2021

CWB RATE RESET PREFERRED SHARES UPDATED

The Canadian Western Bank rate reset shares CWB.PR.B is updated and rated Sell at $24.72. And the higher yielding CWB.PR.D is rated Weak Sell / Hold at $26.74.

Rate reset preferred shares are meant to be better than perpetual preferred in that their interest rate will be reset higher if interest rates rise as has been continuously expected since  rate reset shares were invented. The problem is that rates kept falling unexpectedly and so the shares fell in price. On the other hand if rate do rise a lot the issuers have the option to redeem them on the reset dates every five years. That tends to cap their upside somewhere around $27. And if you buy above $25 you will suffer a capital loss if it is redeemed at $25. 

The experience has been that these shares can be very good investments when bought at steep discounts say under $20 or even sometimes down at $15 or so. When bought at or near $25 or above they have usually not been great investments.

CWB.PR.B yields 4.35% which is not bad but not great and will reset April 30 2024. It will reset at 2.76% above the 5 year Canada bond yield. With inflation now a concern a yield of say 4.35% is not as attractive as it looked a year ago. This particular share has not traded above $25 since 2014. And is swooned down near $15 in 2016 and lower than that in march 2020. We had it rated a Buy at times at prices well under $20.  I had not expected this to ever get back near $25 and now that it has, it is a good opportunity to sell.

CWB.PR.D yields a very attractive 5.61% and does not reset until April 30, 2024. My concern with this one is that it is 7% above the potential redemption price of $25. The yield is good. But there is little chance for any meaningful capital gain and there is a chance of redemption at a 7% decline. And there is always some chance that the price could decline under $25. That seems unlikely given its 4.04% spread above the 5 year Canada bond but stranger things have happened. Overall, I would be inclined to sell rather than buy but those who are strictly seeking yield may find it a reasonable choice. I would find this one much more worthy of consideration if it drops to $25.50 or less.

Markets were modestly weak on this second last trading day of the year. The S&P 500 was down 0.3% and Toronto was down 0.2%.

There were no particularly notable individual moves among the stocks I follow.  

The S&P 500 edged up 0.1% on Wednesday. Toronto played catch-up and was up 0.5%.

West Fraser Timber was up 5.15%.

On Tuesday, the S&P 500 was about unchanged with just a 0.1% decline. And Toronto was totally unchanged since it was still closed.

Hopefully, Toronto will be higher on Wednesday as it catches up to the two days off and to Monday’s big gain on the S&P 500.

Meanwhile West Texas Oil is back up to $76. Alberta is benefiting hugely from this in terms of higher royalties and corporate income taxes and generally more economic activity. The feds also benefit from higher oil corporate income tax from the energy sector.

Check out all the green on the Alberta Economic Dashboard

Twenty seven indicators in the green (meaning improved year over year). Only four items in the red and two of those are outdated (GDP and investment) as they are for 2020 and the 2021 figures will be green when available.

On Monday, the United States was back to work and the S&P 500 rose 1.4% to a new high just a hair short of reaching 4,800. Compare that to the 666 it touched at the low point in 2009! The S&P 500 is up 28% this year.

It’s crazy really. So far so good, but it really can’t continue to rise like that. Is the market “whistling past the graveyard?” Time will tell.

Notable gainers today included Costco up another 2.4% and Apple up 2.3%. 

It’s probably well to enjoy the ride but to also have some investments in cash or near-cash.

I did buy some Toll Brothers today as mentioned yesterday.

On Friday, U.S. markets were closed in lieu of Christmas. Toronto was open for a shorted day and rose a modest 0.05%.

New York markets will be open tomorrow Monday while Canada slumbers for two more days. I will likely buy some Toll Brothers shares tomorrow (see update below). I had reduced my Toll Brothers position in December in my corporate account to raise cash. Probably a mistake. I will buy it back in an RRSP account.

Toll Brothers is updated and rated Strong Buy at 70.48. I was going to be conservative and rate is a bit lower at (higher) Buy given its volatile history. But it’s trading a t 10 times earnings and the company forecasts a 50% gain in earnings in the year that started November 1 and expects the strong housing market to continue for the foreseeable future.  Its latest ROE is 17% and management expects that to rise over 20%. They are buying back shares. The price to book value ratio seems reasonable at 1.65 . Basically, if this is not a Strong Buy, then what would be? At the same time, be aware it has a volatile history. The housing market could cool. Certainly Omicron might cause a stall. And the price tends to drop quickly at any sign of trouble. 

American Express is updated and rated (lower) Buy at $165. It’s a solid company. Far smaller than VISA or Mastercard and it operates differently. It will likely continue to grow. A good long-term investment.

Thursday was another positive day on the markets. The S&P 500 was up 0.6% and set a new high. Toronto was up 0.7%.

Shopify surged 3.6%. 

Couch Tard and Linamar were each up 2.1%.

2021 is set to go into the record books as a banner year for investors.

Markets were positive once again on Wednesday. The S&P 500 was up 1.0% and Toronto was up 0.7%.

There still seems to be more optimism than fear in the markets despite Omicron and possible higher interest rates.

AutoCanada and Toll Brothers were each up 4.3%.

The next update will be for American Express. I suspect it will be rated Buy.

Tuesday was the shortest and therefore on average the darkest day of the year but on the markets it was a bright day as the S&P 500 roared up 1.8% and Toronto outdid itself with a 1.9% gain.

One reason may have been that some life was apparently breathed back into President Biden’s hoped for Infrastructure spending Bill as the hold-out Democratic Senator Joe Manchin is apparently open to negotiation. (It must take a HUGE ego to single-handedly hold up a 2 trillion dollar spending bill that is important to the U.S. economy.)

Shopify gained 6.5%. That may be because it would be set to benefit from brick and mortar store closures. 

Couche-Tard was up 5.5%. It announced a small acquisition but not big enough to explain such a gain.

I suspect we will see more volatility ahead as the market tried to predict the future.

Markets ended the day Monday with the S&P 500 down 1.1% and Toronto down 1.0%.

Accordingly, most stocks on our list were down.  CN Rail was down 5.9% due to the general market decline as well as specifically due to an announcement that once candidate to be the next CEO (favored by a dissident share owner group) has pulled out of the race. It now seems more likely that CN will appoint a candidate from within the company and that apparently disappoints the market. It’s long been my opinion that CN has been very well managed indeed ever since its IPO in late 1995. The company has only rarely stumbled over the years. So, I don’t mind the idea of a stay-the-course CEO/.

Futures markets this evening are predicting modest rebound for stocks tomorrow.

Markets are down this morning (S&P 500 down 1.7% and Toronto down 1.3%)

This is not exactly a shock given Omicron and probable higher interest rates and also given the fact that President Biden’s planned fiscal stimulus bill has apparently died when a Democratic Senator refused to support it and also given the huge gains in the market this year.

