have to wonder if it deserves to be at pretty close to its an all-time high With the world slowdown that seems set to last quite some time even after things reopen. After the close, Costco announced a large debt issue to both payoff some existing maturing debt adn to grab some additional funds at a low rate. Costco has a very strong balance sheet and can easily absorb the added debt. 

Dow futures are currently up over 700 points this evening apparently due to Trump’s plan to reopen the economy. We shall see if much reopens on May 1. From a virus perspective it seems that tighter lockdowns and mask wearing are what is needed. But if it is decided that that the best that can be done is to slow the spread and that the virus can’t really be beaten back then perhaps reopening is called for. And perhaps there are a lot of sectors of the economy that could reopen if testing and mask wearing and distancing are in place.

The higher futures may also be due to some good news regarding drugs to treat the virus. That seems like a more valid reason to me.

A perpetual preferred share from Intact Financial is added to the site and rated Buy at $21.99 to yield 5.9%. The other preferred shares on our list are rate reset preferred shares. Those (unlike perpetuals) were supposed to at least hold their value when interest rates rose as was expected. Instead, interest rates have stayed low and now gone even lower once again. As a result rate reset preferred shares have tanked in value. A perpetual preferred share does run the risk that it would fall with higher interest rates or if the company runs into financial difficulty (see the Bombardier perpetual preferred share) or just due to market fears or unpopularity (see everything in most of March). A perpetual preferred share is a fixed income investment while rate reset preferred shares have proven mostly to be a reducing income investment (so far, at least). 

Intact has six other preferred shares out.  Three are rate reset, one floats quarterly and there are two additional perpetuals. At this time I thought one of the perpetuals would be of most interest given that we have some rate resets (from other companies) on the site. This one looked most to be the most attractive of the three at this time.

Intact Financial is added to the site but is rated only Weak Buy / Hold at $138.70 (the closing price April 15th, it closed today at $136.56. It’s been an excellent long-term hold but looks expensive at this time. Also it is not entirely clear if it is benefiting from the shutdown (fewer claims) or not (customers are asking for reductions and taking second vehicles off the road). Its preferred share mentioned just above may of greater interest.

Markets were lower on Wednesday apparently due to weaker-than-expected economic news.

• March retail sales fell 8.7%, the most ever in government data, and New York regional manufacturing activity hit an all-time low, declining to a shocking negative 78.2%.
• “The economy is clearly in ruins here,” said Chris Rupkey, chief financial economist at MUFG Union Bank.

I’m not sure why the retail sales falling 8.7% would be a shock at all. Nor should it be a surprise that the economy is in ruins.

The S&P 500 was down 2.2% and Toronto down 2.1%.

With its huge rally off the March 23 bottom, the S&P 500 market seems to be confident of an early opening of the economy and a return to something approaching normal before too long. That seems optimistic. Today we have Los Angeles saying big Stadium events are will not return by the end of this year. And we have New York now requiring the public to wear masks when in close quarters like the Subway starting in three days. That could have a negative impact on the perception that the end is in sight?

It’s Wednesday and so the latest rail car loading report is out. In the U.S. rail car loadings are diving. I’m looking at a graph rather than number so it’s not exact but it looks like total rail car loadings are down a little over 20%. Almost every category is down. Canada continues to have less of a decline than the U.S.

In Canada the Bank of Canada now predicts that GDP in Q2 will be down 15 to 30%. That would normally signify a depression as opposed to a recession. But of course the hope is that most of this is temporary.

The Bank of Canada will also buy provincial and corporate bonds ans well as government of Canada bonds. The Governor claims that this is not Quantitative easing even though buying bonds is exactly what they do in Quantitative Easing. He said this is the same thing but for a different reason. The reason being to keep the market for bonds trading and functioning as opposed to an attempt to raise interest rates. It looks like a “distinction without a difference”. I think pretty clearly it constitutes the printing  of (or at least the electronic creation of) money. The hope is that this won’t be inflationary because it is being done at a time when deflation is more the worry.

WSP Global came out with a COVID-19 update. While they had some positive things to say, I read the report as confirming that revenues will be lower in Q2. I think this stock has held up better than perhaps it should be and I suspect the same thing of Stantec. That is I would not be buying either one and instead it might be better to switch out of these two that have held up well into something else. The market is probably assuming both will benefit from government infrastructure spending. That’s probably true although that will take some time adn meanwhile a lot of corporate clients may be cutting back on projects.

A report from Empire confirmed that grocery stores saw a huge surge in sales. And they should continue to do well although the surge is past.

Costco announced its dividend will increase for 65 cents to 70 cents per quarter. That’s positive but the market should not get too excited about this. This is the time of year when they always have raised the dividend every year.

I am going to add Intact Financial to the site tomorrow . It’s been a great company. And it may be doing very well right now as vehicle accidents will be way down with the lack of driving. On the other hand it is not down much in price and so it looks like it may not be rated higher than Weak Buy.

Markets were strong on Tuesday apparently driven by Presidents Trump’s indications that the economy will soon start to be reopened starting by the end of this month.

The S&P 500 was up 3.1% and Toronto was up 1.3%. Amazon was up another 5.3% and Shopify surged 11.2%. 

Trump now acknowledges that each State Governor will decide when to reopen. Given the lack of testing in the U.S. it’s hard to picture that things will reopen that soon. Possibly advancements in faster testing will accelerate reopening. It will be interesting to see how markets react if the reopening is delayed or occurs only gradually.

J.P. Morgan and Wells Fargo both reported lower Q1 earnings due to big expected increases in loan losses. The market largely shrugged that off. 

The International Monetary Fund predicts that Canada’s GDP will decline 6.2% in 2020 but then rebound 4.2% in 2021. If I had to guess, I would say that is optimistic. How strongly the economy recovers will depend in part on how much money the government can pour into infrastructure and also subsidizing various businesses. 

I understand the federal government may announce a program to help commercial tenants with rent. That would be positive to RioCan and the Melcor REIT.  RioCan is probably a safer bet.

Markets were down moderately on Monday with the S&P 500 down 1.0% and Toronto down 0.6%. Markets were down about 2% earlier in the day but recovered ground late in the day.

Amazon was up a hefty 6.2% causing me to wonder why I never bought it given its advantages at this time with brick and mortar retail mostly shut down.

Shopify was also strong rising 6.2%. 

Very soon U.S. companies will begin reporting Q3 results. Those were affected by a few weeks of shutdown. What will be of more interest is what various companies will say about their outlook. 

Stock futures are moderately higher on Monday evening.

Markets were higher on Friday with the S&P 500 up 1.45% and Toronto up 1.7% capping a very strong week.

On Sunday evening oil prices are up moderately (to $24.27) as OPEC plus a few other countries that apparently have state-controlled oil production have agreed to a 9.7 million barrel per day production cut.

DOW futures are down 333 points. These days that constitutes a modest dip.

As most will have seen, I sent out an edition of our free newsletter today.

The report on CN Rail has been updated and rated Weak Buy / Hold at $111.

Canadian national Railway has been an excellent investment over the years going all the back to its privatization and Initial Public Offering in 1995. A buy and hold strategy has proven wise.

As detailed in the report, CN is facing a weak Q2 and likely a modest earnings decline for 2020. Despite that weaker outlook it will still likely be a good long term hold and a stock to buy on any material dip. CN is a high quality holding.

Sharply lower fuel costs may not benefit CN since its fuel surcharge and risk management program is designed to minimize CN’s exposure to fuel price swings. But there is a two month lag in the fuel surcharge and with the extreme drop in fuel prices there may be a benefit in Q2 (which might then be offset in Q3).

Markets were higher on Wednesday on continued optimism that the virus situation won’t get as bad as recently thought and optimism that the U.S. economy will not stay shut down very long.

The S&P 500 was up 3.4% and Toronto was up 2.3%.

The price of Canadian heavy crude was down again however and currently sits at a dismal U.S. $7.61. West Texas is at U.S. $26.13  OPEC is holding a conference call tomorrow and the Alberta Energy minister will participate. Historically free market nations like Canada and the U.S. would never even consider cooperating with OPEC. But it seems that desperate times call for desperate measures.

After the close, Canadian Western Bank announced that it has submitted its long-planned regulatory application to move to the more advanced system for calculating its risk-weighted assets. If approved this will increase CWB’s risk weighted capital. The plan was that this would free up capital to support additional lending. It would allow a faster growth rate. Now that CWB presumably faces higher loan losses due to the economic shutdown and low oil prices this also would give it more a cushion to deal with that. Given that this application was expected (although the exact timing was unknown), this announcement may not have any immediate impact on the share price.

Markets had been strong on Tuesday but ended the day  with the S&P 500 down 0.2% while Toronto as up 0.2%. The late-day drop was blamed on a drop in oil prices.

Amazon has announced that starting in June it will suspend its new shipping service that had been competing with FedEx and UPS. Amazon has seen a surge of business and wants to concentrate on its core business. This is a positive development for UPS and FedEx but is also another indication that Amazon is benefiting from the closure of so many retailers.

News on the virus front indicates that the death levels may be lower than feared. But this is due to the shutdown and may indicate that the shutdown will have to last longer.

On Monday, markets were focused on the hope that the virus cases are at or near the peak in Italy and Spain and the hope that this will soon occur in the U.S. The S&P 500 was up 7.0% and Toronto was up 5.1%.

I am surprised at this resilience in the market.

The news, late in the trading day, that Boris Johnson has been moved to intensive care did not phase the markets. I would have thought that the news of such a high profile person at the age of 55 and apparently otherwise healthy getting hit hard enough to have to go into intensive care would send markets lower. 

I am seeing predictions on the one hand that things will get back to normal before long and will include a rush of pent up demand. Others predict a prolonged recession or worse. 

In this circumstance I would not be in a rush to deploy cash especially in cases where investors already have a high exposure to equities.

The energy patch awaits the outcome of OPEC talks on Wednesday.

The report for Costco is updated and rated Weak Buy / Hold at $305. It’s a fantastic high quality company but always seems expensive (current P/E) 36. It is now up 4% in 2020. Not a stock to “play” a recovery but rather one to consider as a long term holding that adds quality to a portfolio.

On Friday, the S&P 500 ended the day down 1.5% and Toronto was down 1.2%.

Canadian Tire announced that its Canadian Tire stores in Ontario will be closed after today to in-store shopping by delivery and curb-side pickup will continue.

So what is next? The economic shut down in Canada is deepening and it is definitely deepening in the U.S. where some States have been very slow to act. News of many more cases and deaths in the U.S. is likely to add to fears this week.

On the other hand there may be positive news in terms of treatments.

And this site shows that a number of countries including Spain, Italy and certainly South Korea and also arguably Canada are having success in flattening the curve.  But not so far the U.S. Even when the curve flattens it is likely to take at least 6 to 8 weeks before new cases would be low enough to consider starting to reopen the economy.

With that, it is hard to say where the market will head. It may focus on the fear or it may believe there is light a the end of the tunnel. It’s very important for the U.S. and particularly New York to succeed in keeping the cases that require hospitalizations at a level that does not over whelm their system.

Melcor has unfortunately been a disappointing investment since 2014 when oil prices started to slide.

Now, on top of relatively weak single family housing starts in Alberta it has been slammed by extremely low oil prices as well as the economic shutdown implemented to fight the spread of the virus.

In order for Melcor or any badly affected company to recover it first has to be able to survive and withstand a period of sharply lower revenues. Melcor has always been relatively conservative in the use of debt and I strongly believe it will survive. But as a real estate company it certainly does have debt. The debt is not too large as a percentage of assets but interest payments are relatively large. But Melcor is capable of hunkering down and getting through this. They will further reduce the dividend if they deem that necessary.

After the shut down ends then the recovery for Melcor will depend on oil prices and other stimulus factors being high enough to encourage a sufficient amount of new home starts in Alberta and to allow its commercial tenants to mostly survive and pay their leases.

At its current discounted price and given all the uncertainties I have rated Melcor a Speculative Buy at $7.10.

On Thursday markets rose after Trump tweeted that he had talked to leaders in Saudi Arabia and Russia and that he expected or understood that they would soon agree to cut production by some 10 million barrels per day.

The direction of markets on Friday may depend on whether such a deal appears more or less likely. Futures are currently down modestly indicating perhaps skepticism about the oil production curtailment deal.

After the close, Canadian Tire released an update on their business situation. They indicated strong gains in ecommerce across their brands. They also announced cost cutting and initiatives and lower capital spending as well ceasing stock buy backs. Overall, this could be taken as a positive announcement. But we shall see how the market reacts. I walked past my local Canadian Tire today and it looked reasonable busy based on cars in their parking lot. Canadian Tire also ash a separately traded REIT. I was thinking it might do better than most REITs since I would expect Canadian Tire as the main tenant to stay current on the lease payments.

Restaurant Brands issued 5 year debt today and paid a coupon of 5.75%. This is higher than the 4.375% that they borrowed on 9 year notes in November. Their interest rate has gone UP despite far lower government interest rates. This is to be expected corporate interest rates are up now due to risks. And the FED is trying to keep corporate interest rates from going even higher which could cause a credit crisis. Restaurant Brands appears to have a somewhat weak balance sheet. The fact that they were able to borrow $500 million shows however some confidence.

Business News Network (BNN / Bloomberg) was saying today that alcohol sales in Cananda were up 40% in March. I could not find any details on that. I certainly would not be surprised if retail store  sales were way up as people both stocked up and consumed more due to not working and due to be stressed. But restaurant and bar alcohol sales would be way down so it is surprising if the overall increase was 40%. If you are interested in investing on the theory that alcohol sales will do well then the two on our list are Heineken and Andrew Peller.

For retail alcohol sales one could consider Alcanna which has both many liquor stores and also Cannabis stores. The balance sheet is not strong. I have not looked at it closely at all but it would definitely seem a riskier or speculative company.

On Wednesday, the S&P 500 was down 4.4% and Toronto was down 3.8%

As COVID-19 cases and deaths continue to rise and as the shutdown gets more extensive and looks to last longer, markets could continue to fall. Offsetting that is the impact of the many government programs to assist businesses and consumers as well as potential good news in terms of more rapid and higher volume testing and possible treatments.

For Canada any end to the Russian / Saudi oil price war would provide a boost to the market.

Looking to deploy some cash very slowly, and with the market down, I bought a few more shares in VISA inc. and a small amount of Royal Bank.

Regarding Boston pizza Royalty Income units: I had been watching for an announcement that the distribution would be further reduced or suspended. In fact they made that announcement on March 23, but I only noticed it today. The price did not drop on the news becasue it had already dropped. At a current price of $6.31, the units might be a good investment. But I am not too keen on it. Presumably most of the BP restaurants will return to business before too many months. But some will likely be closed. And the remaining units will likely face lower sales for a long time. Whether the sharply lower price is enough to offset that is not entirely clear. They do have debt but their interest costs have been relatively modest. It’s probably a reasonable one to speculate on but I would get over exposed to it. With zero distribution at this time the price could possibly drop more yet.