It may be a time to pick up bargains but that should be done quite cautiously.

Seeing CN Rail down over 6%, I bought back a small amount of CN Rail shares that I had sold about two months ago at a higher price.  

Despite projections of central bank interest rate increases, government bond yields are down. The Canada five year bond is down to 1.15%. This could lead to some bargains in the rate reset preferred shares. Convertible debt issues may also decline and could be attractive if bought below par if we are confident that they will ultimately mature at par. A convertible bond ETF is CVD on Toronto. With any of these ideas it seems wise to proceed cautiously in small steps. The market down draft could certainly get much lower.

On Friday, the S&P 500 was down 1.0% while Toronto was unchanged.

Starbucks was down 4.4%.

AutoCanada was up 8.8% after announcing an aggressive looking share buyback program.

FedEx was up 5.0% on a good earnings report.

Over the weekend the Omicron situation is going from bad to worse with various lockdowns announced. 

This could potentially trigger a significant slide in stock prices but so far that’s not the case. The Futures markets as of 6:45 pm eastern time Sunday evening is predicting only a modest decline in stocks on Monday morning. 

Shopify is updated and rated Speculative Sell at U.S $1323 or Canadian $1705. I hesitated to rate this a Sell given the extremely high quality of the company and its growth and the fact that buying it at what appeared to be elevated valuations in the past has generally worked out well or even fantastically well depending on when it was bought.

But my analysis has always had a heavy focus on valuation. Quality and growth is also extremely important. But looking at valuation in a somewhat conservative fashion it would be inconsistent for me to ignore the fact that the stock is trading at 40 times revenue adn call it a Buy.

But Shopify is indeed “the real deal”. It’s a fantastic Canadian success story. It is providing huge value to its customers. 

Despite the high valuation some investors may certainly want to dabble in it. Just be aware of the high valuation and expect some volatility. 

I would also acknowledge that the current Omicron situation could lead to another surge in online Shopping which will benefit Shopify. 

Yet another interesting day in the markets. Markets started the day with a noticeable gain but in the end the S&P 500 was down 0.9% and Toronto was down 0.1%.

It’s interesting to note that will all the projections of central bank interest rate increased, bond yields are actually down noticeably in the past month and fell again today. The 5 year Canada bond yield is at 1.18% down from about 1.25% yesterday and down from 1.6% a month ago. To date, the bond market is not apparently believing that rates are moving much higher at all or that inflation will persist. Time will tell…

Shopify was down 3.4%. 

Apple was down 3.9% but that comes after huge recent gains.

AutoCanada announced it will be buying back shares. This is a volatile stock but I think it’s a good bet at this time.

Our report on Metro Inc. is updated. It’s rated (lower) Buy. It would be rated Buy except for the fact that it appears the next two quarters to be reported will show little or no growth due to the tough comparable of the prior year. But over time this looks like a steady and reliable investment. Not overly exciting but reliable over time.

My next update will be to look at Shopify which is clearly a more exciting company. To date, it has looked over-valued to me but then has powered ahead with growth.

Markets started out hot with another gain this morning but have now cooled with the S&P 500 down 0.4%.

I will post the update for grocer Metro Inc today. It’s a (lower) Buy or Buy. Not an overly exciting company but should continue to be a steady performer and not as risky as some of the more exciting stocks.

Markets surged higher on Wednesday and the FED Chair indicated that while the Fed would stop purchasing bonds by mid March, they would not raise interest rates until some time after that. He also indicated that there would be no sudden moves. Things would be gradual. 

The S&P 500 responded by rising 1.6% while Toronto rose 0.6%.

Costco jumped 3.7% to a new high of $565. Clearly, I have underestimated appetite that investors have to push this stock higher. It’s now trading at an even 50 times trailing earnings and 46 times forecast forward earnings. That is very high especially in the face of predictions of higher interest rates. 

Apple was up 2.85%.

It’s been a market where the best and most popular companies continue to go up despite often looking very expensive.

Meanwhile, a value stock like Melcor was down 1.6% and trades at 6.6 times forward earnings estimates. 

The market is not spooked by the predictions of higher interest rates or by the Omicron variant. But that could change at any time.

On Tuesday the S&P 500 was down 0.75% and Toronto was down 0.5%. Markets had been down more than that earlier in the day but rallied somewhat.

Shopify was down 2.9%.

Toll Brothers was down 2.7%.

The Producer Price Index in the United Sates was up a HUGE 9.6% year over year in November. This seems likely to be a hit on earnings for some companies as it would be difficult to pass all of the added costs onto consumers. 

In Canada, the federal government provided a fiscal update with some new spending. Given that no specific taxx increases were mentioned this appears to be a non-event as far as markets are concerned.

The Omicron variant however appears to very much a serious event. Further COVID restrictions including a travel ban could be imminent. That will not be good for markets.

I’d be more than happy if markets were to close out the year at current levels.

Markets were down on Monday with the S&P 500 falling 0.9% and Toronto down 0.5%.

Accordingly, most stocks were down.

Interest rates were also down despite all the predictions of higher interest rates and all the news of high inflation. 

In the U.S. President Biden, is apparently on track to get an infrastructure spending bill passed by year end with a size of around $1.5 trillion. That might be good news for markets but it also may already be priced in. And this one comes with tax increases and therefore may not be so well liked by the market.

My next update will be for Metro Inc.

Costco is updated and rated Sell at $559. It’s a fantastic company and will will continue to grow its earnings at a strong rate for the foreseeable future. But the P/E ratio at 47 is, I believe, its highest ever. And this comes at a time when its earnings have recently grown very rapidly and it could certainly face lower earnings growth in 2022. And it comes at a time when the consensus appears to be that interest rates will rise which should push down the P/E of stocks in general. So, the high P/E suggests a rating of Sell. On other hand I acknowledge that the company has almost always looked expensive and selling it it in the past has always been a mistake. And it is also possible that inflation will benefit Costco as people go there for cost savings and they may be able to pass all price increases along. Be aware too that 18 of 24 analysts that cover it rate it a Buy and the other 6 say Hold. 

Ceapro Inc. Report is updated and rated Speculative Buy at $0.54. This is a risky penny stock.  In retrospect it is regrettable that I ever happened to look at it and add it to the site back in 2017. But it is profitable and I will continue to update it periodically. I have long said that it a lottery ticket type investment. Suitable for only a modest investment. It has several research irons in the fire which it seems to believe could pay off big. But one of those was a research trial of its Beta Glucan pills (for cholesterol reduction) which turned out to be a bust. The trial results released last month showed no statistically significant benefit. They did seem to allude that perhaps there was a benefit but it just was not statistically significant. I don’t like that they alluded to this without being clear. They even mentioned that there was some indication of weight loss on the pills, also not large enough to be statistically significant – in other words could be random. Mentioning this weak possible weight loss impact seemed to me to be a pathetic grasp at a straw. Other studies HAVE shown some benefit of Beta Glucan as a cholesterol reducer. They may be able to license out their pills in any case. They would be sold as non-prescription nutraceuticals and believers may buy.  But that would seem to put them in the “snake oil” business which is disappointing. 

On Friday, the S&P 500 was up 0.95% setting a new record closing high while Toronto was down 0.2%.

Costco was up a hefty 6.6% to a new closing high of $559. This came after its Q1 fiscal 2022 earnings beat expectations although apparently revenue came in lower than expected. 

Couche-Tard was down 4.7% and note it is now trading as just ATD rather than the former ATD.A and ATD.B. The stock had risen more than 5% after the elimination of the multiple voting shares as of Wednesday. There was no strong reason for the increase and so perhaps the market just gave back that increase.

Apple was up another 2.8% to a record high. TFI International was up 3.1%.

On Thursday the S&P 500 and Toronto were each down 0.7%. There were not particularly notable moves in the individual stocks on my list.

This Friday morning the S&P 500 is currently up 0.6% and Toronto is about unchanged.

Costco reported strong earnings and is up 4.7%. 

Markets were mixed on Wednesday as the S&P 500 rose 0.3% while Toronto fell 0.4%.

WSP Global was down 3.0%.

Couche-Tard was up 3.7% to $51.50 and the old ATD.A and ATD.B shares have been consolidated and now trade as ATD. Today was the first day trading under the new symbol. It may take a few days for your brokerage account to show it under the new symbol. 

Futures markets suggest stocks will open slightly higher on Thursday morning.

Barring some late breaking disaster it looks like 2021 is set to go into the record books as a very strong year for stocks.

With higher interest rates on the menu in 2022 I suspect that 2022 will not be a strong year for stocks at all and that some caution is warranted particularly for older investors.  

Markets moved higher on Tuesday as the S&P 500 rose a hefty 2.1% and Toronto rose 1.45%.

Shopify was up 5.5%.

TFI International was up 4.2%.

AutoCanada was up 3.5%.

After the close, Toll Brothers reported its fiscal Q4 results and which appeared to me to be “blow-out” earnings. They also predict a strong 2022. Nevertheless, it rose only modestly in after-hours trading.

Markets bounced higher on Monday as concern about the Omicron variant ebbed somewhat.  The S&P 500 was up 1.2% and Toronto was up 1.1%.

Toll Brothers was notable with a 3.8% gain.

I noticed that ChemTrade logistics Income Fund  is out with a 6.25% convertible debenture. That sounded tempting and I recognize Chemtrade as a name that has been around a long time and has done well in the past. But a quick glance at their financials shows losses the last few years. And the stock has traded lower going all the way back to 2014. It does pay a high dividend which can hold down a share price due to lack of retained earnings. Maybe they are still strong financially but I am taking a hard pass on this one. That is, I am definitely not buying any.

Alimentation Couche-Tard was in the news today because its 10 times multiple voting share’s will be combined with its regulars one vote B shares as of Wednesday. This is basically a non-event at this point.

The founders have long controlled the company by owning multiple voting shares. The four founders are billionaires and hold large investments but they will no longer have voting control of this $51 billion dollar company. For whatever reason, both the multiple voting A shares and the single-vote B shares trade on the market. The B shares trade in vastly heavier volume and are what most investors own. Going back to when I first looked at this company back in 2005 was that the multiple voting A shares never did trade at much of a premium at all. Presumably that was because of legal matters that would prevent anyone from buying out the A shares at a premium without paying the same for the B shares. Also there was a stipulation that the two share classes would combine once the youngest of the founders turned 65 (which is what is happening Wednesday). The founders tried to get this stipulation changed a couple years ago but they were unable to get agreement from the B share owners.

I don’t follow many of them but my understanding is that multiple voting shares usually don’t trade at much of a premium. An exception is Canadian Tire where the trading volume of the multiple voting shares is extremely thin and they have always traded at a massive premium. That makes the multiple voting Canadian Tire shares dangerous to own since at some point that premium could disappear.

Many years ago Telus had a non voting share that traded at a lower price and was meant for U.S. owners and to avoid foreign voting control rules. These also traded in Toronto. They traded at a noticeable little discount and I used to recommend those shares. That turned out good advice because those cheaper  non-voting shares ultimately got converted to normal voting shares and rose in price at that time.

I have had BHP on this site for a long time and I recommend the cheaper BBL shares in New York. Those shares are expected to be combined with the slightly higher priced BHP shares sometime this year. There is possibly an arbitrage opportunity to short the BHP shares in New York and buy BBL but that is best left to institutional traders. Not something I would ever try.

On Friday, the markets were moderately down as the S&P 500 fell 0.8% and Toronto was down 0.6%.

Canadian Western Bank was down 4.4% after releasing Q4 earnings that were positive but fell short of expectations. This bank trades at not much over book value. But it has not achieved the ROE or earnings growth of the larger banks.

Futures markets are predicting a moderately higher opening for the markets on Monday morning.

The report for AutoCanada Inc. is updated and rated *higher) Buy at $33.92.

Markets bounced up today as they continue to oscillate on changing views of how serious the Omicron variant is as a threat to markets. And as the market digests comments from the FED chair.

The S&P 500 was up 1.4% and Toronto was up 1.45%.

Toll Brothers was up 5.9%.

Visa was up 4.3%.

BHP was up 5.1%.

AutoCanada was up 53%. I competed an updated report on AutoCanada today and will upload it to the site tomorrow. I have it rated as (higher) Buy at $34 but it already rose a bit after my analysis closing today at $35.34. I bought a few shares today.

Markets were initially higher on Wednesday but then turned around to close lower on virus fears as Omicron was found in the U.S.A.

The S&P 500 was down 1.2% and Toronto was down 0.95%. As of this evening futures markets suggest that the markets will open higher tomorrow. But clearly there is some nervousness in the market and again a lot of investors have huge gains this year and might be inclined to sell and lock in some gains.  The big threat to markets is higher interest rates. So far the they have not materialized and in fact recent interest rate increases have once again fizzled out somewhat. But that could turn around at anytime particularly when the FED accelerates its tapering or actually increases interest rates.

AutoCanada was up 4.0% as it announced the acquisition of 11 dealerships in Ontario. I will be updating this report in a day or so and I do believe it is a Buy at its current price of about $34. It basically looks cheap but of course there are always risks.