The latest rail car loading reports show continued weakness in the U.S. The traffic in Canada has held up better but is declining. Auto and auto part shipments in both countries have plummeted. Oil by rail from Canada is also declining.

I am taking a look at Intact Financial which I think could be a reasonable investment. It has a strong balance sheet. It’s investments are mostly in bonds and so it should not have suffered much on investments. Insurance premiums are still accruing  although they will likely face some bad debt. They may also benefit from fewer claims as people are driving less and residential water damage is less likely when homes are occupier 24-7.

There was an interesting development today when U.K. banks were ordered by the regulator to suspend their dividends. It seems unlikely that would happen in Canada where the big banks are strong. But ultimately, bank regulators have a duty to protect bank depositors (including over and above the CDIC limit) and the interests of bank investors would be subordinate to the interests of bank depositors. The point is that while banks are probably going to recover and are unlikely to cut dividends, nothing is impossible with this economic shut down.

On Tuesday, the S&P 500 ended the day down 1.6% while Toronto was up 2.6% boosted by announcements that the Keystone XL pipeline would be financially supported by the Alberta government and that TCE intended to go ahead with it.

Later Tuesday,President Trump indicated (or admitted) that the Corona virus situation was going to get far worse in the next two weeks. Perhaps partly as a result of that the futures are down somewhat this evening.

Costco will likely announce, in the next few days, blow-out sales figures for March. It’s a high quality company and one of the very few that is apparently benefiting from the virus situation. I bought a few shares today adn would like to add more.

The President at CIBC indicated that they were quite committed to maintaining their dividend. Hopefully, that will be the case for all the big banks and that they have the strength and resources to do that and also the support of regulators.

Markets were higher on Monday as the S&P 500 was up 3.3% and Toronto was up 2.8% despite lower oil prices.

There has been some positive developments regarding much faster testing for the virus.

A few companies have formally withdrawn their earnings guidance for 2020. In fact all guidance from all companies should probably considered to be irrelevant given how the world has changed.

Aecon Inc. released information that some of its work has slowed but also explained that it is strong financially. It is well positioned to hunker down as needed.

Visa withdrew earlier guidance for the quarter ended March 31 but still expects earnings growth in the quarter. It noted that payment volumes in the U.S. were down 4% in March to date versus last year. Since the shutdowns have expanded as March progressed the decline expected in April would be higher. Visa also noted that cross-border volume was down. Visa and MasterCard charge currency exchange fees that are very lucrative. Taht part of their business will be down significantly for some time. Overall Visa is not immune to the slowdown but will almost surely continue to grow over the longer term. As [a[er cash is considered d to be  a possible way to transfer germs, the switch to electronic payments will accelerate even faster.

Markets have done well in rebounding in the past week. But we could see another move down as companies begin to release information on how they are being affected.

Markets are higher today despite indications over the weekend that the shutdown will be longer than recently hoped. 

The Canadian government is offering to pay 75% of wages if businesses keep workers on (up to $58,700) The businesses do not even have to pay the remaining 25% although they are encouraged to. This looks like it would be an open invitation to abuse and so the government has warned businesses not to abuse it. It is far more generous than EI. I did not see any indication of whether the government would also cover CPP and EI premiums. Many businesses may find it hard to apply for and administer the program. With all this money going out (at least once it starts to flow) and far fewer places to spend the money, there should be not be much excuse for many people to stop paying their rent and mortgages. Unemployment and job loss figures are also going to greatly distorted by this move.

Oil prices are at a 17 year low with West Texas under U.S. $20 and Canadian Western Select (which I understand is a heavy unrefined oil from oil sands) dipped under U.S. $4 and so is practically worthless. This is very bad for Alberta if it continues.

I notice that Melcor Developments as well as the Melcor REIT announced approval of normal course issuer bids (share buy back) programs. This may NOT mean they plan to buy any despite the low price. That’s not clear. They were already scheduled to renew those programs at this time. And both are restricted to low amounts of purchase per day in any case. They may choose to hang onto cash rather than bother buying the few shares they are allowed to since any buy backs might also draw criticism.

On Friday, the S&P 500 was down 3.4% and Toronto was down 5.1%.

Given the current situation I am surprised to see that, after its big rally last week, the S&P 500 is only down 21% this year (down somewhat more from its peak level). 

A lot of the economy is shutdown and more is still shutting down. We don’t how long this will last. Some industries will ultimately bounce back but others like travel and hospitality will likely take years to recover.

A few businesses are seeing increased revenues. (Costco, Walmart, Amazon)

Mortgage rates are very low but it’s not certain they will stay that way. We don’t know if house prices will hold up or will decline significantly.

Commercial borrowing rates would likely rise unless central banks and government can prevent that with their massive liquidity efforts and guaranteeing banks that new loans will be repaid.

Unemployment rates and jobless numbers are set to be epic (this has already started).

GDP seems sure to decline by double digit percentages that were unimaginable until this crisis hit.

In Canada and the U.S. governments have put in place massive cash programs to help the suddenly unemployed pay their bills. – But then, bizarrely they seem to be inviting people to not pay their their rents and mortgages. Even large businesses in some cases are contemplating not paying their leases. Our entire economic system is extremely dependent on virtually everyone and every business honoring their financial commitments. There may be no better way to destroy an economy than to suggest that people and companies not pay their bills! (And how strange to encourage it while actually giving them the cash that could be used to make those payments.)

But there is the hope that all of this is temporary and things should get back to normal in a few months if not sooner.

With all of this it is very hard to know what percentage decline is logical and fair for the markets and for individual companies.

At this point we can only try to guess and we can react as the news develops. 

Markets were down this morning giving back some of the recent huge rally but the DOW is currently down about 700 points while it was down closer to 1000 points earlier. 

Possibly it will get a boost when the House passes the stimulus bill but perhaps not given that the passage is probably already completely assumed.

Thinking of possible bargains I picked up some RioCan shares at $15.80 today. It has a strong balance sheet but of course faces the uncertain prospect when mall shopping will return and what vacancies it might face. It is diversified across all the biggest cities in Canada. Checking its web site it does not seem to have commented on the current virus / shutdown situation.

P.S 11:40 eastern

I also bought just a small amount of VISA at about $160. 

I see Trudeau just announced wage subsidies of 75% for small and medium sized businesses. Most businesses on the stock exchange and on our list may be too large to qualify.

Perhaps a big beneficiaries here would be lenders and landlords of all types since people are still getting money and really should not be missing loan payments in too many cases.

On Thursday the huge market rally continued with the S&P 500 up 6.2% and although Toronto was up only 1.8%.

It seems the market has decided that the gargantuan U.S. stimulus package will take care of much of the revenue losses associated with the partial; economic shutdown. Futures are down modestly tonight however.

Even  the companies themselves probably have little idea of how much cash they will receive and whether some will be forgivable loans.

Again, it seems that the market is hopeful of various treatments and efforts that will hopefully avoid hospitals getting over whelmed. Some argue that the death percentage will be fr lower than , for example, the 4.0% reported in China. And certainly it is possible that there were vastly more cases in China that were never tested for which, if true, would mean the death rate was well under 4.0%. 

So far, the market has taken little notice of the fact that the U.S. (with a third the population) now has more Covid-19 cases than China as of today. And there is certainly no sign of any slow-down in the case counts in the U.S.

I certainly continue to have a lot of difficulty predicting where the market is headed. 

Starting tomorrow I will update the comments int eh table as to how each company might be affected by the c economic shut down and slow down. The part that is even more difficult or impossible to know is to what extent the various stimulus packages will offset lost revenue.

The big stock market rally continues now in its third day.

It’s difficult to know what to do.

Many investors were well positioned to ride this through. Those who were comfortable with their level of equity exposure can continue to do that.

For those that felt they had too much in equities this may be a chance to reduce some positions.

Selling that was done most of last week and Monday now looks like a bad move. But we don’t know what lies ahead.

The market seems very focused on the stimulus packages and I think hope that the virus situation will peak before too many more weeks. The market took it its stride the report showing 3.3 million new claims for job loss benefits.

No one knows for sure but I would be surprised if we don’t see some days of big market declines if/when attention returns to focus more on the level of shutdowns and the infection rates and death toll. 

The markets were up strongly again on Wednesday making for a very large recovery in the past two days.

It would seem that investor fear was diminished mostly due to the massive $2 trillion stimulous package in the works in the U.S. Investors may also be hopeful of a quick reopening of the economy since Trump is suggesting that will be the case. For Canadian investors there is also a Canadian stimulus package that will provide at least loan assistance to many businesses as well as substantial assistance to laid off workers.

Personal fear levels may also have ebbed somewhat as we are getting more used the reality of repetitively closed borders as well as well as physical distancing along with mandatory isolation for many.

So what is next? Futures are somewhat positive at the moment.

But certainly we could see increased fears and market declines in the days ahead.

The U.S. situation is a worry. The virus appears to be spreading like wildfire. Rather than talk of additional and more wide spread physical distancing, Trump is talking about reopening the economy in just a few weeks. But is that realistic?

And perhaps people are starting to get complacent that it will only be older people and people with pre-existing conditions who are at serious risk. Or perhaps there is more hope for treatments. And all of the financial aid packages lessen the financial worries for many people.

But with the case counts in the U.S. set to be the highest in the world within a few days fear levels could certainly grow. And investors may begin to dismiss the idea of an early opening. And will investors continue to take kindly to a President who seems more interested in what the virus will do to his re-election chances than what it will do to people?

Canada probably still has a good chance of limiting the spread. But if the U.S. is not successful and the virus spreads widely there, then the best Canada can likely do is slow the spread – and that could mean a very prolonged shut down of much of the economy.

And while job losses will not be a surprise the market may react negatively to the very large job loss numbers that will soon be reported.

After the close, Melcor released information on numerous strong actions it is taking to conserve cash. This included the previously announced dividend decreases at Melcor Developments and the bigger decrease for the REIT. (I would not be surprised in Melcor Developments makes a larger decrease before long). They are laying off 25% of the staff and cutting pay for all executives and remaining staff and Board members. They are deferring ALL capital spending. Melcor has experience in hunkering down and has moved early to do so. They will almost certainly survive this but things will be tough as they will be carrying land and some buildings that are not earning revenue.

Heineken closed a large debt offering of five year debt at 1.625% and ten year at 2.25%. That shows some confidence in their cash flows. That stock is down 30% from its highs.

With markets up this morning, my fear that the trend was still negative is suspect at this time. But there are many days ahead before the virus situation is even remotely resolved.

I understand there is agreement on the U.S. $2 trillion stimulus deal which is massive. The deal is supposed to pass the Senate late today then presumably the House after that (tomorrow?). It will take time for the market to fully digest the bill but so far the market is happy with it.

I did buy some Melcor REIT units today at prices from $2.85 to $2.92.

I also looking at the Melcor REITs two subordinated convertible debentures. MR.DB.A and MR.DB.B  The conversion prices are now way higher than the unit price but these are of interest becasue they have traded as low as 60 cents and 51 cents on the dollar. But that was at very low volumes and it might not be realistic to be able to buy at less than about the current bids of 67.5 and 65 respectively. Be careful buying these as they are very il-liquid and the buy is based on face value rather a number of shares. It can be confusing. I believe these would be safer than the units in the event the REIT gets into real trouble. But they are not as safe as regular bonds as they are a subordinated debt. Also the REIT could redeem these in units rather than cash at maturity. They also have less upside than the units if things get back to a more normal situation in the Alberta economy. But I wanted to mention them since I was looking at the REIT and I did put in a small order for these debentures (which may not get filled). 

I think VISA is worth considering at its current price of $160 (down from pre-virus highs of $214). It will surely be a survivor of all this mess. It would of course be even more interesting if the market declines and brings it lower. I have the P/E at 31 based on earnings as my last update which was for Q3. Still expensive but of course it has an extremely dominant and favorable position in the market.

Costco at $283 is down from highs of $324. It will no doubt post huge same-store gains for March as everyone stocked up. It’s hard to know if that will lead to a reduction later as buying was brought forward. It always looked expensive to me (the P/E is around 35) but it may stay expensive in relation to earnings given its great market position and given its revenues are growing at a time when so many businesses are suffering. I would not rush to buy too much of it but it is worth considering.

Melcor REIT  isupdated and rated Buy at $2.98. It’s difficult to account for the changed world. But basically the Melcor REIT would look to be a good bargain unless things will get so bad that it goes under and the debt holders end up owning the buildings. Certainly some of its tenants will fail to pay and the vacancy rate will increase. But it has a lot of solid tenants and will most likely survive. There will be many other bargains to choose from but this does look like one. Given the uncertainties right now I don’t think it is appropriate to call anything a Strong Buy or higher Buy, I will just rate it Buy.

The markets staged an epic rally on Tuesday mostly in response to an epic U.S.A. financial aid package expected to be passed imminently. Apparently 2 trillion and there was talk that along with other measured the total was $6 trillion. That’s 10 times larger proportionately than the $60 billion or so Canada is currently looking at. That is $6 trillion for the U.S.A. (if that is true) is equivalent to $600 billion in Canada.

The S&P 500 was up 9.4% and Toronto was up 12.0%.

Trump’s talk of reopening the economy by Easter Sunday may also have been part of the excitement.

So, for today at least, my thought that the down-draft would continue was wrong.

But should we expect the market to reverse this rally? Or will the ultimate passing of the aid package push the rally even higher? It is possible that the market sees a deep valley ahead but is looking past it to the other side and deciding that stocks are already down enough.

Pushing the other way will be:

Case counts and death counts in the U.S. that are threatening to become fairly epic.

Job loss figures that are sure to be epic in both the U.S.A. and Canada.

Corporations are likely to start announcing dividend cuts or at least big drops in outlook. Can the aid packages simply make them whole?

In Canada today the case counts were still rising. That was disappointing although probably to be expected given more testing and given (probably) a lot of people flying in with the virus. I am not seeing much information on local transmission or exactly how that occurs. We don’t know yet if we will have to start grocery deliveries and end trips to grocery stores.

There may be good news from a few other countries and certainly China but it does not seem to be much in the news. American media will focus on American cases and deaths. Will we start to hear of celebrities dying from the disease.

I am going to look at specifics for some of the companies on our list. I am starting with the Melcor REIT. No doubt there are better candidates for bargain hunting but I will start with what I own and know something about. At its current price around $3.00 the RIET looks like a reasonable candidate. It does have debt. It will lose revenue. But is has a lot of strong tenants including the provincial government. The worse case for a REIT (or any company) would be if revenues (and the outlook) fell so much that effectively the equity was wiped out and the debt holders would own what is left. It does not look to me like that would happen to the Melcor REIT. But as we have all recently learned just about anything is possible. The REIT also has a convertible debenture that recently traded at 50 cents on the dollar. That could be a good bet. We should all avoid however going too heavily into any one name.

If you are looking to just put cash into the market with out getting into specific stocks then look at broad based ETFs. There are links to these on the subscriber home page. For example VGRO and VBAL and there are many others.

Stocks are up strongly this morning. CNBC indicates this is due to the pending U.S. financial aid package.

There is also good news from China which will lift its lock down on April 8 and apparently there has only been one new case of the virus in the hardest hit province and City in the past six days.

The bounce is great but I am not convinced that the down trend is over. The excitement over the U.S. aid package could fade quickly and then we are left with the horrible rise in cases and probably news of companies announcing the impacts of the slow down. The job loss numbers are also going to be shocking. 

Possibly, there will a view that this can end soon as it has apparently done in China. But North America has not (yet?) locked down to anywhere near the extent they did in China and so we don’t know how effective our lock downs will be. (Canada may succeed but the U.S. is not looking good in this regard.)

I will be looking at some companies today that have been very hard hit and that have strong balance sheets with a view to begin buying. 

On Monday, the S&P 500 was down 2.9% and Toronto plunged 5.3%.

The economic shutdown continues and deepens daily. 

The case counts and lack of testing in the U.S. is frightful.

There is some indication the cases in Italy may be peaking. 

Unless there is some news to indicate that the shutdowns will be short lived, and/or there is a big break through in treatment, it seems likely that the market declines will continue.

The banking sector will be interesting. They will be allowing businesses and especially individuals to defer payments and yet will continue to accrue interest. Those deferred payments will likely not be treated as delinquent. I guess that makes sense where the government is guaranteeing payment such as CMHC mortgages. I am not sure it is a fair representation of reality for loans not guaranteed by government.The banking sector will be supported by government actions and so it may be an area to pick up bargains. But I would not be rushing to deploy cash yet.

Even if this is relatively short-lived, the accounting implications will take months to sort out. The economy is likely to emerge at a lower level and that will mean a certain amount of write-offs. Those involve judgement.

Markets are down once again this morning. And this is despite additional major moves by the FED to support credit markets.

The shut down is becoming more extensive and fear is rising and therefore the markets could certainly go lower still.

On the virus news, China continues to do extremely well, South Koreas figures are bouncing around above and below 100 new cases per day but with almost 9000 cases overall they still appear to be doing very well in limiting the spread at this point. Taiwan and Singapore are doing well. Sadly, the U.S. is doing very badly with vast numbers of new cases and that is despite the fact that they are not testing many people. Canada may still have a good chance to nip this in the bud.

In terms of stocks:

Grocery store and drug stores and the likes of Amazon are seeing increased business. The grocery stores in particular seem well positioned. For Amazon I always worry about the high multiple but certainly the stock is holding up well.

Property and car insurance companies continue to collect revenues and should see fewer damage claims. The worry here would be their investment portfolios.

Banks continue to accrue interest but if this shut down continues for long then their bad debts could explode. Banks are highly leveraged and so I don’t think it is a certainty that they will all maintain their dividends. 

I fear for the likes of the Boston Pizza royalty. It has no employees and I am not sure it will be eligible for any assistance. If the restaurants largely reopen and get back to reasonable business then this entity will recover though likely at a lower distribution. Some BP restaurants will likely not reopen.

A utility like Fortis should be well positioned with much of the revenues continuing though commercial revenues will be down considerably.

For many companies, what will be important is their balance sheet strength. Companies with little debt can hunker down and survive a period of very low revenues and then come back to like. But if there is too much debt then the equity shares could be wiped out. Our reports always include a section looking at the balance sheet. While the earnings figures in our reports will mostly now be obsolete due to this changed world, the balance sheet figures are still quite relevant.

As the days go on I will try to identify some candidates for potential buying. 

Markets spent much of Friday somewhat higher but ultimately ended lower with the S&P 500 down 4.3% and Toronto down 2.6%.

The extent of business closures is monumental. We can only hope that it will be short-lived.

If this lock down lasts two months or more then many businesses will be in grave trouble. It’s unknown how many the government will save.

I don’t think anyone can forecast how low stocks can go. Panic selling at this time might prove a bad idea if the situation is short-lived. But the fact is there is reason for a certain amount of panic. Older investors will certainly want to emerge from this with some cash both for expenses and for buying opportunities at some point.

I am looking for good news on the virus front but see little except that China seems to have largely defeated the virus and a few other countries are doing well.

As the lock down tightens in Canada and the USA the outlook for stocks probably continues to be for further declines. I do hope that some good news proves otherwise.

I see the Melcor REIT has reduced its monthly distribution to 3 cents from 5.625. This is likely just the beginning of announcements like this. 

Markets rebounded a little on Thursday with the S&P 500 up 0.5% and Toronto up 3.8% as West Texas Oil recovered somewhat (a 24% increase but from a low base).

I really don’t think the worse is over for the markets.

• The economic shut down is more or less just beginning. Lots more businesses have yet to announce closures.
• Almost no companies have yet commented on how badly they are being hurt and have not reduced or suspended dividends. Many certainly might.
• The case counts have not peaked anywhere in Canada or the U.S.A.
• News of celebrities with the virus has just begun – there will undoubtedly be more. 

Overall, it still seems to me that we have not reached peak fear. I hope I am wrong and that medical developments and a peak in case counts will result is a surge of optimism.

Those who were caught with far too little cash or other safe investments, especially older investors may want to consider salvaging at least some cash by selling some stocks especially on rallies. If you have sufficient cash and very safe things then it may be appropriate to just ride it out. But it is going to be a bumpy ride and a long one.  It’s going to be a long time before investors will trust stocks in the same way . It’s hard to imagine that international tourism will recover for quite a few years. The youngest investors will ultimately benefit from lower stock prices. 

Wednesday saw the S&P 500 down 5.2% and Toronto down 7.6% as oil prices dove.

Most stocks were down, many double digit percentage losses.

A few stocks were up. Amazon has held up really well. Walmart and Costco too. FedEx has not done well but was up a bit today.

With all the accelerating shut downs, the reality of the situation is still sinking in. Therefore we are not yet at peak fear and more fear will likely drive markets lower. And then companies may start to announce dividend cuts and/or how much their revenues are down leading to more market declines.

There may be good news that will push markets higher but it seems more likely the down draft continues.

On the Virus front China continues to appear to have beaten the virus and have very few new cases. Chin is now helping other countries.

https://www.worldometers.info/coronavirus/#countries

The latest figures from Korea are discouraging with 245 new cases. Possibly that is due to more testing in more areas. I saw a claim that Italy has had great success in the original 10 towns that it locked down two weeks ago. Overall, cases in Italy are still ballooning. The U.S.A. looks to be in trouble with a bizarre lack of test although they are now ramping up.

I have some hope that Canada can nip this in the bud. Certainly Alberta is doing a lot of testing. And the wide-spread closures in Canada along with lots of testing might prove successful.

Markets down again this morning.  Canadian Border with U.S. closed to non-essential visits. Trade to continue. Oil prices in Alberta collapsing. Government offering increased child tax benefits.

I did sell a few more stocks this morning. I am just not seeing an end to the market declines.

Boston Pizzas closed except for takeout / delivery. 

Melcor is thinly traded which makes it even easier to go down. They are very conservative and have a history of cutting the dividend in hard times. I have not sold any Melcor.

So Tuesday saw an increase in the markets driven by fairly massive U.S. FED stimulus / liquidity announcements and promises to help out both businesses and individuals.

S&P 500 was up 6.0% and Toronto (hampered by lower oil prices) was up 2.6%.

Most stocks were up. Some were down – Toll Brothers was down 17.9%.

Boston Pizza units were down 7.4% to $7.34. I sold much of my units in this today because its world has completely changed. The BP restaurants I believe are already starting to shutdown at least for table service in some parts of the country. If the Royalty entity is soon getting vastly reduced royalties then the distribution has to be cut or even suspended for a while. Luckily it has little expenses but it also has some debt and not much cash in reserve. The market seems likely to react very negatively to a cut here. Unless they get a quick government loan (which could happen) this entity is in deep trouble. It would seem irresponsible of the trustees not to cut the distribution. If that proved very temporary and then if people got back to eating out in restaurants then perhaps the distribution could be restored quickly. I am having trouble imagining that quick scenario will happen.

Canadian Tire was down 9.2% – Non-essential retailers are being shut down. Canadian Tire has a lot of financial strength but a shutdown will be very harmful. In their case too the dealers have stock in store and even if they are open are unlikely ordering more stock from Canadian Tire Corporation. And then there is the risk of credit card defaults. 

Couche-Tard was almost unchanged for the day. After the close it released earnings which were a little weaker than last year but still good earnings. The gasoline margins were very high a year ago and declined a little this quarter but I think were still better than average. At a quick look and search the press release does not seem to mention the virus. But the impact of the virus will likely be the total focus of their conference call. If consumers are in something close to a lock down then their sales will no doubt plummet.

I hope I am wrong, but I do not see any reason to think the market declines are over. By tomorrow the U.S. stimulus news will be sort of old news and presumably the fear levels presumably rising due to the shut downs. And the outlook for corporate revenues and earnings must be falling rapidly as the extent of the shut downs loom. We need major good news on the medical front to quell the fear.

Someone asked me about the valuation of the S&P 500.

I would say the earnings outlook for the S&P 500 for 2020 is completely unknowable. With wide-spread shut downs, that might me that the S&P 500 earnings for the year come in very low or even negative depending how long the social lock down that seems to be underway lasts.

We can look at the analyst forecasts for S&P 500 earnings for 2020 and 2021 but there is no way the forecasts can have been updated for the latest situation.

For 2020 the latest forecast is GAAP earnings of $155 and operating earnings of $170

For 2021 the latest forecast shows GAAP $171 and operating earnings of $191.

The 2019 actual GAAP earnings were $140 and operating earnings were $157.

With the S&P 500 currently at 2529, we have a trailing GAAP-based P/E of 18 and a P/E of 16 on an operating basis. Not excessive as long as growth was expected to continue. And as the figures above indicate, analysts were expecting strong growth in 2020 and then again 2021.

But now we have a new reality. This virus seems certain to wallop earnings in 2020 and it would likely take time to recover.

As one scenario. let’s say S&P 500 earnings go back to their early 2017 level of about $100. Apply a 15 P/E and a fair value of the S&P 500 is 1500 or about 40% below today’s level. Apply a 20 P/E and you get 2000 or 21% below current levels.

In the end, it is almost impossible to know the fair value of the S&P 500 since it is so hard to know what the economy will look like when this is hopefully all over in say 2021. 

Markets are currently up 4 to 5% and rising at the moment due to breaking news on massive stimulus in the U.S. including the FED supporting the commercial paper market, support to airlines and even apparently $1000 cheques going out.

For those still too heavily exposed to equities it might be reasonable to reduce positions on this rally. I have done some more selling today and I now plan to sit tight. 

We continue to see what appears to be a national stay-at-home scenario taking place. Ontario declared a state of emergency. I suspect fear levels are still rising. All non-essential consumer businesses seem set to grind to a halt. It’s not yet clear to what extent businesses will receive government money to cover their losses. It’s not clear at all how this will last.

At the moment the markets are having a more optimistic day.

But I don’t think we can be at all sure that the worst is over for the markets.

Commercial credit seems likely to tighten which is the very reason the FED is supporting the commercial paper market.

What will happen if companies start to announce how bad their outlooks now are and if they start to cut or even suspend dividends on an emergency basis?

The point is no one knows where this is headed. A balanced approach of having some equities and some cash and government-guaranteed investments seems prudent.

As everyone is no doubt aware, and to no great surprise, markets were down sharply again on Monday.

Ugh, S&P 500 down 12.0%, Toronto down 9.9%. Oil down as well.

Individual declines are too painful to list.

Looking at futures, I am greatly surprised to see them up 800 points on the DOW. Apparently futures hit limit up.  This after Donald Trump tweeted:  “The United States will be powerfully supporting those industries, like Airlines and others, that are particularly affected by the Chinese Virus. We will be stronger than ever before!”

Well, we have seen that moves by the FED to support the market have pushed it up. Also optimistic words from Trump have at times pushed it up. But the effect has so far been quite temporary. Trump should probably have waited to tweet that in the morning. As it is, that could be old news by morning.

I see little good news on the virus front. China new cases remain low. Italy may have been down slightly as in 3200 latest day versus about 3500 the two previous days. Too early to say if they have managed to finally peak in new daily cases. South Korea had 158 new cases so not progressing quite as well as it looked yesterday.

My province, Alberta had 18 new cases. That was probably to be expected because there is a lot of testing going on. Hopefully testing and isolation and social distancing and travel bans will mean the provinces peak in new cases soon.

All of North America is ramping up social isolation moves. That will definitely slow the spread. But it remains to be seen if we can contain the spread before it gets much higher.

Fear surely continues to rise as things close and the seriousness of the matter hits home.

With the large parts of the economy shutting down and with all this fear, it seems likely that markets continue to go down.

Selling, especially on rallies may be the most prudent move.

I sold some things today. I have always been over-exposed to equities and I knew that was a risk. I feel I need to salvage some cash in case the decline goes deeper. Everyone’s situation is different depending on many things including the asset allocation, age, income, job security and many other things. 

We are simply in uncharted waters and no one knows where all of this is headed.

I am sorry that I can’t offer more optimistic thoughts than that.

The FED and central bankers can try to keep markets up. But surely there is a limit to what they can do.

In better news Amazon is apparently hiring 100,000 to keep up with demand and of course Costco is going gangbusters. That may or may not last.

I think it all depends on the virus, stopping the spread and finding vaccines.  

North America is starting to understand the seriousness of the virus situation. With all the closures, the fear levels are way up since Friday.

Sadly, I doubt that the FED rate cut and the Fed bond buying is going to do much for the markets.

I am pleasantly surprised to see the the futures down only about a 1000 points on the DOW at the moment.

I have always hated to sell stocks at a loss. But for those who are over-exposed to equities, it may be appropriate to salvage some cash on Monday if the markets are not down too badly. I would not sell everything at all because we still want to be exposed to equities when markets start to recover. 

I’d like to be more optimistic but I see fear levels growing. This week we may start to see companies issue warnings about how bad they expect to be affected. There has to be a lot of negative impacts if we shut down large parts of the economy and engage in massive social isolation – even if only for a month.

Markets now seem likely to drop as long as fear levels are rising. And I don’t think we are at peak fear yet.

Fear will start to subside when there is good news in the area of controlling new cases, and scientific progress on vaccines. This week, more testing is bound to discover more new cases adding to the fear levels.

P.S. I just read that the futures are at limit down. Looks to be very ugly. 