On Tuesday, markets focused on remarks by the FED chair that he now appears to view inflation as not being so transient and therefore indicates he wants to taper and end bond buying somewhat sooner. The Omicron virus also weighed on markets.

The S&P 500 was down 1.9% and Toronto as down 2.3%.

Most investors have big gains on stocks and the risk of a pull back may be spurring people to sell and lock in profits.

So far, it’s not clear that this pull back will be a large one. Only time will tell.

I trimmed my Toll Brothers position somewhat today. These shares are held in a corporate account and I wanted to raise cash in that account.

There is reason to fear that Canada could raise the amount of capital gains that are taxable form 50% to as high as 75%. Apparently it could happen in a budget speech around the end of February and might be effective the day of the budget. This possibility means that it might be better to realize gains now (taxable in 2021) or in January to avoid the increased tax rate. That is especially the case if someone was planning to realize gains in 2022 in any case. But the increased tax rate may not happen so realizing a gain now or in January could turn out to be a mistake. That’s the nature of investing. The course is never entirely clear. 

On Monday, the markets basically voted that the Omicron virus is not a big threat to North American stock prices.

The S&P 500 was up 1.3%  while Toronto was only up 0.1%.

Enbridge was only down 2.1% after getting an unfavorable regulatory ruling on Friday. 

I am working on an update for AutoCanada. The company has done very well over the past year. But the stock went from about $24 at the start of this year and rose to a peak of $59 but has recently plummeted to about $33. My preliminary view is that it looked under-valued now. Current management is very strong.

All the big Canadian banks are reporting fiscal 2021 and Q4 earnings in the next week or so. And they are expected to announce big dividend increases.

I notice Laurentian Bank last week announced a significant write-off. It seems to repeatedly get into trouble. It’s valued about half of what Canadian Western Bank is. I’d like to see CWB buy them out and become a national bank. Perhaps unlikely but it would seem a good fit in many ways. But Quebec would likely be very much against it. And maybe it would be too hard to have a French division of CWB.

As most everyone will have heard, markets were down noticeable on Friday in reaction to fears about the new virus variant, now named Omicron.

Almost all stocks were down. American Express was hard hit with an 8.6%drop. Amex is more travel oriented that VISA which was only down 2.6%.

Oil was down about $10 U.S.

The question now is whether markets will sell off more on Monday or will instead decide that Friday’s decline was overdone. As of about 8 pm eastern time it appears that market are set to open noticeable higher on Monday morning. Obviously, it could be a volatile week as markets digest the emerging news about the new variant and the various travel restrictions. Oil has rebounded several dollars.

Meanwhile, Enbridge got an unfavorable ruling after the close on Friday on its plans to turn one of its Canadian mainline oil pipeline into more of a contracted system as opposed to a “common carrier” with tolls set by the regulator which has been the case for many years. I don’t think this is any huge financial blow to Enbridge. 

The report on Canadian Tire is updated and rated Strong Buy at $170. The stock had soared after stellar sales and earnings growth in Q2 but has now fallen because Q3 sales growth was somewhat disappointing and earning per share were down versus the prior year. In large part the earnings decline was because the corporation had lower shipments to the dealer-owned stores while the stores actually had modestly higher sales – this will catch up. Analysts also seem to fear that Amazon will finally start to have  a big impact on Canadian Tire. Earnings may indeed be lower in the next few quarters compared to absolutely stellar results in the comparable quarters. But I look at the fact that the price to book value ratio (2.1) is at the lower end of its normal range and the trailing P/E ratio is 9.0 and the forward P/E ratio is only 10.1 (meaning earnings are expected to decline). And I look at the strong track record. The future is never certain but I rate it a Strong Buy. Of course meanwhile the whole market might be down tomorrow on this Omicron virus development. It will be interesting to see how the futures markets open tonight.

On Thursday, the U.S. markets were closed for Thanksgiving. Toronto was up 0.3%.

Futures markets indicate a lower opening for stocks on Friday morning.

I expect to have an update for Canadian Tire by Sunday. 

I spoke today to the Investor Relations person at Melcor Developments. My sense ifs that Q4 will be quite good but it will not be reported until early march. Yesterday a group of Edmonton Commercial builder owners were in the news with a message that the Edmonton commercial reals estate market is recovering strongly.

The recent issue with this web site not loading due to a security certificate issue has been fixed. More about that below.

On Wednesday the S&P 500 was up 0.2% and Toronto was up 0.4%.

Couche-Tard was down 4.6% after releasing earnings.

Costco was up again, now at $550. 

My next update will be for Canadian Tire because I think it is a definite Buy. However I have not read its Q3 report and need to do that.

The issue with the security certificate I can explain as follows:

Traditionally web sites were http://  Some years ago a security certificate system came into being and sites with the certificate were https:// s for security and browsers show a little lock icon to indicate higher security.

Sites without the certificate showed a bit of a warning.

The fact is that investorsfriend.com does not have ANY personal information and really does not need to be secure (Your username and passwords are stored at my other related site the dot ca site www.investorsfriend.ca. I never see much less store any credit card information on either site. PayPal does that.

I got a security certificate for investorsfriendd.com as well as investorsfriend.ca.  Each year they have to be renewed and it is a multistep process. When the certificate expired two days ago it took these couple of days to resolve it. Apparently when a site has an expired certificate (called an SSL certificate) most browsers not only warn but they won’t open it all all.

Obviously I should have renewed it earlier (actually I did that part a few weeks ago) and had the new version installed (that’s the part I missed). My apologies.

November 23, 2021

The investorsfriend.com web site is down. This is due to the expiration of a security certificate. The new certificate may take a few days to get installed. Meanwhile, I will send a daily comment by email. The install of the new certificate is proceeding well. There  were multiple steps to complete and I am now awaiting the final step to be completed by the web hosting service. 

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

AutoCanada was down 3.2% to $33.70. I plan to update the analysis soon. 

Costco was up 1% to $545. This seems to be getting silly. 43 times forward earnings is awfully rich. In comparison Canadian Tire trades at 10 times forward earnings. Now, Costco certainly deserves a premium multiple versus Canadian Tire but 43 times versus 10 times seems drastic.

With this stock and some others I wonder if we are getting into a “nifty 50” mentality where some stocks are considered a Buy no matter how high they get. Where price to earnings multiples just don’t matter.

There was a Federal throne speech in Canada today to open parliament. From what I read there was little to no specifics on things that might affect the stock markets. 

TD Direct was out with a new issue a preferred share issued by Canadian Utilities. It pays 4.75%. Given the low-risk that may not sound too bad. But if rates increase you could be stuck holding what might turn out a preferred share with a below market yield. And if rates decrease, Canadian Utilities has the right to buy it back at $26 after about 5.4 years. The buy back price drops slowly and bottoms at $25 after about 9.4 years. So, there can never be much upside here. But if it turns out that inflation returns to much lower levels and interest rates stay very low then maybe this is “okay”. Personally, I was not interested in it. And I see it has not sold out today. This may indicate a lack of investor interest.