The latest World Health Organization situation report is out. China has 18 new cases and 14 new deaths. That’s higher than the low numbers of the past few days but still indicates very good containment given they had 81,000 total cases. Singapore continues to have a low rate of new cases and South Korea relatively low. Unfortunately the virus has spread to 13 new countries. The number of new cases in Italy is very high at 2547 but down slightly from the previous day which was 2651. Hopefully, the quarantine in Italy will start to pay off with a reduction in new cases in the next few days. 

Markets on Friday were somewhat higher over the day and then really jumped when trump announced a national emergency along with big steps to get testing ramped way up in the U.SA. And there was news of a faster test coming available. Also there was an interest rate cut and stimulus announcement in Canada.

While this felt good, the partial market recovery seems unlikely to last. With all of the closures happening and with the virus spreading rapidly, the fear levels are still rising. Many are not taking this seriously and so I don’t think we are close to peak fear. China remains an area of good news. Some figures were showing their new cases in single digits, but the latest number shows 11 new cases and 11 new deaths. With almost 81,000 known infected (of which almost 66,000 recovered), that is very little spread. And presumably they are still doing widespread testing. South Korea is also apparently having some success. Italy and Iran and many other areas are seeing rapid spread.

Hopefully it is the case that Italy’s quarantine efforts will start to show up in lower spread rates over the next few days.

Canada is now testing a lot of people per day. Probably mostly those that traveled. More tests are bound to find more cases and this will increase fear levels. 

The economy is already seeing major disruptions in many areas. We may be heading towards a situation of a large percentage of the population staying home. That may be what it takes.

Given the fear, I suspect that almost every stock is vulnerable to continued large declines. Some of course are more vulnerable than others.

A temporary wide-spread disruption to the economy is also going to reduce the revenues and earnings of most companies. In some cases the reductions will be drastic.

I now plan to start filling in a comment on the subscriber home page on the vulnerability of each company.

I am not confident that stimulus efforts can do much. What is needed is good news on the spread of the virus. Huge efforts must be going into trying to find a vaccine. Hopefully, the timelines can be vastly accelerated due to the emergency situation.

I wish I could be more hopeful. 

There has been something of a relief rally in stocks this morning due in part to positive about progress on getting far more people tested for the virus. There is also more news about central banks supporting bank liquidity.

But the relief rally soon started to fade.

Containing the virus may require a period of time when millions of Canadians and Americans largely stay home. That is a very scary scenario for the economy and markets. If we knew for sure it would be quite short-lived then markets could rebound very quickly in the coming months.

But a major slowdown is quite scary. Much of the economy just like consumers operates in a in a cash in / cash out environment. Unemployment rates could really spike. That would cause credit card and other default rates to rise. The cascading impacts could be very ugly.

If restaurants are closed then the likes of the Boston Pizza Royalty units would either have to borrow to maintain their distribution or cut it again. If closures lasted 6 weeks that can be dealt with. But a four month closure would be very bad indeed. I don’t know if restaurants will be closed. But it seems very likely that their business will be down dramatically.

Companies with little debt and those that will maintain reasonable cashflows will eventually recover. Some companies may not survive.

There is talk of a recession in Canada. If we are going into a period of keeping people at home to avoid the virus spreading then a recession is a certainty.

I am sorry, but it is hard to have positive thoughts on the markets right now. 

I see CNN and other television that I watch has acknowledged the progress in China to some extent. But they seem to call holding at 81,000 cases (original plus recovered) “stabilized” as opposed to focusing on the fact that China is getting almost no new cases which to me looks like containment achieved which is fantastic at lest for China. If a few others can do that then North America can start to see a path to containment. With restricted movement and with much more testing and hopefully progress on vaccines, this can be contained. 

Normally, the strategy is to buy on dips but at the moment that is probably only a strategy for those with very percentage large cash allocations. 

Investors are very fearful. It’s hard to argue that they should not be fearful.

Thursday, as everyone must know by now, saw another huge loss in the markets. The S&P 500 was down 9.5% and Toronto was down 12.3% for apparently its biggest ever one day percentage loss.

Almost all of the stocks on our list were down sharply and it hurts to look at at the carnage. Panic selling was the order of the day.

Linamar was a rare exception as it managed to rise 3.8% after its earnings release and comments from its CEO. Melcor fell 5.2% on its earnings release. However CRH Medical fell a huge 40% on its earnings release.

News that the New York Fed would make massive amounts of liquidity available to banks only briefly stemmed the tide.

The panic is about the virus and about its impacts on health and the the economy. All the emerging news about school closures and cancellations of events will only add to the fear. Therefore markets could definitely continue to decline.

It will likely take good news on the virus spreading front to end the decline. I will be watching the continuing sharp decline in new cases in China and watching for news of progress in other places including South Korea. Unfortunately it seems clear that cases in North America will continue to rise and perhaps sharply for some time to come. Reports indicate that Israel believes it could have a vaccine tested in 90 days.

More news about economic stimulus and making payments to people off work are helpful but not likely to lower the fear at his point.

P.S. the site that I am tracking for country-by-country information gets updated once daily at 12:00 am Greenwich Mean time which is 8 pm eastern time and 6 pm Mountain Time.

The latest update shows only 4 new cases in China for the latest day and one new death! (These figures do seem to change a little through the day, when I first looked right after the update came out it was 3 new cases and no new deaths)  I have not seen the remarkable progress in containment mentioned on CBC or CNN. (All I have heard on television is that the measures in China had a positive impact – this looks way beyond that description.) To me, it is very good news, showing that quarantine and isolation and other measures including masks do work.  They did something right in China it certainly appears.

Things are leveling out in South Korea also.

Italy and other hotspots are not leveling out at least not yet, despite their efforts.

P.P. S. Apple has reopened all 42 of its stores in China!

Markets down another 7% at the moment.

With fear really rising and the prospect of large-scale closures of universities and work places and cancellation of gatherings, the fear is getting worse. Could get far worse.

In that scenario it is hard to see how stocks don’t keep falling.

I’d like to offer reassuring thoughts but I am not having them at the moment.

Well, I do think that even if there is a big contraction in the economy, things will get back to normal eventually but it is anyone guess how long.

At this point it could take something drastic like the FED buying stocks to stem the declines.

P.S. 11:10 am eastern

China continues to report very few new cases. Just 15 new cases and 6 of which came in from outside China. Just 11 new deaths. 78% (and counting) who had the virus have recovered. I don’t see this being mentioned on CNN or CBC. Possibly it would be calming news. It might also be an indication that very strict measures are needed to contain the spread.

“Overall, the 15 new confirmed cases in mainland China on Wednesday was a drop from 24 cases a day earlier.

That brings the total number of confirmed cases recorded in mainland China to 80,793. As of Tuesday, 62,793 people have recovered and been discharged from hospital, or nearly 80% of the overall infections.

As of the end of Wednesday, the death toll in mainland China had reached 3,169, up by 11 from the previous day. Hubei accounted for 10 of the new deaths, including seven in Wuhan.”

Wednesday saw another big decline in the markets with the S&P 500 down 4.9% and Toronto down 4.6%.

Virtually every stock on our list was down. The biggest decliners were the  Boston Pizza units down 11.7% and Toll Brothers down 10.9% and AutoCanada down 10.6%.

Unfortunately, the trend appears to be that things will get worse before they get better. With relatively few cases of the virus in Canada or the U.S. it seems likely that the fear level will continue to rise.

I note again the figures that show the new cases in China are down to 31 new cases yesterday (albeit up from 20 the day before) but WAY down from recent levels of around 2000 per day three weeks ago. The second link I provided yesterday indicates China had only 12 new cases yesterday. Some would argue that China can’t be believed or that there are many more cases becasue people have not been tested. But going by their figures, China appears to have contained the virus. I am not seeing that reported in the news. I was reported though that Hong Kong (126 cases, 5 new) and Singapore (178 cases, 12 new) have done well relatively few cases. Also I see little or no reporting of the fact that just over half of the cases have already recovered. In China they report just over 75% (and counting) have recovered. So, while the virus is definitely spreading in much of the world, there is some relatively good news.

Trump is to speak about the virus situation tonight and possibly the market will hear some good news.

Linamar reported Q4 earnings after the close. They reported a 25% drop in normalized earnings per share with the decline related to the GM strike that was partly in Q4 and lower auto production. But they focused on what they called “massive” free cash flow in the quarter which allowed them to pay down debt significantly. They also had higher agricultural segment sales although they indicated that was due to timing differences. They noted other positive developments including market share gain and contract wins. The weaker Q4 earnings at a normalized $1.15 were largely expected but somewhat lower than the $1.23 expected. Linamar also indicated it will seek TSX approval to renew its share buy back program to “strategically support the Company’s share price”.

While the company emphasized positive aspects of its business, it may be that in this negative market environment, the market and analysts will fail to be impressed.

Melcor Developments releases 2019 earnings. As expected residential building lot sales in Canada continued to be weak. But other aspects of the business including their investment (rental income) properties and the development of new buildings was good. But they cut the dividend form 12 cents to 10 cents to preserve cash. They do have a history of adjusting the dividend but the market will not like this move. The share price at $11.43 is vastly lower than the book value of $32.51. Unfortunately the latest developments in the oil market are likely to mean slow residential lot sales in Alberta despite the low interest rates.

CRH Medical reported Q4 earnings with higher volume up 16.8% but revenue down 5.2%. They indicate that they are moving more of their business to a contracted price system to avoid fluctuations in per procedure rates as was seen this quarter. They also reported an increase in free cash flow.

P.S.

U.S. Rail car loadings in the latest report out today are  badly trailing the levels of the past three years. Looking at the graph, I would say down over 10% versus the same week in 2019. And the same pattern has been evident for the past five weeks and getting worse. Lower coal shipments are a good part of the reason and that is related to environment and cheap natural gas and may not indicate a weaker economy. But inter-modal (consumer goods, many of these imported) are somewhat down and that could be due to tariffs and/or economic weakness.

In Canada which was probably still rebounding from the rail blockades, the car loadings were strong. Above the 2019 level and just below that of 2018 for the same week. Intermodal was down modestly while Petroleum was up.

Tuesday saw a partial rebound from the big losses on Monday.  This was due to investors buying the dip but also very much due to indications that President Trump is about to provide some kind of stimulus.

I am not going to list any of the individual gains because the gains today in almost all cases did not even make up for the losses yesterday.

The main driver now is fear and it seems that stimulus actions will likely have only a short-term impact. The population and investors need to see hope for containment of the virus.

Once again, I will note that China has the virus apparently very well controlled. According to the latest World Health Organization Situation Report there were just 20 new cases in China yesterday. At that rate China could see the virus virtually eliminated soon as the 81,000 who contracted it mostly recover (60,000 have already recovered) and they peak out perhaps 3500 to 4000 deaths (they are at 3140). This shows it can be contained although it took very aggressive action to do so.

If China can report that the virus is no longer spreading and if one or more other hotspot countries can achieve the same then the level of fear in North America may abate. But until then and as cases rise in North America we may be a long way from peak fear.

Here is a good link for country-by-country figures. It does appear that the death rate in Italy is high at already over 6%. This may be due to an older population in the affected areas.

It also appears that containing the virus and also just the fear reaction is going to slow economic activity. Some sectors like restaurants and of course travel-related could be slowed dramatically. The market is used to steady progress and so even a couple of months of significantly slowed activity would be enough to probably continue to push many stocks lower or at least prevent any real recovery.

Time will tell when, but this storm will pass.

I believe Linamar and Melcor Developments are reporting tomorrow. Neither is expected to report a good Q4 at all. But their outlooks may now be very negative. Linamar typically can see ahead as they track auto sales and other factors. Melcor I think has a more difficult time to know how many building lots it will sell.

P.S. Trump (and his team) announced some stimulus measures. He intends to help businesses but the most concrete proposal is to have a payroll tax holiday probably until the end of the year. I am not sure how the market will react to that. Such a measure will not send money to those most in need (like travel industry employees who might be out of work). And if people become afraid to go to restaurants then they are not going to spend their payroll tax on restaurants. This proposal really seems more about doing something for everyone and smacks of vote buying. Nevertheless, Trump does seem to be willing to help out businesses and those details will emerge. The U.S. deficit will increase. But when the government can borrow money at almost zero interest rate it becomes harder to fear deficits.

P.P.S

In looking at companies now it will be much more important than in has been that the balance sheet be in good shape. A company with little or no debt can survive a big downturn. A company with a lot of debt is okay as long the cash keeps coming in but some companies with a lot of debt will be at risk if their revenues are disrupted very much.

With the market decline today, almost every stock on our list would look like a buy based on past earnings. But of course fear could push stocks lower as the market anticipates that fear will also hamper the economy.

Investors with cash may want to slowly add to positions. Perhaps very slowly. 

I notice the Canadian Western preferred share CWB.PR.D down around $20. (From about $25 on Friday). That seems attractive. Banks will continue to accrue interest on loans even if people are staying home. But the worry is loan losses. And the fear appears to be loan losses tied to the big drop in oil prices today. CWB has always had a strong record on loan losses but big losses are always possible. I nibbled on a bit of CWB and CWB.PR.D today.

Equity investing has never been for the faint of heart and times like this periodically remind of that. Our perceptions of how much of our portfolios to risk in equities changes during these times. 

Coincidentally today, March 9, is the anniversary of the bottom of the market in 2009. The S&P 500 bottomed at 666 that day. From there we had huge gains for the past 11 years, with a few notable pullbacks and now this very notable pullback. We are at 2784 on the S&P at the moment. The financial crisis losses were horrendous to live through but eventually brought buying opportunities and those who rode it out did okay and ultimately much better than okay. 

This crisis too will past but no one knows how deep the decline will be.

On Friday markets were down again. The S&P 500 was down 1.7% and Toronto was down 2.3%.

Stantec at $40.57 has weathered the storm much better than most stocks. The same can be said for Couche-Tard.

Many stocks are down to what would appear to be definite bargain prices.

But there is a lot of fear in the population and that could certainly push stocks lower. When people are hoarding toilet paper there has to be a lot of fear.  It looks like the rough ride will continue. At some point markets will recover. Looking back we may find the slump was relatively short-lived. But as we live through slumps they always seem to go on for a long time.

The latest World Health situation reports shows just 105 new cases and 28 new deaths (out of 81,000 total cases, over half of which now recovered). China has 3073 deaths but it looks like they really have the virus largely contained with little spreading at this point.

The rest of the world however had 3633 new cases and so the spread is not contained especially in a few countries.

Hopefully the fearful reaction in Canada and the U.S. will mean there will be little spreading and, if so, the fear should be much reduced after a few weeks.

On Friday, Statistics Canada released a good jobs report for February. The monthly figures are volatile but over the past year the jobs gain has been strong.

It was not surprising to see the markets down on Thursday. The good news of the Joe Biden strength in the primaries was yesterday’s news and now the focus is back on the coronavirus and its impact on the economy.

The S&P 500 was down 3.4% and Toronto was down 1.3%.

Individual decliners are basically too numerous to list.