The investorsfriend.com web site is down. This is due to the expiration of a security certificate. The new certificate may take a few days to get installed. Meanwhile, I will send a daily comment by email. I’ve renewed the certificate for 5 years and so this should not happen again next year. Previously I could only renew for one year. 

On Monday, the S&P 500 was down 0.3% and Toronto was down 0.6%.

Shopify was down 5.2% and is down a further 2.6% this Tuesday morning.

VISA was down 2.6%. The recent weakness in VISA could be a buying opportunity but it depends how successful Amazon and others are in getting VISA to reduce its fees. I hold some VISA and may add a little more but it’s just not clear where this is headed in the next year and longer.

BHP was up 2.6% as it announced a large LNG project in Australia

U.S markets are higher this morning on news that President Biden has chosen Jerome Powell to remain as FED chair for another term. This brings stability. This decision still has to go through congress however. (A colossal waste of time as it seems sure to go through but only after the grand standing of a confirmation hearing.)

Markets were weaker on Friday as the S&P 500 was down 0.1 and Toronto was down 0.4%. The DOW which is often more volatile was down 0.75%.

Penny stock RIWI was down another 6% to $1.36 and continues it volatile ways. Hopefully now near the bottom of its range .

I am interested in what inflation is being applied to certain pensions. I understand federal government employee pension plans will get a 2.4% cost of living increase – which of course trails inflation. I’m not sure is they get 60% of official inflation or 100%, looks more like 60%.

Canada Pension gets 100% of official all-items inflation but uses the average of the last 12 inflation reports through October. I suspect it will over a 3% increase.

Old Age pension I understand is actually adjusted every 3 months and so I believe the total increase over the course of 2021 must be over 4%.

In the United States the Social Security inflation increase for 2022 was just announced and it is 5.9%. That seems epic. It could continue to drive high inflation expectations. It also increases the U.S. unfunded liabilities which were already massive. But so far those liabilities have not been a problem.

Markets are a bit weak this morning reportedly on concerns of the virus situation in Europe.

Meanwhile Cost is up again now to $535. It seems to have no top. As always expensive but a powerhouse.

Shopify is also up again.

Oil is down about 3%.

Posting this week from Palm Springs, California…

On Wednesday, the S&P 500 and Toronto were each down 0.3%.

Visa ended the day down 4.7% for the reason I mentioned this morning.

TD had yet another convertible debenture offering today this time Morguard REIT 5.5%

The report on VISA Inc. is updated and rated Weak Buy / Hold at $203. This is a cautious rating and I would have rated it somewhat higher except for the news that Amazon is battling it over fees and will stop accepting U.K Visa cards as of January 22. Very few retailers are in a position to dictate what card their customers use (Costco is the rate exception) but perhaps Amazon will be as well. I like VISA as a long term hold but given risks to its high fees I would not want to get over-exposed. Despite some caution, I added to my position today. It might be wise to wait and see how this news abot Amazon affects the stock over the next few days. But nibbling now is also a reasonable approach.

I wanted to mention an internet scam to watch out for. I got a fake notice that my MicroSoft365 password needed to be updated. It sounded plausible and they said I could update or use the same password and asked me to enter my password. I almost did it but then looked and saw the URL was not looking right. It was a definite and dangerous came. To up0date a password always make sure you log in directly.

By the way my system has none of your personal information except your email and your password that you use here. I don’t ever see or store any credit card numbers. PayPal does that for me. Ideally you could use a simple password on my system that is not one you use elsewhere. 

Yesterday, the S&P 500 was roughly unchanged while Toronto was down 0.4%.

This morning, VISA is down 5.5%. I will be updating the report for VISA soon. It’s a strong long term bet. It’s not cheap but I think it’s a good long term investment. But there is big news here, Amazon will stop accepting U.K Visa cards as of January 19, 2022 in a fight over the high credit card fees. This could be a big deal as Amazon is of course very powerful. But is Amazon powerful enough to dictate what credit card its customers can use? Costso has had that power but very few if any other retailers have had such power. There is no doubt that credit card fees are very lucrative. So there is some risk to VISA and the other credit card companies.

Canadian inflation number for October is out this morning and it is 4.7% year over year. The market still seems to be assuming this is somewhat temporary. One good thing for those collecting is that there should be a meaningful increase to the Canada Pension Plan amounts in January. I think maybe 3%. They use the average of the last 12 inflation numbers. Old Age pensions are also fully indexed but they adjust every three months from what I understand and so have already been getting increases this year.

On Monday the S&P 500 was unchanged and Toronto was down 0.4%. 

Restaurant Brands was up 1.9% after announcing a planned acquisition.

The Boston Pizza Royalty units were up 3.3%. 

Melcor Developments bounced up 4.4%. Given the low volume of this stock, I would not read anything into this. The company is under-valued but there is probably no catalyst to hope for a meaningful increase until Q4 results come out in March. I believe they are on track for a very strong Q4 but that won’t be known until March. Possibly they could announce a dividend increase in December.

I added to my Enbridge position today. This was in a corporate account where having eligible dividend income can be advantageous as they can be passed through to me as owner as eligible dividends. Basically, like any other taxable account dividends are taxed more favorable than interest income.

TD Direct has just now (3:50 pm eastern) sent out an alert that NFI Group has a new issue of a 5 year convertible debenture at 5.0% as well as a stock issue. I have not yet seen if the reason is for an acquisition.This is the bus manufacturer, formerly New Flyer Industries.

Well there seems to be a lot of these convertible debentures coming out. I have bought a few lately and will not participate in this one. This one is convertible $33.15 and the stock price is now $25.69.

I would buy these for the interest income, not the conversion possibility. The conversion would just be icing on the cake. If I was very interested in the stock and thought it is very likely going to do well I’d buy the stock. In this case I have never looked at the company although I have often thought about it.

Without knowing a lot about it, I’m still pretty confident that the credit is good and it would pay the 5% for the five years and mature on schedule.

Given today’s low interest rates, these convertibles at 5 to 6% are probably a good choice for a portion of a portfolio. I’d favor a non-taxable portfolio for these such as an RESP, TFSA or RRSP / RIF. But only for a portion of the portfolio. 

It’s tempting to think of this 5% as a good substitute for cash accounts earning very very little. But be careful. There is NO SUBSTITUTE FOR CASH (and cash equivalents like short-term guaranteed securities). Many of us learned the lesson years ago buying rate reset preferred as a substitute for cash and then those dropped drastically in price when interest rates unexpectedly fell. Convertibles tend to fall in price when the markets get ugly but they do also certainly tend to mature at par.

So again, these convertibles are worth considering but only for some portion of a portfolio. And I do like the idea of having at least several names for diversification. 

P.S. Shortly after the close, TD Direct sent out notice for two more convertible debentures. If interested check the New Issues (IPO) section of your online broker account. Usually several big bank brokers will be selling the same new issues but they don’t all get involved with everyone so check what your particular broker has on offer and sign up for the new issue alerts if interested. I have no idea if the various non-bank discount brokers offer these new issues. 

On Friday, the markets returned to winning ways with the S&P 500 up 0.7% and Toronto up 0.9%.

Shopify was up a huge 11.8%.

Alcanna was up 15.6% after releasing Q3 earnings. That was surprising to me given that it has agreed to be sold to Sundial in exchange for Sundial shares. The reason for the gain was that Sundial released very strong earnings. I am not following Sundial.

Pre-market futures data as of Sunday night suggests that markets will open slightly higher on Monday morning.

Inflation is very much in the news but the market seems unconcerned.

And inflation could benefit some companies. Costco could report higher same-store sales simply due to inflation. And is they maintain the same mark-up then profits would rise. And if consumers are feeling the inch of high grocery prices, maybe even more of them will shop at Costco. But Costco’s share price could be hurt if interest rates rise substantially since that will tend to push P/Es down.

Note that I sent out two editions of my free newsletter in the past 10 days or so (November 5 and November 12). If you did not receive it, check your junk folder (the indignity!) and if still not found then you can sign up here. My young occasional collaborator, Zach Trease also sent out a newsletter recently with his own stock ideas focusing on smaller companies and you can sign up for that as well if interested. 

The article I sent on November 12 about the S&P 500 valuation has a chart that shows the trend in S&P 500 earnings. I find it shocking how far above trend line the earnings currently are. And it seems “no one” is talking about it. The assumption seems to be okay, great and we keep growing from there. I’m not pushing any panic button about it but I would say it is a bit concerning to expect earnings to increase as a percent of GDP and stay that way.

On Thursday, we rightfully paused to remember. But the stock markets carried on. The S&P 500 was up 0.1% and Toronto was up 0.6%.

WSP Global was up 5.0% after reporting earnings. It never seems to put a foot wrong.

BHP was up 5.2%

Penny stock Ceapro was up 8.0% after providing a bit of an update on some of its efforts. There was no indication that these research efforts were going to turn into cashflow anytime soon or even be commercialized in any way. Ceapro’s efforts always seem to be a few years away from that at least and it keeps rolling forward. But one day they may announce a licensing deal that will create cashflow. Meanwhile they have a base business that already justifies the current stock price so we are not paying much if anything for the potential of the research to pay off.

AutoCananda was down 5.2%. 

Canadian Tire was down 2.95% after releasing earnings. They had growth but not the rapid growth of recent quarters. To me, that seems understandable. They are “lapping” strong quarters where they did well selling sports equipment which was a big seller during the pandemic.

Taking a look at the valuation of the S&P 500, it is a bit shocking to see how far above the trend line earnings currently are. Yet the market seems to assume they can keep growing fairly rapidly. I expect to send an updated article about this tomorrow.

Markets had a down day on Wednesday with the S&P 500 down 0.8% and Toronto down 0.6%

U.S inflation was reported this morning at 6.2% year-over-year. That was the highest level since 1990. This would be very serious if it continues. The market finally took a bit of notice today.

AutoCanada was down almost 16% on its earnings report. It continues to be very volatile. 

Going the other way, Linamar was up 5.6% on its earnings report and WSP was up 3.55% also after reporting earnings.

I’m working on an update of my analysis of the valuation of the S&P 500. I expect to complete it tomorrow.

TD Direct this afternoon had an offering of a U.S. dollar 6% convertible debenture for American Hotel Income Properties. I put in for some. Again, these IPOs have to be bought mostly on faith as there is no time for analysis typically. 

After the close, RIWI reported a 23% increase in revenue. But they did not mention earnings in their press release which is not a good sign.

On Monday, U.S markets took a breather with the S&P 500 down 0.35% while Toronto was up 0.2%.

Toll Brothers was up 2.8%. Amazon was up 2.5%.

After the close, AutoCanada reported strong results.

RioCan also reported strong results.

Melcor Developments reported Q3 results. At first glance the results may seem disappointing as the lot sales and funds from operations are down versusQ3  2020.  But the results for the first 9 months of 2021 are well ahead of 2020. Melcor is quite active in developing lots and some new buildings. Part of the reason for modest lot sales in Q3 is likely the fact that they developed few lots last year and so the ready-to-sell inventory was low. They indicate that they are working on deals to sell all of their U.S. assets. Some of these are lots they developed, some is land that they took through most of the regulatory steps to turn into lots but which are not yet physically developed. It seems likely that there would be good gains on these sales. Overall, Melcor should be in a position to report a strong Q4. Hopefully a very strong Q4.  Melcor tends not to provide much at all in the way of outlook.

Melcor also announced that the controlling family member Tim Melton will become CEO as the current CEO is leaving. This is probably just as well since it appears that he was making most of the major decisions in any case. Overall, it seems unlikely that the market will get excited by the news here and the stock continues to trade at less than half of book value.

I notice that the province of Ontario is out with a new offer of a 10 year bond that pays 2.25%. That’s not exactly exciting or attractive. $1000 compounded at 2.25% grows to $1280 in ten years.  But with inflation that might well purchase less (possibly significantly less than $1000 purchases today.). This issue was still “open” as I write this which is an hour after TD emailed to advertise this new offer. I suppose an hour is not long but it does suggest the issue did not immediately sell out.

In May and June I posted several times about provincial bond issues. On May 25, I commented about a 2.15% ten year issue from Ontario and a 2.1% nine year issue from Nova Scotia. On May 18, I commented in detail ona ten year Quebec issue at 2.2%.

My point today, is that interest rates have not risen all that much since June. Looking at the yield on the 5 year Canada bond… It’s at 1.37%. That’s compares to about 0.90% in June. It’s significantly higher than the ultra low of 0.4% that it was at for most of 2020. So this rate is higher than it was in June but it’s not exactly higher. It’s certainly lower than inflation and therefore the “real” return investing in this bond is negative.  Looking at the yield on the U.S. 10 year treasury…. At 1.51% it’s actually lower than June which was around 1.60%. It seems fair to say that the U.S. bond market is not reacting to either higher inflation or the FED’s tapering of bond buying. The danger for investors is that both stock and certainly bond values (existing bonds) would drop if the market does start to react to those two things.

Markets rose once again on Monday with the S&P 500 edging up 0.1% and Toronto rising 0.5%.

FedEx was up 2.4%.