Couche-Tard was an exception and was up 1.7% and has really weathered the storm well. I was tempted today to take some profit on it. But I don’t have a huge position and it is a great company and in the past I have always regretted when I sold it.

And Aecon Group was up 5.2% perhaps on the thought that government infrastructure spending will be increased if a recession does develop.

I added to a couple of positions today – Boston Pizza Royalty units and AutoCanada. It’s hard to say if buying is wise at this point but I want to deploy some cash on dips.

Boston Pizza has been buying back some units as recently as today. They have a new buyback plan in palace and started buying 16,900 shares each day since February 20. This was planned at least a month ago but it is a good sign that they are going ahead with it. The buybacks are accretive to cashflow per unit.

The Melcor REIT reported Q4 results after the close. Although down a little versus last year the tone was quite upbeat and an acquisition in the middle of Q4 will add to results as of the start of Q1.  Hopefully their upbeat tone will also  be seen in the Melcor Development results but that is a MUCH more cyclical business.

Costco reported another strong quarter…

Markets were up sharply on Wednesday due to probabaly a delayed reaction to central bank rte cuts and due to Joe Biden’s success in the primaries. (The markets would not like Bernie Sanders to be the Democratic nominee and potential President.)

Almost all the stocks on our list were up.

The market today showed resilience in the face of fears about what the Coronavirus could do to the economy.

The World Health Organization reports just 130 new cases in China which is very good given a base of over 80,000 cases. But in the rest of the world there were 2103 new cases for a total of 12,668 cases. Now  in 77 countries including four new ones today.

I would expect continued market volatility. This latest one day surge is not evidence that the rout is over. 

Interest rates and in particular the ten year U.S. government bod rate is the lowest in history. That is helpful for stock prices and the real estate market. If it is very cheap to borrow then it is rational for people to borrow more and bid home prices up (all else equal).

Markets are up today so far. 

How bad could this all get? Well (temporarily) very bad of course. If countries really start to restrict travel and if consumers are scared to shop and people become scared to go to work or are prevented from working then we could certainly have quarters of negative GDP growth. We are used to a system where even low real GDP growth such as 1 or 2% can be cause for a market decline. A U.S. and Canadian GDP decline, if it occurred, of say 10% is basically uncharted territory, not seen at least since the early 1930’s. Even a 5% drop would be considered very major indeed.

But, I am confident science will prevail and stocks will rebound. But they started out with a lot of high P/E multiples in the big names and that kind of exuberance could be gone for quite a few years at least.

I did deploy some cash over this event and most of that was too early. I want to retain some cash and not rush to buy. In buying a few things come to mind.

Aecon Group just reported a dividend increase and is optimistic about 2020. They are in a tough business and so that is a strike against the stock. But governments are also likely to support infrastructure through any recession and that is positive for them. So I increased my small position in that one this morning.

Thinking of high dividend investments: Boston Pizza is tempting at 9.2% yield and has already cut is distribution to what should be a sustainable level and is buying back units. But if coronavirus fears take hold, people may stay away from restaurants and things could get ugly for them. So… tempting but now seems risky.

The Enbridge rate reset pref ENB.PF.A yields 6.65% and the $1.02425 annual dividend is fixed until December 1, 2024. But then will reset to Canada 5 year plus 266 basis points. If the five year were to stay at today’s low level of 0.84% it would ten reset to pay 87.5 cents yielding 5.7% on today’s price. That does not strike me as a bad return given we would under this assumption still be in a very low interest environment. And I would consider Enbridge to be a very safe bet to certainly keep paying the distribution. On that note I will add to my position in this one today.

Everyone can look at their own portfolio weightings and risk tolerance (and capacity for risk)  in deciding whether to risk grabbing investments at these lower prices or instead hunker down or even reduce positions. 

Tuesday was yet another non-boring day in the markets as the S&P 500 fell 2.8% and Toronto fell 0.8%.

This despite the FED cutting interest rates by 0.5% and other central banks also expected to cut. I can see that cuts are good for stocks but I don’t see how they will do much for the actual economy.

American Express down 4.7%, Starbucks down 4.6%, FedEx down 4.8%…

In positive news, Canadian auto sales were up 2.1% in February versus the same month last year.

Coronavirus in China continues to look better with just 130 new cases and that’s with over 80,000 cases. So really not that much spread. But 1792 cases outside of China for a total of 10,566 indicating a lot of spreading. Now in 73 countries (There are about 200 countries in the world). The fear of this most definitely still growing. And it is the fear that will slow the economy.

Monday saw a strong and I think surprising recovery in stocks. But I would not bet on the declines being over.

The S&P 500 was up a hefty 4.6% and Toronto was up 1.8%.

Apple was up 9.4%, Costco was up an amazing 10.0%. Visa was up 5.8%.

Canadian Western Bank announced a large acquisition in the wealth management sector.

TFI announced what appears to be a small acquisition.

Central banks are expected to lower interest rates towards zero. That is good for markets but it is hard to see how that can make people scared of Coronavirus more willing to travel or go to restaurants or even go to work.

The virus is definitely slowing in China but still spreading fast outside of China.

The World health Organization now considers the risk to be very high globally. Its now in 64 countries although in most cases very small numbers.

Friday saw another big headline-grabbing drop in the market on coronvirus fears.

The DOW was down over 1000 points during the day but recovered for a decline of 357 points or 1.4% at the close. The S&P 500 was down 0.8% and Toronto was down 2.7%.

Among the decliners were   Canadian Western Bank – down 5.2%, Canadian Tire – down 3.3%, Couche-Tard – down 3.2%. Boston Pizza Royalty units down 4.0%. Costco – down 4.1% and too many others to list.

Some stocks managed a gain including FedEx – up 1.7%. Dollarama – up 1.6% and Visa – up 1.0%.

The World Health Organization produces a daily situation report. It shows the virus slowing in China but spreading in other places with 53 countries outside of China reporting a total of 6009 cases and 86 deaths. This was as of Saturday.

It’s obviously unknown how this will play out and how it will affect the markets. Currently it looks like the selling pressure will continue and that investors are in for a rough ride. It now seems surprising that the market ignored the virus as long as it did.

I am in Hawaii this week and traveled through Vancouver Airport on Friday. At that point there was no indication of much fear on the part of travelers. I saw about 3 people wearing masks out of many hundreds or a few thousand people that I walked by. A few people were wiped down their seat and tray areas on the plane. But that was it. So far U.S. tourism appears to be unaffected.

Thursday was another down day in the markets due to the coronavirus.

The S&P 500 was down 4.4%. Toronto was down 1.9% but likely would have been down more except that it has to close early due to some technical problem.

Notable declines included: lululemon – down 7.5%, Apple Inc. – down 6.5%, and FedEx down 4.0%.

Stantec managed a 3.4% gain after posting a good earnings report. Similarly, Canadian Western Bank was up 1.6% after posting a decent earnings report with no increase in loan losses. But these two would likely not have closed that high if the Toronto market had remained open all day. 

The Toronto market will (all else equal) have a bit of catching up to the downside at the open tomorrow.

I added a bit more Canadian Tire to my position this morning. 

Markets at first rose on Wednesday but finished the day with the S&P 500 down 0.4% and Toronto down 0.8%.

Most stocks declined including American Express – down 2.0%, TFI International – down 2.15%, Linamar – down 2.9%, and Royal Bank – down 2.1%.

Toll Brothers got hammered down 14.6% to $37.82 after reporting disappointing Q1 fiscal 2020 results. Reported earnings were definitely disappointing. But contracts for new home sales which won’t show up in reported revenues and earnings for nine to twelve months were up sharply. New homes and existing homes are selling in the U.S. at the fastest pace since 2007. And low interest rates should see this continuing in 2020.  The company also bought back a massive 8% of its shares in the latest quarter alone at a average price of $40.73. They are reducing the share count in order to increase the ROE. They have generally been astute in buying back shares at good prices. They indicated they are allowed to resume buying back shares on Friday and it appears that they intend to do so. I thought the price drop was excessive and I added to my position today.

Toll Brothers is updated and rated (higher) Buy at $37.90. It just reported weak figures for Q4 but also reported sharply higher contracts for new houses which will show up in earnings when the houses are completed and “delivered” nine to twelve months from now. U.S. home starts and homes sales are strong and this will be a tailwind for Toll Brothers in 2020.

Tuesday was the second day in a row of headline-grabbing losses in the markets. The DOW was down 879 points or 3.25%. The S&P 500 was down 3.0% and Toronto was down 2.0%.

Some of the bigger losses included: Aecon Group Inc. – down 3.6%, Apple Inc. – down 3.4%, Shopify – down 5.0%, and FedEx down 6.0%, Visa Inc. – down 5.2%, America Express – down 5.7% and CRH Medical – down 8.0%.

Interest rates dropped and the U.S. ten-year Treasury yield fell to a record low of just 1.3%. 

I added just a few Canadian Tire shares today. I will be looking to deploy cash slowly if the markets keep declining.

After the close, Toll Brothers reported Q1 earnings. Depending how you look at it they were terrible or quite stellar. Earnings per share were down a whopping 46%. But Home Builders are relatively unique in that their quarterly earnings are driven by home deliveries that they contracted for an average of 9 to 12 months earlier. In this quarter their contracts were up 31% in units and up 28% in dollars. That means that an increase in earnings down the road is pretty much guaranteed. They may have another quarter or two of losses but earnings are almost certain to rebound sharply later this year due to the strong recent pace of signed contracts. The company has been buying back shares at a voracious pace, reducing the share count by 8% in this latest quarter alone! They paid an average of $40.73 per share. I am now quite tempted to add to my position in Toll Brothers.

Markets were down sharply on Monday on fears about the Coronavirus.

The S&P 500 was down 3.35%. The DOW was down a 3.6% or just over 1000 points. Toronto fared better but was still down 1.6%.

The bigger declines included Visa down 4.8%, American Express down 5.0% and FedEx down 5.15%.

It is very possible that this will be another short-lived dip. Stock futures indicate a a higher opening on Tuesday.

I bought back some of the TFI International that I sold last week and added a little to my Canadian Tire position.

Statistics Canada reported a gain in wholesale sales for December.

Canadian Tire is updated and rated (lower) Strong Buy at $145.44. They had a very strong Q4. There are always risks, but based on the numbers and its history this stock is quite attractive.

On Friday, the S&P 500 was down 1.05% and Toronto was down 0.6%.

The market has started to take notice of the Coronavirus situation and S&P 500 futures are down a further 1.2% as of Sunday evening. It looks like Monday will be yet another non-boring day in the market.

Declines on Friday included: Apple Inc. – down 2.3%, Shopify down 3.4%, Amazon – down 2.65%, AutoCanada – down 3.9%, Linamar down 3.0% (And Linamar in particular could certainly sink further although Magna had a good report adn there are indications that the agricultural sector outlook has improved).

In breaking news Sunday evening, Teck Resources has withdrawn its application for the Frontier Oilsands project. Teck is blaming the withdrawal on opposition to the project and to resource development in general. I did not think this project would go ahead but to see it withdrawn is still disappointing. (Why the project was ever proposed in the absence of pipelines is a mystery to me).  The timing is odd since Teck just released earnings on Thursday and would have announced it then if they intended to withdraw. It’s a fortunate move for Trudeau who is now relieved of the difficulty of deciding whether to approve the project.

What is scary is that this a clear victory for opponents of resource development. They can only be emboldened by this and their clear victories in the railway blockades.

In what already feels like old news, Warren Buffett’s latest annual letter came out yesterday morning. At just 13 pages it is extremely well worth the time to read.

On Friday, Statistics Canada reported sales at Food Services adn Drinking Places for December and for 2019 in total. Overall the sales at full-srvice restaurants actually rose 3.7%. But we know that Boston Pizza had a 2.2% decline in same store sales. And I have figures indicating that the Keg was down 1.5% (through Q3) and the company that owns Jack Astors (and some other brands) was down 3.1%, and the company that owns Swiss Chalet and quite a number of well-know brands (including Montanas, Original Joe’s) was down 3.1%.

So, the publicly traded brands are showing declining same-store sales, even as industry sales are up. Same-store sales growth will always be lower than total industry growth and there are always more restaurants opening. But it may also be that newer non-publicly traded brands are taking market share away from the established publicly traded brands.

TFI International is updated and rated (higher) Buy at CAN $47.03 and U.S. $35.51. This is an excellent company. I sold a good portion of my holdings last week on concerns about the what the Coronavirus (and the resulting sharp slow-down in China) is doing to the goods available to be shipped. I am not sure we should expect much growth in earnings per share this year. Still, this is a very good company and as a result of this update I may buy back some or much of what I sold (luckily it was in non-taxable accounts) especially if I can get it a lower price.

Thursday was a somewhat mixed day in the markets as Toronto rose 0.1% while the S&P 500 was down 0.4%.

AutoCanada was down 3.1% to $12.86. It had recently clawed its way back to highs over $15. But that came after  years of steep declines. I still hold a large position even though I did reduce my position by about half somewhere around this price almost one year ago. Having lost money on this company I am somewhat tempted to buy if it goes much lower in the hopes of making some of that back. I do think its prospects are decent now and that the new management is quite good. But it may never regain its former favor in the market. People view auto dealers as being vulnerable to disruption through direct selling by some manufacturers and due to electric vehicles which require less maintenance. I will probably resist the urge to add to my position.

A number of stocks were down modestly, probably due to the Corona virus risk – Apple, Starbucks and Dollarama.

FedEx has a good day, up 2.3%. As indicated in my recent update, I have lost faith in that company.

Toll Brothers was up 1.7%.

On Wednesday, the S&P 500 was up 0.5% and Toronto was up 0.4%.

Aurora Cannabis was up 3.7%. I suspect there is lots more bad news to come from this company. Time will tell.

CRH Medical was up 4.4%.

Statistics Canada released the latest inflation figures which are around 2.0%. They often get accused of excluding volatile items like food and gasoline. That is completely false. They provide figures with and without the volatile items. Users can choose which to focus on. They also provide tons of detail around the various components in their “basket”.  I certainly don’t think their numbers are perfect by any means. But I don’t have any time for those who believe in conspiracy theories and government manipulation around these numbers.

I am selling over half of my TFI International shares this morning.

Checking the latest rail car loading figures, out this morning: Canada is of course reporting lower car loadings due to the blockade of CN in eastern Canada. The U.S. is also reporting its worst week this year relative to the past three years. Possibly this is due to the timing of the Presidents day holiday (not sure). Or it may be due in past to lower shipments from China. A large portion of the decline is due to coal which is not a concern since that is driven by factors other than the economy.

TFI International has done well lately and may continue to do well. But it may be hit with lower volumes due to the situation in China and so I decided to sell much of my holdings. This will raise cash. I sold much of what I held in non-taxable accounts but did not sell some I hold in a taxable account. I have a very high opinion of the management here but nevertheless decided to take some risk off the table today.

Stock markets were closed for a holiday on Monday.

Tuesday was yet another interesting day in the markets. The S&P 500 was down 0.3% while Toronto was up 0.1%

Aurora Cannabis bounced up 5.8%.

lululemon was up 1.9%.

Apple Inc. was down 1.8% after warnings that its Q1 results will be harmed by the Coronavirus situation.

Canadian Tire was up 1.7%.

Boston Pizza Royalty units were up 3.4%. It seems that the recent reduction to its cash distribution per unit had already been  “priced-in” (or somewhat more than priced in, possible the market had feared an even bigger cut would be made). 

Dollarama was down 4.6%.

Linamar slipped another 2.3%.

Andrew Peller was down 2.1%.

CRH Medical was down 3.4%.

The long weekend brought big news when Bombardier announced it a deal to sell its Train division to Alstrom for $8.2 billion. The deal will not close until some time in 2021. The company emphasized that this will allow it to pay down debt. The company indicated that they got a strong price. But there was no mention of whether the transaction results in a gain (sale at more than book value) or a loss (sale at less than it is on the books for). I listened to the conference call and no analyst even asked if there was a gain. BNN television interviewed the Bombardier CEO and did not ask if there was a gain. It strikes me as very strange indeed that there is no mention of a gain or loss. Bombardier’s balance sheet is very weak. It’s book value per commons share is negative $3.36. Its liabilities exceed its assets by $8 billion. This transaction cannot possibly fill that hole. 

Which is probably why the shares fell 9.7% on the news. It’s not clear to me why the shares are worth anything at all. The pref shares rose 6.0%. These shares yield 10.2% which is indicative of the risk. Even though Bombardier has a negative net book value, the cash from this sales gives more confidence that the preferred share dividend will continue to be paid.

There was talk that Bombardier would also sell its private jet business. That is now off the table. If they sold that the company would presumably be gone and be liquidated. I strongly suspect that if they did, the result would be less than a $1.00 for each dollar of unsecured credit and zero for the common and pref shares. Bombardier in the last 20 years has made money for its executives and its debt investors and its pref share holders (pref share price is down, but there have been strong dividends). Its common share holders have experienced big losses over that period. Even the family as owners have experienced big losses – although a couple of family members saw their losses offset by executive pay. The family has other investments including the ownership they retained in the recreational products division that was sold off years ago. Overall, though I can’t imagine that family gatherings are very friendly. The members of the family that are executives (or were) have lost hundreds of millions of dollars for the extended family. It’s what happens when you let your (apparently) idiot nephew /son run the company. Very sad.

In other Canadian news rail traffic has been disrupted by protests. 

Also the mortgage stress test will no longer be based on the average of the “posted” 5 year rate at the big banks. That posted rate was basically a fake rate that was very seldom charged and NEVER should have been the basis for the stress test.

On Friday, the S&P 500 was up 0.2% and Toronto was up 0.15%.

AutoCanada was down 3.4%.

Canadian Tire was up 1.8%. No word on whether Big Short guy, Steve Eisman will give up on his short position.

Aurora Cannabis bounced up 5.1%. 

Penny stock Ceapro was up 7.1% (only 2.5 cents) after announcing it will test ways to deliver cannabis faster to the blood with its proprietary technology.

Linamar was down 2.%% to $42.71. Unfortunately it may be having a bad and worsening quarter due in part to the Corona virus.

Checking the railcar loading figures that came out Wednesday (so that was for the previous week): The U.S. traffic slowed again and the clear picture on the graph is that 2020 is running mostly just below the levels of the past few years. For Canada the picture is that 2020 is similar to the average of the past few years. It appears the rail car loadings in Canada for this week will be a lot lower due to the illegal protests and the lack of enforcement of injunctions against the protesters. 

There was lots of news in the markets on Thursday including after the close.

Overall, the S&P was down 0.2% and Toronto was down 0.1%.

Boston Pizza held up surprisingly well after its reduction to the distribution per unit. It was down 2.8%.

TFI International was up 5.5% to $48.05. I don’t know why it is gaining. It announced that it will sell 6 million shares all or mostly in the U.S. to get a U.S. listing. The price is the equivalent of $44.20 Canadian. Normally a share issue has to be a bit below the previous trading price and that pushes the share price down. Here the market may be excited about getting a U.S. listing. But getting a U.S. listing will not necessarily result in a higher price. I suppose it does create a larger potential demand for the shares. But logically, the shares are not worth more just because of a U.S. listing. In any case, the gain is welcome news.

Aurora Cannabis announced a big loss after the close.

Constellation Software announced results that will probably disappoint the market.

Toll Brothers announced a small acquisition. This was after the close of trading.

CRH Medical was down 2.3%.

Canadian Tire released earnings and rose 1%.

Bombardier announced a big loss and the sale of the remainder of its “C Series / A220 plane segment. It seems the market was relieved that they got about $600 million. That was a lot less than it book value but at least was something. The stock rose 10 cent or 6.4%. There is speculation they will sell other major major divisions (in total amounting to it seems the entire company). Unless those are sold at a major gain, its not clear to me that the stock is worth anything. 

Meanwhile CN is shutting down its eastern Canada system due to (illegal?) protests. This is not good for either CN or the economy. 

The Corona virus situation continues to worsen. 

Tomorrow should be another interesting day in the markets.

Boston Pizza Royalties units have announced Q4 results along with the feared and not surprising cut to the distribution. They are cutting by 11.3% from 11.5 cents per month to 10.2 cents.

This would bring the payout ratio down to about 95% from the trailing year (unsustainable) 105%.

On the one hand the yield will remain quite attractive at the recent price around $14.00. And the fund has the ability and plan to buy back some units especially if the price falls on this news.

On the other hand the restaurants appear to be losing market share. This could cast a shadow over the business that will make entrepreneurs reluctant to open a BP. We could see closures that would further pressure distributable cash per unit.

Overall, it is probably not wise to be over-exposed to this name. Still, I might be tempted if the price drops to $12 or lower. The yield is good. But fundamentally the business has weakened and there is no assurance it will resume growth. On the other hand unless there quite a few closures, then the business should continue to generate good cash flows. It may well be that this reduction will be “once-and-done”.

On Wednesday, the S&P 500 was up 0.65% while Toronto was up 0.3%.

Shopify was up 7.7% after releasing its Q4 report.

Heineken was up a hefty 5.2%.

Apple was up 2.4%.

TFI International was up 4.4%.

What can be said except, “let the good times roll”?

On Tuesday, markets were relatively little changed with the S&P 500 and Toronto each up 0.2%.

Aecon Group was up 2.2%. 

Bombardier continues to circle the drain down as it fell 5.3% and its preferred shares were down 9.6%. Sad. Mostly self-inflicted problems. Sadder.

Couche-Tard was down 2.5%.

Q4 earnings continue to come in. Shopify reports tomorrow and is expected to show a big increase in revenue to justify its share price.

On Monday markets were up. The S&P 500 was up 0.7% and Toronto was up 0.5%.

Amazon was up another 2.6%, and Shopify was up another 2.7%.

Restaurant brands was up 3.1% after releasing earnings and same store sales. Tim Hortons however had a decline in same store sales. And judging by online comments, Tim Hortons has really fallen from grace. A lot of negative comments. 

TFI International is doing a U.S. listing  and released earnings that were somewhat mixed but probably good over all.

On Friday, the markets gave back a little of the big gains of last week. The S&P 500 was down 0.5% and Toronto was down 0.6%.

Linamar was down 4.2% probably due to its exposure (so to speak) to the situation in China.

Auroa Cannabis was down 15.2% which was due to its deteriorating outlook.

BHP was down 3.0% which may be due to the fact that it sells a very large portion of its production in China.

FedEx was up 4.7% after announcing it will lower its costs by having its FedEx ground division handle the final deliver to residential customers for its FedEx (air) Express segment. Possibly, I was hasty in giving up on FedEx but I’d like to see some actual better results as opposed to more announcements that things will get better. 

Our report on Toll Brothers (the U.S. luxury home builder) is updated and rated (lower) Buy at $47.27. Its home sales have been increasing since early last Summer but contracts to build a home do not show up in revenue and earnings until the home is built and turned over to the customer an average of nine to twelve months later. This stock is up an impressive 31% since our last update on August 23.

Aurora Cannabis is down 16% to $2.25. It was about $2.60 yesterday. Last night I said I would not be surprised if it went under $1.00 on this news. When i said that I was somehow thinking it was at about $1.60. So I should have said more like under $2.00. Anyhow, the balance sheet is weak and it remains a very speculative investment. I’ll take another look when their earnings come out. Given its debt and lack of earnings it could go broke. Or perhaps profits will come as the Ontario retail stores are added. Or perhaps it will get bought out.

Not too surprisingly, Linamar is down 3.7%. This has proven to be a very volatile stock and is now getting hit by the risk of what the coronavirus situation is doing to its sales and prospects. It’s got a forward P/E of an attractive 6.1 but that likely needs to be adjusted upwards. 

On another topic, the yield on the 5 year government of Canada bond has declined from 1.72% in December to 1.36% as of now. But the rate reset preferred shares that I follow seem to have held up quite well. On the one hand if the 5 year bond stays low, then these rate reset shares will reset at lower rates. On the other hand if market rates are lower (including on new issues of rate resets) then these shares can remain attractive. On our list is a Canadian Western Bank one and an Enbridge one that trade at about $18 and $17 respectively and that yield close to 6% and will not reset for over four years. That seems attractive for the fixed income portion of a portfolio, particularly in taxable accounts where the dividend tax credit applies. They could drop in value but they could also increase. And they will pay that approximate 6% yield reliably.

Yesterday, Intact Financial issued a perpetual preferred share at 5.4%. This issue sold out so is no longer available. This is not a rate reset. Unfortunately, Intact has the right to redeem these at prices starting at $26 at anytime before March 2026 and dropping gradually to $25 as of March 2029. So that limits the upside. But 5.4% could be considered attractive to lock in a fixed income. (But note the redemption right so your return is not completely locked in.) The risk would be a capital loss if interest rates do eventually rise substantially. This is the first issue of a perpetual preferred share that I have noticed in a very long time. Those interested should be registered to receive alerts of new issues as more of these issues may come along.

On Thursday, U.S. the markets cooled down just a bit. But the S&P 500 was still up 0.3%. Toronto was up 0.6%.

Couche-Tard was up 2.7%.

TFI International was up 1.8%

Aurora Cannabis was halted for news for much of the trading day. Then, after the close, they released a lot of news. They have a new CEO. They will cut a lot of staff. They will cut expenses. They will take a big write-off. I would certainly not be surprised to see the stock under $1.00 tomorrow but really who knows? I had added it to the site on January 5th and decided not to put a rating on but I noted concerns. On January 6th I said it might possibly be circling the drain.

I’m somewhat concerned that a good part of the reason for the surging U.S. stock market is that interest rates are expected to drop due to concerns about the impact of the coronavirus on trade and economic activity. Sure, lower interest rates are good for stock prices; but is the market paying enough attention to the impact that the coronavirus fears and trade-slowdown will have on corporate profits?

For that reason and becasue I have only a small allocation to cash, I trimmed a few positions this morning selling just a portion of my relatively small position in CN Rail as well as a small portion of my larger positions in Canadian Tire and Stantec. All sales were in RRSP accounts where there are no income tax implications.

January auto sales for Canada were announced this morning. Overall light vehicle sales were up 0.5%. Welcome news after the declines in almost all months of 2019 and many months of 2018. And so-called light-trucks (mostly SUVs) continue to gain market share – and are more expensive than “cars”. Overall, auto dealers should be making more money this January compared to 2019. And the brands that AutoCanada are most exposed to (FiatChrysler and GM) did better than average.

Markets continued to be “on fire” on Wednesday. The S&P 500 was up another 1.1% and Toronto was up 0.8%.

Some of the notable gainers included:

Toll Brothers up 6.2%.

AutoCanada up 6.6%.

CRH Medical up 4.2%.

Linamar, up 2.7%.

With the markets roaring ahead, it might be prudent to trim some positions especially stocks that have become too large a portion of a portfolio.

Linamar will definitely see a negative impact in Q1 of the Coronavirsus both due to its sales in China (which is a far smaller market for it than North America and Europe but still…) and due to problems it will have getting shipments from its factories in China out. Linamar has six factories in China.

I added a little to my position in Couche-Tard today.

The latest rail car loading statistics are out. The latest week showed a strong rebound in traffic in the U.S. versus the prior week. However, the total is still below the 2017 and 2018 levels for same week but was above the 2019 level. The rebound was driven by Inter-modal, Forest products, metallic ores&minerals, and motor vehicles.

Canada, you may recall, had been relatively stronger in terms of rail car loading growth or decline for most of 2019 and into 2020. In the latest week the loadings were up noticeably in Cananda and are higher than the levels in the same week in any of the past three years. There was strength in inter modal, and particularly in petroleum and also metallic ores and minerals.

P.S. Our one Penny Stock company, Ceapro announced that its clinical trial of beta glucan as a cholesterol reducer will now include the use of beta glucan alone. Previously the study was going to always combine the beta glucan with staten drugs. This is a good change because beta glucan is a natural product. Ceapro has proprietary technology to extract beta glucan from oats and put it into pill form. Although the press release did not say so, I was able to confirm that some patients are already enrolled in the drug trial. But, for some reason some patients will not begin the trial until almost a year from now. Any results from this trial are probably at least 18 months from now if not longer.

Costco announced January same-store sales figures after the close. It was another strong month with a gain of 5.3% year over year in same-store sales. This was after adjusting for volatile gasoline prices and for foreign exchange fluctuations. This continues a long strong of excellent same-store sales gains. What is not known is how much of it is related to higher prices versus higher volume. In any case this is a positive report.

FedEx is updated and rated Sell at $149.20. The company is projecting lower earnings for the next two quarter and then a recovery. I have basically lost faith as management has failed to meet its own projections for a long time. Perhaps they will turn things around. But they have been stumbling for quite some time. I sold the few shares I owned.

Markets were basically “on fire” on Tuesday as the S&P 500 rose 1.5%. Toronto was up 0.8%.

Accordingly, most stocks were up. Some of the notable gainers were:

Starbucks – up 2.8% – and that’s despite the fact that half its stores in China are closed.

SNC Lavalin  – up 6.0%. I had a few shares as a speculative bet and sold the shares I had in a TFSA today. I will likely keep the few shares I have in a taxable account.

Aecon was up 3.5%.

Fortis Inc. was down 1.9%. 

The horribly-managed Bombardier bounced up almost 18% on reports it may sell its Executive Jet business. The problem is that with all its debt if it sold off everything there might not be any net cash left for share owners. Even its preferred shares are risky. 

Tesla has been rising parabolically. Days like today are why the average person views the stock market as more of a casino than a way to way to profit from accumulated retained profits and dividends over time.