BHP Group was up 2.4% after announcing it has a deal to divest a metallurgical cola operation.

I’m starting some work on the valuation of the market. Based on valuation and the the strong market gains in recent years, my sense is that we may be at or near a market peak. That does not necessary lean its time to get out. But it’s probably time to have more modest expectations and to be cautious.

Perhaps the market will start to pay more attention to inflation. Apparently the next inflation number to be reported for the U.S. is expected to be 5.9%!

Meanwhile Amazon is investing some $4.3 billion dollars to build a cloud computing hub in Calgary. To my mind that is BIG news. It’s hard to have a feel for numbers in the billions, but that is a big investment. I would not have guessed that it was possible to invest that much in a computing hub. Or maybe the story is misleading because the $4.3 billion will not be fully invested until 2037! Well, if it is not really BIG news it is at least good news for Calgary. 

Friday was yet another positive day for stocks with the S&P 500 index rising 0.4% and Toronto up 0.5%.

Enbridge was strong with a 3.0% gain. Starbucks was even better with a 4.2% gain.

VISA was up 3.8%, Toll Brothers gained 2.7%.

It’s been very good times for stock investors (which is to say owners of corporations and therefore participants in the economy).

Next up will be the market’s reaction to the Democrat’s infrastructure bill passed on the weekend. It was likely about as expected and so there may not be much reaction. Or will it be reason for another push higher? We shall see starting tomorrow morning. (The futures market will foretell the reaction starting at 6 p.m. today.)

P.S.

As of 9 pm eastern futures markets are down slightly.

A B.C. court has ruled in favor of Edward Rogers new Board members. The existing Board members will apparently appeal and apparently Edward Rogers is not standing in their way.

I would suspect that both Rogers Communication and Shaw Communications will decline somewhat in price on this news.

Again, I am interested in the fact that  feuding family holds all their shares in a Family Trust. I suspect this was done partly to avoid income taxes on the death of Ted Rogers. But I have seen no mention of this.

P.PS. I now se news that Roger Communications Inc. will not appeal. Well, it would have been odd to see the corporation appeal against it’s now confirmed new Board of directors. And the departing board members were not likely willing to pay for an appeal.  Perhaps now the shares will head back up as the uncertainty has been much reduced. Ed’s in Charge.

Yes, stocks rose once again on this Thursday November 4th. The S&P 500 and Toronto were each up 0.4%.

Shopify was up 3.7%

TFI International was up 3.5%.

Costco was up another 2.65% to $516  after its strong same-store sales gain reported for October. It seems I was wrong to be reducing my position lately. In fact, this stock starts to look like the sky is the limit. But it’s already up 38% this year and that was on top of a 28% gain last year. Costco is a fantastic company but at some point the stock can’t keep rising like this and becomes vulnerable to a decline. 

Similarly, the S&P 500 is up 25% this year and that comes on top of the 16% gain in 2020. History shows that stocks go up in the long run. But they also occasionally reach peaks and decline. Sometimes its takes years to get back to the old peak. The dividend yield on the S&P 500 is down to 1.3%. I’m not sure, but this may be a record low. If interest rates increase as expected then stocks are vulnerable to a decline. 

I’ve just updated an article that show cases the great long-term return from stocks but which also reveals periods of decline.

Wednesday was another strong day in the markets after the FED chair announced that the FED would be tapering its bond buying starting this month but left interest rates unchanged and after the market found his words to be soothing.

The S&P 500 was up 0.65% and Toronto was up 0.45%.

TFI International was up 4.5%.

West Fraser Timber was up 3.65%.

After the close, Costco reported that October same-store sales were up 11.8% (after adjusting for currency and gasoline prices fluctuations). The gain was actually 17.5% before the adjustment. The adjusted number is considered to be the better measure.

Looking back, last October saw an increase of 16.5% in adjusted same-store sales. So the increase this year is on top of the big increase last year. It’s remarkable. 

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

Cost took a peek at $500 today reaching $499.49 and closed at $497. I had an order in to sell some of what I held at $499 and so that got sold. Within a few days it will report October same-store sales growth. Possibly it will have a hard time showing much increase compared to strong sales in 2020 or perhaps the supply chain problems will impact it. Or, maybe it will continue to outperform. It’s a great company but it’s not immune from a decline. 

The Fed chair is providing remarks tomorrow and that could certainly move markets especially if it appears that an interest rate hike is more imminent or if tapering off of bond bonding is faster than expected.

The Melcor REIT announced Q3 results after the close. Everything looked pretty good with no bad news noted in the press release.  Looking into the detailed I do see that new leasing appears to be at significantly discounted rates ($13.60 which is lower than the average expiring least which was $17.93). This is not great but is no doubt better than letting space sit empty. In better news, they booked a fair value gain on two properties.

In fact the results looked very good compared to Q3 last year but that was largely becasue last year suffered much more from the COVID situation. Notable in this latest report was that 99% of the rent has been collected for Q3 as well as year to date.  

A couple of weeks ago they announced that the distribution will remain unchanged for Q4. Therefore the market may not show much reaction to this news. It appears to me that they easily have the income to increase the distribution but they are being conservative.

The Enbridge rate reset preferred share on our list ENB.PF.A is updated rated Weak Buy / Hold. At 4.8% the yield is reasonably attractive and it may benefit from rising interest rates. However , this particular rate reset share has a rather poor history and overall I am not tempted to buy. I hold some and have put in an order to sell half if it should hit $23.

The report on Aecon Group Ltd is updated but rated only Weak Buy / Hold at $17.98. (The stock is a bit lower at $17.62 as I post this comment)

Aecon is an admirable company in that it constructs many of the most significant projects in Canada including major bridges and highway work, refurbishment of nuclear power plants, construction of gas, electric and telecommunication networks and construction of major oil and gas pipelines among other things. A newer initiative is that it is operating the Bermuda International Airport (which it redeveloped) for the next 30 years. Its two largest peers are PCL construction and Ellis Don which are both private non-traded companies.

Unfortunately, this is a tough business and profits have been no more than adequate as opposed to very attractive especially given the risks. I am comfortable holding a modest position. 

On Monday, stocks edged yet higher. The S&P 500 was up 0.2% while Toronto rose a full 1.0%.

Shopify rose 4.6%.

Starbucks was up 3.5%.

Couche-Tard was up 3.4%

Canadian Tire was up 2.1%. My impression is that Canadian Tire is doing very well with its online Triangle reward promotions. As a customer and as a share owner, I like the prospects for this company.

TFI International was down 3.6%.

Rate reset preferred shares continue to do well due to expectations that interest rates will rise.

The Enbridge rate reset share on our list ENB.PF.A was up 2.4% to $21.84. 

This is a comment on Friday’s markets plus some thoughts on convertible debentures.