Perhaps tomorrow, the market will turn its attention to the economic drag that the Coronavirus is causing.

On Monday, markets recovered some of the losses from Friday as the S&P 500 rose 0.7% and Toronto rose 0.35%.

AutoCananda ws up 5.8%

CRH Medical was up 5.0%.

Aurora Cannabis was up 6.4%.

lulu lemon was up 2.9%.

Market movers this week will include the Coronavirsus and various earnings reports. It’s not clear that the remainder of the impeachment hearing or the State of the Union Address will have an impact. And it’s probably too early in the process for the results of the Iowa Democratic leadership vote to have any impact.

On Friday, the markets finally took notice of the coronavirus. The S&P 500 was down 1.8% and Toronto was down 1.0%.

It may be be that the coronavirus will never become a truly serious health threat. But it could nevertheless pead to an economic slowdown.

On Friday some of the bigger decliners included:

Apple – down 4.4%. BHP down 3.3% (a very large proportion of their sales are to China)

Linamar – down 2.8%. (They have some manufacturing in China and also are always affected by slow downs in trade and movements across borders).

Visa was down 4.4% due a weaker outlook (no related to the virus, but no-doubt exacerbated by the overall market decline)

Amazon was up 7.4% after a very strong earnings release.

I mentioned a few days ago that Boston Pizza had extended its credit lines on favorable terms and now has the ability to buy back some shares if it chooses to. (But they may need to seek permission from the TSX first.) It remains very possible that they will have to trim the distribution and so caution is warranted. I’m really not sure it was wise but I added a bit to my position on Friday. If the distribution does have to be trimmed then the units would almost certainly drop in price, possibly over-reacting to the downside. It’s mostly going to depend on whether or not they can show some same-store sales growth. 

If markets do drop, it will certainly be beneficial to have some cash to take advantage of lower prices.

On Thursday, the market decided by the end of the day that the Coronavirus was no reason to sell stocks. The S&P 500 was up 0.3% while Toronto was down 0.1%.

CRH Medical was down 4.7% giving back some its recent gains.

Amazon was out with a strong earnings report after the close and appears set for a possible double digit rise tomorrow. Visa was out with earnings that met expectations but apparently a weaker outlook. 

On Wednesday, markets were higher most of the day but weakened near the close. The S&P 500 ended the day down 0.1% while Toronto was up 0.1%.

Autocanada added 5.1% as analysts must have liked its recent news.

Stantec was up 2.6% to $40.06. That’s a great recovery from lows around $28 jut four months ago. But Stantec had also approached $40 way back in August of 2014 and so the new high has been a long time coming.

Apple was up another 2.1%.

The latest rail car loading figures were out today. These are considered a good indicator of economic activity.

In the U.S. rail car loadings in the latest week were noticeably below the levels of the corresponding week in each of the last three years. In Canada, rail car loadings rebounded from a weak showing last week and are running slightly above the levels in the corresponding week in 2019. Apparently, at least when it comes to goods movements, the Canadian economy is doing better than the U.S. Click through to see the graph and you can look at the results by Country adn by commodity.

On Tuesday the markets shrugged off much of yesterday’s fears and the S&P 500 was up 1.0% while Toronto was up 0.3%. This pushed most stocks up.

AutoCanda was up 14.9% after announcing that its lenders have extended its lines of credit by three years. The company will also redeem early $150 million in bonds that pay 5.625%. Largely, this will be financed with a new $125 million bond presumable at a lower interest rate. I think the early redemption is a sign of strength. The company also had other news indicting that its sales in Q4 were modestly higher than the prior year. And it is apparently no longer trying to sell four of its U.S. dealerships because they are now performing better. Overall, I suspect this news has now been reflected in the stock price and it may give back some of these gains as we await the final Q4 numbers. I still hold a large position in AutoCanda after having reduced the position last year. I plan to hold that position and may or may not add to if the stock dips from here.

A number of companies reported earnings after the close. These included Apple and CN rail. Also, Starbucks which had a very strong report. Where these stocks move tomorrow depends on how the results compared to expectations as opposed to how they compared to last year’s numbers. 

Om Monday, markets declined due the Corona virus threat. (And possibly due to John Bolton saying that the President did in fact withhold aid in an effort to get Ukraine to investigate the Bidens.)

The S&P 500 was down 1.6% and Toronto was down 0.7%.

Most stocks were down. Those more involved in trade and travel were hard hit including Airlines. 

FedEx was down 3.6%.  

Alimentation Couche-Tard though was up 2.4%. I did not see any news to explain why it was going up on when most stocks were down.

As of 7:30 pm eastern, futures were suggesting a slight gain.

The market was (and is) vulnerable to a pull-back simply because it has risen so much. For that reason and due to the nature of the Corona virus situation it is very hard to say how much the market will decline. I am not inclined to sell anything. I am inclined to watch and possibly deploy some of my small cash position. 

On Friday, markets had (a rare) down day as the S&P 500 ws down 0,9% and Toronto ws down 0.3%. 

This was related to the new Coronavirus. It’s probably anyone’s guess how badly that will continue to impact the markets or whether it will turn out to be a non-event for the markets.

Most stocks were caught in the down draft.

American Express was an exception as it rose 2.85% based on its Q4 earnings report.

After recently updating my own portfolio composition I looked at how large a component Toll Brothers had become after its recent strong gains. I decided to trim that in non-taxable accounts and ended up selling what amounted to 31% of my total position in Toll Brothers. It still remains one of my largest positions.

On Friday Boston Pizza announced that it had extended its credit lines on better terms. There was a lot of complicated detail but in summary they said: “The amended and extended credit facilities provide both the Fund and BPI with lower fees and interest rates along with more favourable financial covenants.  Also, the borrowing capacity of the Fund’s credit facility was increased by approximately $6 .7 million to enable opportunistic NCIB purchases,” 

This all sounds quite good. It’s hard to imagine that they would get these better terms if they are  (as the market apparently fears and I somewhat fear) about to cut the distribution. But I have been fooled on that before where a company gets good borrowing terms and then reports poor earnings. (It happened with AutoCanada and I believe CRH Medical a few years ago). Lenders are first in line for cash flows and so they might feel safe even if cash flows available to unit holders will be down somewhat. But overall, the announcement looks like good news. They could do some share buy backs which are accretive to distributions per unit. They have done that in the past but had fully used up the borrowing capacity that was dedicated for that purpose. Now they have added capacity and presumably they view the units as under-valued.

Stantec is updated and rated Buy at $39.10 in Toronto or $29.71 in U.S. trading

Stantec had been a fantastic investment for many years but then was hit hard by the recession in the Canadian energy sector starting in 2014 and then by its own mistakes when it acquired a risky construction services segment in 2016 as part of a much larger acquisition. It divested that problematic division in late 2018.

Finally with its Q3 results released on November 7 it got back on track and more or less emerged from the doghouse. I noted in my November 7th comment: “Stantec was up almost 16% after reporting Q3. It may well rise more as it has likely earned its way out of the penalty box. With “weak comparables” it should be able to report good gains for the next several quarters. Hopefully it is back mostly on to track of the kind of performance it used to post prior to its problems with the now divested construction services business it had purchased (as part of a larger transaction) a few years ago.”

Stantec then released a new 3-year strategic plan on December 7 with a strong focus on earnings per share growth.

Since the Q3 earnings report and also since our last update on August 10, Stantec is up 37%.

Despite the recent gains, Stantec appears set for further gains and remains rated Buy.

Despite some fears about the new virus in China and despite the impeachment hearing, the markets were little changed today. The S&P 500 and Toronto were each up 0.1%.

Toll Brothers was up 2.4%. Rate reset preferred shares were down somewhat due to the potential for a Bank of Canada interest rate cut later this year. The 5 year Government of Canada bond yield is down to 1.43% (it had  reached 1.7% in December). This is keeping mortgage rates down as well.

The break down of my own portfolio has been updated.

On Wednesday, markets were initially up noticeably but at the end of the day the S&P 500 was about unchanged and Toronto was up 0.1%.

Stantec was up 1.1% and has been rising steadily after it had jumped with its Q3 earnings report around November 7th. It’s at an all-time high which comes after several years of being “in the dog house” due problems they had inherited in one of their big acquisition several years ago.  Hopefully, their Q4 results will not contain any material negative surprises to derail the story here.

Couche-Tard has just raised U.S. $1.5 billion dollars in debt with half at 2.95% in ten year bonds and half at 3.8% for 30 year bonds. In both cases this is senior unsecured notes. It’s hard to have a feel for such large numbers but it seems to me that the ability to borrow that much money on those terms is definitely a sign of strength and confidence. At least some of the money will go to debt repayment but its very possible (or probable) that some of it will be used for a major acquisition.

It’s Wednesday and so time to look at the latest rail car loading statistics: U.S. rail traffic is weak with traffic running below the levels of each of the past three years. Significantly lower coal shipments explain part of the weakness and that may simply reflect the reduction in coal electricity generation due to cheap natural gas and more environmentally favorable generation. The only categories showing strength are petroleum and chemicals. Overall, it does not paint a picture of a growing economy.

In Canada the latest week was also weak and comes after a strong showing in the prior week. Possibly a bit of a timing difference. Chemicals were weak. Coal fell off a cliff. Forest products were weak. Grain was weak. Petroleum was strong but not as strong as the prior weak. Overall it looks like Canada has joined the U.S. in showing weak rail car loadings, at least for this latest week.

Statistics Canada reported sales at “food services and drinking places for November“. The numbers seem quite strong with a year over year gain of 3.6% for full service restaurants. This should bode well for Boston Pizza although we would not expect their same-store sales growth to be 3.6% given that the 3.6% is total industry sales growth (which includes new locations) not the average same store sales growth and given that it seems that Boston Pizza was lately losing relative market share. Still, overall this report gives added hope that BP has had a good Q4.

Statistics Canada also reported weak figures for November wholesale trade. 

With stocks at record highs and the economy sort of sputtering, it seems to me that some caution is definitely warranted.

On Tuesday, markets gave back a little bit of ground as the S&P 500 0.3% and Toronto was down 0.1%.

But Costco was up 2.8% (probably due to positive analyst reports as there was no news from the company itself).

Constellation Software was up 3.3% also with no news from the company itself.

Shopify was up another 2.0%.

Heineken was down 2.9%.

Andrew Peller was down 2.7% and is at a 52 week low for those who like to bargain hunt. As noted in our report, it is a tough business.

Restaurant Brands was up 1.5% in Toronto.

Statistics Canada reported that manufacturing sales fell 0.6% in November. Part of the reason for the decline was the CN rail strike that prevented goods from moving. Therefore we should not read too much into this result. But it was also the third straight month of decline and so certainly manufacturing has been fairly weak.

Statistics Canada also reported that investment in building construction was about flat in November.

Monday was a quiet day in the markets as U.S. markets were closed for the Martin Luther King holiday.

The Toronto index was up 0.2%.

Boston Pizza units were up 2.6% to $14.83. BP has been running television ads promoting free delivery (if you use promo code free) for a limited time. This should provide some benefit to same-store sales. 

Couche-Tard (as it is usually referred to as) is updated and rated Buy at $44.43. It recently had a two for one share split. The company has been a fantastic buy-and-hold investment. It does exhibit volatility when fuel price margins decline and of course when the overall market declines. Those have been buying opportunities. It has credible plans to continue to grow its earnings. There are risks including added restrictions on tobacco / vaping products which represent 11% of its gross profits and also the conversion to electric vehicles is a longer term risk. But overall, the shares continue to look attractive at this time.

On Friday, the markets continued their seemingly relentless climb as the S&P 500 and Toronto were each up another 0.4%. For the moment it seems that the market knows no fear. But we can be sure that something will spook the market at lest mildly before too long.

Heineken was the top gainer among the stocks on our list, rising 2.2%.

Visa was up 1.9%.

Restaurant Brands was up 1.8%.

BHP was up 1.9%.

Toll Brothers fell 1.0% despite a report that showed that new home building in the U.S. rose 17% in December to a 13 year high. Single-family home starts were up 12% but permits (indicative of future starts) were down 0.5%. It was suggested that some of the strong results in December resulted from unseasonably warm weather . (That has probably reversed in January). Overall, it seems that the home building sector in the U.S. remains out of fashion with investors and is seen as risk. Toll is trading at a forward P/E ratio of 10 which is quite low compared to many stocks.

Bombardier was down another 8%.

Apparently they may face a large write-down on their C-Series (now A220) plane and the partnership with Air Bus. Back when they sold half the C Series project to Air Bus I questioned why there was no write-down. How could the half they retained be worth a few billion when they just sold half for nothing? It seems to me that if they now write-off the C Series / A220 then the question will be, why did the auditors not require that write off in 2017? I don’t like class action lawsuits but this will almost surely be grounds for one.

The U.S. stock markets are basically “on fire”. The S&P 500 surged another 0.8% today! Toronto managed 0.4%.

Many stocks on our list were up between 1 and 2%.

A big loser in Canada today was Bombardier, down 32% to $1.22. It reports in U.S. dollars and is now a penny stock in U.S. dollars. How sad.

It’s no longer on our list and has not been for several years. I have documented in the past the seemingly little-known fact that its own books have shown it was basically broke for years. It has long had a negative book value per share. My past remarks about Bombardier in these comments can be found using the search feature of this site. There was a time years ago when I did have hope for the company.

With the latest bad news from the company it is terrible to see that Pierre Beaudoin (who presided over most of the ruin) stays on as executive chair and that Alain Bellemare who failed to fix things in several years as CEO are allowed to keep their jobs.

It is most unfortunate that this weak company was not in a position to continue with the C-Series plane. By all accounts that is a wonderful plane. And with Boeing’s problems, the orders for that plane in the hands of Air Bus will likely soar.

Wednesday was yet another strong and record day for the stock markets. The S&P 500 was up 0.2% and Toronto was up 0.4%. 

Aurora Cannabis was up 15.5% as there has been some good earnings reports from other Cannabis companies. Aurora remains risky due to its debt.

Toll Brothers was up 2.9%.

Visa was up 1.9% after announcing an acquisition yesterday.

As you may have seen, Boston Pizza is running television ads featuring free delivery. That should help their sales.  It is the franchisees that have to absorb the cost of free delivery; the royalty per dollar of sales is unaffected.

So far, I had not seen evidence that Boston Pizza International was very concerned about the lower sales. I would have thought they should be VERY concerned about any potential cut to the distribution. It would presumably be hard to sell new franchise locations if potential owners saw that weak sales were causing a distribution cut. This new promotion may mean they are taking action to insure that a distribution cut is avoided.

Today, West Texas oil was $58.60 while Western Canadian Select was $33.50. That is a discount of U.S. $25.10. There will always be some discount due to the different grade of oil and the different location. But this “spread” has once again “blown out” to a figure that is costing the Alberta oil producers a lot of money. And also, Alberta is losing out on royalty income and both Alberta and Canada stand to collect less in income taxes.

Parties benefiting would be those buying the Western Canadian crude and also if there are any non-producers who had arranged to purchase cheap in Alberta and ship to the higher value markets in the U.S. In this scenario the rail roads should also be doing well. Apparently oil by rail is way up so I am not clear why the discount has widened again. The government may have to ratchet up the production curtailments that the NDP had originated. The Conservative government has been easing the curtailment. There has also been no news on how much oil is being shipped under the rail contracts that the NDP agreed to and that the conservative government is trying to sell to the private sector. That oil was supposed to start moving as early as last July but as far as I know none was moving on those contracts as of December. 

It’s Wednesday, and therefore time to check out the latest rail car loading statistics to see if the real economy is keeping up with the gains in the trading markets.  

Let’s see: In the U.S. rail car loads in the second week of 2020 was about 500,000 carloads versus 550,000 last year. So a big drop. However last year the second week had spiked higher. But the 2020 number is also slightly below 2018 and 2017. Definitely does not show strength in the part of the U.S. economy that involves movements of goods. Petroleum and chemical carloads were up. All other categories were flat or down. 

In Canada, total carloads in week 2 were somewhat below the 2019 level (however week 2 in 2019 was particularly strong, so a tough comparable) but nicely above the 2018 and 2017 levels. This indicator suggests the Canadian economy is moving goods at a fairly similar volume as last year.

On Tuesday, the S&P 500 took a tiny breather from its gains and was down 0.15%. Toronto was up 0.3%.

Couche-Tard was up 1.7%. This will be the next company updated on the site.

Toll Brothers was up 1.9%.

AutoCanada was down 3.1% to $10.87. 

The U.S. / China Phase I trade deal is to be signed tomorrow. With the U.S. apparently not removing tariffs for another ten months it sounds to me like the market will end up disappointed with this deal. Trump would claim China is paying for those tariffs. CNN would claim it is clearly U.S. consumers / importers that pay – which is true in form but perhaps not in substance.  The truth is somewhere in the middle. The U.S. importers do pay the tariffs. But China devalued its currency and in many cases the prices were lowered. That would mean that the net cost to Americans did not increase. If so, then indeed China is in substance paying the tariffs. 

Monday was yet another strong day in the markets as the S&P 500 was up another 0.7% and Toronto was up 0.3%.

The S&P 500 has risen steeply and steadily for over 12 months now. It can’t keep that up indefinitely of course. 

lululemon was up 4.4% after upping its guidance for the current quarter that will end on February 2nd. It’s products are popular and can’t be purchased anywhere else. That’s been a recipe for profitability.

Apple was up another 2.2% and Shopify was up another 2.5%.

There seems to be a pattern of the strongest companies getting ever stronger even as weaker companies go broke.

Stantec was up 2.2% to $38.58. Stantec has had a very good recovery in the past ten weeks from the $28 range. This came after it released Q3 numbers and after it apparently but much of its troubles of the past two years behind it.

The U.S. is set to sign a Phase I trade deal with China on Wednesday. I suspect most of the upside from that has already occurred.

The Q4 earnings reports start to roll in this week as the big banks there start reporting. The banks should do well. Banks rarely fail to make money.

With some trepidation (given its history), I have updated the report on Shopify and rated it Sell at U.S. $429 (or Canadian $560). This Canadian-headquartered company reports in U.S. dollars and does most of its business in U.S. dollars and therefore it is appropriate to analyse this company in U.S. dollars .

Shopify is an incredible success story. The founders and management are to be highly commended.

But the valuation is very rich. It is trading at 33 times sales per share. Adjusted earnings in the trailing year are 4.8% of sales. If it is assumed that bottom line earnings would be more like 33% of sales if a large part of R&D and marketing were treated as capital expenses rather than current expenses, then it would still be trading at 99 times earnings. The forward P/E based on analyst earnings estimates is 466.

It is probably possible to project out years and years of 40% growth and earnings growing as a percent of sales and the P/E remaining high and therefore justify the stock price. But it seems like that requires heroic growth assumptions.

The price has been rocketing higher and is up another 3.5% to U.S. $444 even as I post this. So, the market may make me look dumb for rating it a sell. But that is what the numbers strongly suggest to me.

I would also note its history of selling shares. Based on that history we might soon see it make another share sale. That has been a good strategy and has given the company an enormous war chest of cash.

With an ever higher share price, insiders have become enormously wealthy by selling off just some of the shares they receive in stock options or that they bought years ago at far lower prices.

On Friday, the S&P 500 was down 0.3% while Toronto was basically unchanged.

Aurora Cannabis was down 11.2% on analysts comments about its debt and lack of profitability.

AutoCanada was down 3.0%

CRH Medical was up 2.5%.

The December jobs report for Canada was strong. But it was not even a full rebound from the big reported job losses in November. Given the volatility of the numbers it will take another month or two to know if the employment market remains healthy (which it appears to despite the poor numbers in November). I always emphasize that the jobs report is a household survey that has an inherent (fairly large) statistical error range as well as other possible errors (never a perfect random sample and respondents may have difficulty even defining themselves as employed or looking for work or not – For example, is someone collecting a pension but working part-time unemployed if they lose their part-time job?).

The next update will be for Shopify. I had put it on the site last January but had declined to put a rating on it other than to say it was highly speculative. Now, at 33 times sales and 566 times forward estimated earnings, I am prepared to call it a Sell. Those holding it should considering selling at least some and harvesting gains.

Our report on Apple Inc. is updated with a rating of Weak Buy / Hold at $309.63.

This company was added to the site last January 23 rated Speculative Buy at $153.92. The report high lighted the attractive P/E of 12.9 but also noted that it was then expecting a weak Q1 report.

Amazingly, the stock has almost exactly doubled since then while (and this may be news to most) its earnings per share were completely flat (despite a lower share count). The trailing P/E ratio doubled to a now expensive looking 26. It seems the market looked past the poor earnings growth of 2019 to focus on the the forecast growth from services and new iPhone version releases. The stock also rose along with the market in general.

It did seem odd that a powerful company like Apple had such a low P/E ratio. And that had been the case for years. So, perhaps the rapid increase in the P/E ratio was mostly justified.

Apple of course remains a powerhouse and will continue to grow. Analysts are expecting to see reasonably strong growth when it reports earnings on January 28. But it does seem expensive at this point.

I bought a small amount last January and sold half of it a few weeks ago (too early) and the other half today (for a 99% gain in an RRSP account). Quite possibly I should have kept this high quality company. I will be interested in buying back in if there is a significant dip in the price.

Thursday was a strong day in the markets as the S&P 500 rose 0.7% and Toronto rose 0.4%.

The great majority of stocks were up including:

Aecon Group, up 2.5%

Apple, up 2.1% (I plan to post an updated report on Apple tomorrow)

Shopify up another 3.0%. 

Linamar, up 3.2% (Surprising given its recent press release about the declines in industry volumes in the the industries it competes in. Perhaps the market is focusing on the benefits of trade deals expected to be signed soon.)

CMHC posted data on new home starts for December. The figures I am most interested in are single family home starts in Alberta. Alberta single family home starts were up 19% versus 2018 (which was no-doubt a weak month). Edmonton was up 2% while Calgary was up 58%.   For the year, Alberta single family home starts were down 12%. But this data as well as the data for each month since September is encouraging.

Meanwhile, Statistics Canada reported single family building permit data for November. For Alberta, it showed a 10% gain versus 2018, also encouraging – although 2018 was a particularly weak comparable period. And, overall building permits in Alberta were down 9% which was not encouraging.

On Wednesday the markets seem to have concluded that the risks of the Iran U.S.A. spate have largely dissipated. (That, of course, may or may not turn out to be correct.)

The S&P 500 surged 0.5% while Toronto was about unchanged.

Linamar was down 4.55% to $46.52. That was a fairly muted response to the news it released yesterday.

Canadian Western Bank was up 2.4%.

Penny stock Ceapro was up 8% to $0.40.

After the close, Costco released stellar same-store sales growth figures for December. In the U.S. the figure was 9.0% or 8.4% after factoring out changes in gasoline prices. That is huge growth. Costco does not break that out to price and volume. It’s possible that inflation is a significant part of the growth. But it seems more likely that it is mostly volume. This is an indication of the strong U.S. economy. It also likely indicates that Costco continues to take market share from competitors.

Those comments also largely apply to Canada where same-store sales growth was 6.0% in Canadian dollars and with gasoline price fluctuations factored out.

At its last update Costco looked very expensive to me. But this kind of growth can justify a lofty P/E ratio.

Rail traffic figures are out for the first week of 2010 (which actually covers December 29th through January 4th. In the U.S. traffic was down what appears to be a couple of percent versus the first week of 2019. And note that rail traffic was down throughout 2019 and got worse as the year went on.

In Canada, rail traffic was up slightly versus the first week of 2019. Canadian rail traffic had been fairly stable most of 2019 (versus 2018) but was weak in Q4.

These rail traffic figures seem at odds with the strength of the stock markets.

https://www.aar.org/data-center/rail-traffic-data/

On Tuesday, the S&P 500 was down 0.3% while Toronto was up 0.4%.

Canadian Tire was up 1.7% and Couche-Tard was up 1.6%.

Toll Brothers was up 1.7%.

Constellation Software was up 3.0%.

CRH Medical was down 3.3% giving back some of its recent gains.

After the close, Linamar basically warned that its Q4 was ugly as it updated conditions in its various markets. The market (industry volume) for its access products (includes scissor lifts and booms) was down 20 to 30% which is quite ugly. The automotive market continued to decline but the decline versus its most recent forecast seems fairly modest – but the GM strike impact was an added significant headwind in Q4. In its agricultural products category markets were about flat versus 2018 which is an improvement from recent sharp declines. Linamar is not forecasting any big rebound in this sector even as farmers receive cash to compensate for trade wars. Poor crop conditions exacerbated the trade problems.

On December 16 I had updated Linamar as only a Speculative (lower) Buy and I reduced my holding somewhat and noted that I worried that Q4 would be quite weak. Given the expected weakness in Q4, it was surprising that Linamar had rebounded quite a bit lately. This latest negative update should not really be a big surprise to the market. But perhaps the lack of the usual comments about optimism for the future (which were absent in the presentation) will be viewed quite negatively. Overall, I would expect a noticeable in Linamar’s price on Wednesday.

On Monday, markets were initially lower due to the recent events involving Trump and Iran and Iraq but they rebounded with the S&P 500 up 0.35% and Toronto up 0.2%.

CRH Medical rose a further 4.0% and it announced that it had hired an experienced executive to further develop parts of its business.

AutoCanada fell 6.6% to $11.49. Canadian auto sales for December were recently reported and were down 4% versus last December. But Fiat Chrysler was up 7.8% and that bodes well for AutoCanada with its heavy exposure to that brand. 

Aurora Cannabis was down 5.4%. Apparently they are selling off a greenhouse for $17 million which according to one analyst implies they are facing massive write-offs. I may have been too kind to the company in my initial report on it which I posted earlier today. It is quite possible that the company is basically “circling the drain”. Time will tell. 

Aurora Cannabis is added to the site. The company is not yet profitable and it is difficult to say if it will ever generate sufficient profits to justify its $2.7 billion market value (at $2.60 per share). Furthermore, it could run potentially out of cash before it ever gets tot he profitability stage. Therefore it is highly speculative. I have not yet put a rating on it as such and will re-evaluate over 2020 based on its progress.

After dropping about 80% from its highs, Aurora Cannabis is now trading at only about 61% of its book value. 

The question then becomes: What kind of assets does Aura have? Are its assets worth book value? Will the company survive to realize the value of its assets or will it succumb to too much debt? Did it vastly overpay for assets in acquisitions? These are some of the questions I will try to delve into. Aurora has raised a total of $5.0 billion (about $5,000 million) from equity investors and has a another $780 million in debt for a total of about $5,800 million in investor capital. It has invested over half of that in goodwill in making acquisitions. That is a concern as it likely paid too much (possibly far too much) for acquisitions. 

At the end of the day, Aurora is clearly a speculative investment. Whether it is a worthwhile speculative pick will be hard to say, but with some analysis, I can at least come to a reasonably educated opinion regarding that.

On Friday, the S&P 500 was down 0.7% and Toronto was down 0.2%.

Toll Brothers was up 1.75%.

CRH Medical was up 3.8%, adding to recent gains. 

I am taking a look at Aurora Cannabis now. It would be a speculative pick. They have stopped construction on some of their large greenhouses to conserve cash. They may have expanded far too aggressively in advance of the retail distribution roll out. But at the recent price they may be worth considering.

Boston Pizza announced that it opened 5 new restaurants in 2019 but closed 6 (5 full -service plus one express locations). They also noted that most of 2019 had been challenging for the restaurant industry including BP.

This is the lowest number of new openings in at least the past seven years. They have however experienced 6 closures previously in 2014 and 2015.

When BP adds to its restaurant count this basically does nothing for unit holders because the related company, Boston Pizza International, that is responsible to attract new franchisees is given BP Royalty units that offset 92.5% of the net sales growth. BPI is given new BP Royalty units only for the net new sales of the new locations minus the closed location. In addition, I suspect cannibalization of nearby locations offsets the tiny benefit that the remaining 7.5% of the added sales provides.

Still, new openings are a sign of confidence and do add to scale for advertising and so seeing the number of BP locations increase is positive overall.

Our report on BP has always pointed out that if we ever get net closures (more closed than opened) then that is negative for the BP units because it would reduce the distributions per unit.

In 2019 the 5 new locations have higher sales in total than the 6 closed locations had when they first opened. And presumably, the net sales of the closed units in recent years was lower than when they first opened. Therefore the openings minus closures probably not result in a drop in sales.

Unless business picks up, it would not be surprising to see closures somewhat exceed openings in 2020. If that is the case then it is one more reason to expect a (probably) modest reduction to the cash distribution per unit by the end of 2020.

The U.S. markets roared out of the gate to start 2020 with the S&P 500 up 0.8% and the DOW up 1.2%. Toronto, however, was up only 0.2%.

Apple Inc. was up 2.3% to edge over $300. 

FedEx was up 2.6%.

Amazon was up 2.7% to almost $1900.

CRH Medical has a strong day and was up 6.4% to a 52 week high (But remains well below its all-time high.)

Our report on WSP Global is updated and rated Weak Buy / Hold at $88.67. It has continued to grow and do very well. But the stock now looks expensive. 

On the last day of the year, the S&P 500 was up 0.3% to finish the year up an astounding 28.9%! (Over 30% including dividends).

Toronto was down 0.2% to finish the year up 19.1%. 

Melcor Developments was up 5.2% today but, as always, that was on very thin trading volume. CRH Medical was up 2.3%. 

Our Stock Picks overall averaged 18.1%. That is based on stocks rated (lower) Buy or higher on January 1 2019.