Friday saw the S&P 500 up 0.2% but Toronto down 0.8%.

lulu lemon was up 5.1% after reporting earnings. This has been a wonderful Canadian success story. 

The big construction / infrastructure project company Aecon Group was down 9.5% after reporting Q3 earnings. I respect this company for the important projects it builds but it seems to be a tough way to make money. I am working on an update for this one. (See below for some thoughts on its convertible debenture).

Starbucks was down 6.3%. In part this was due to the fact it warned about certain cost pressures.

TFI International was down 7.4% after reporting earnings. Probably a case of expectations having gotten too high.

In my own accounts I am inclined to raise some cash. It’s always hard to know what to sell. I may sell some more Costco. It’s a fantastic company but I don’t like its high P/E.

I now have several convertible denture holdings and one non-convertible. I mentioned these at the times when I bought and three of them were bought as new offerings. These are like investing in a bond but have the additional upside of being convertible and this can lead to a gain but only if the common shares rise quite substantially. I also like that, unlike non-convertible debentures / bonds they trade on the exchange. They can be considered as a part of the fixed income allocation in a portfolio. They are NOT as safe as the highest quality bonds however. 

I mentioned before I like to buy these only if they are at around par of $100 or lower. If bought around par then they should be decent investments earning in most cases around 5% and that is if all goes well and they mature for cash and pay their interest as scheduled and if the stock never rises to the conversion point. If the stock rises somewhat past the conversion point then they can return more, possibly substantially more. My thinking is I am not buying these with the idea that the stock will increase and I will gain that way. If I was quite bullish on the stock I would just buy the stock. 

One that I hold is from North American Construction Group. It trades as NOA.DB.B It pays 5.5% and does not mature until June 30, 2028. It’s convertible at a stock price of $24.75. That might well happen but the current stock price is only $21.30 and the stock has a rather flat history. Still, with over six years until maturity this debenture could very well trade higher in future.  I got it at the initial offering at $100. It is trading at $112. Therefor I would not buy it now. Due to the capital loss if it matures at $100 the return would only be about 3% compounded. Buying at $112 requires the conversion to payoff (or the debentures to rise even temporarily in anticipation of that)  in order to make a decent return.  At $112 it seems to me that this has turned into more of an equity investment. I bought it for the 5.5% interest. So, I am more inclined to sell now and put the proceeds into some other fixed income investment. It trades very thinly. I had the chance to sell some at $114 on Thursday or Friday but I saw the the offer price was at $127 (weirdly high) and I ended up trying to get $117. I may lower my offer to sell down to about $114. Also I was not going to sell all I hold as it would be annoying to do that and then see the price rise to say $120. So far since I have owned it is has traded up to about this $112 level at least once before but then fell back closer to $100. Decisions, decisions…

Another one that I was tracking (I wrote about it last November 1) is from Aecon Group paying 5.0% and maturing in just over two years December 31, 2023. It is convertible at $24.00 It trades as ARE.DB.C and last traded at $103.70. Aecon’s shares are at $18.46 so the conversion option is well out of the money. But Aecon shares have recently been as high as $22.28. So, going somewhat higher than $24 is certainly possible although Aecon also has a relatively flat history. I’d be a potential buyer here at more like $101 or lower. An investor could always put in an order at $101 and leave it for a month or so and see what happens.

Another convertible debenture that I hold is one issued by the Melcor REIT paying 5.1% and maturing in just three years and convertible at $8.90.  I had bought this during the COVID crash in 2020 at a very steep discount. I should have bought more. I basically had a mental block against buying more at say $85 when I had earlier got some at say $65. Now it trades right around $100. The symbol is MR.DB.B. The Melcor REIT units are at $6.73. I like the chances for these units to get somewhat above the $8.90 price within three years but that depends on the Alberta economy and therefore oil and gas prices. But I am confident (this is not a guarantee) that if it never rises above $100 it will pay the 5.1% and mature on schedule.  

Note that convertible debentures tend to be quite thinly traded. Therefore always use limit orders at set prices and not market price orders.

(This post was drafted October 14 but failed to upload at that time)

On Thursday, the S&P 500 was up a hefty 1.7% and Toronto was up 1.0%.

(It seems I neglected to make my daily comment yesterday, my apologies.)

CN Rail was up 1.8% today.  Toll Brothers was up 3.0%. TFI International was up 2.7%. Linamar was up 2.9%.

TD Direct was out today with an offering of 5.0% convertible debentures from Ag Growth International These mature on June 30 2026 and are convertible at a share price of $45.14. To me, the 5.0% sounded not bad for a portion of my portfolio (assuming the company is in good shape financially). The fact that they are convertible means that they will trade which to me is an attractive feature. A non-convertible debenture or bond can be sold but usually at a big bid / ask spread which is in effect a large hidden commission. The share price of Ag Growth is currently $28.21. That may mean that gaining through the conversion aspect may be unlikely. But it also hopefully means that we are not paying much for the conversion option. And I note that the share price was over $50 a few years ago so perhaps we can indeed get back there. In buying these there is really no time to analyze the company. I took a leap of faith and put in for some of this offering. As I write this the offer is still open. I also noted that the offer is a “bought deal”. That means that the brokers have confidence that they can sell these shares to investors. If it were a weaker company they would have done a best efforts “marketed” deal as opposed to a bought deal.

If stocks keep rising I may look to trim some position to raise more cash. I’m at a stage where I like the idea of at least 30% in cash or fixed income just in case stocks turn down.

Markets returned to winning ways on Thursday as the S&P 500 was up 1.0% and Tronto was up 1.2%.

But after the close, Amazon and Apple reported disappointing results which pushed their shares down in “after-hours” (= oxymoron) trading. The Canadian market seems to be ignoring the “threat” of higher interest rates that could result from the Bank of Canada’s move to halt bond buying and to begin raising interest rates next year. The Canadian market may be sort of waiting until the U.S. market sees a similar threat.

TFI International was up 3.9% to a new high. It’s been a stunning performer.

Linamar was up 2.7%. It will be interesting to see how the chip shortage will have affected its Q3 sales. Hopefully, the market will treat any problems that way as being quite temporary.

Shopify was up 7.0%.

BHP the giant Australia-based mining company is updated and rates Speculative Strong Buy. The best way to buy it is to buy the BBL shares(technically American Depository Receipts)  in New York that (weirdly) give you two shares for each BBL at $54.52. BHP’s main product is iron ore and 65% of its revenues came from China. BHP has 13 major mines mostly in Australian and South America. It also has 5 petroleum production operations (mostly offshore).

BHP is an inherently volatile stock as commodity prices change. It pays out a minimum of half of tis adjusted earnings as a dividend. The dividend varies up and down but has been surprisingly high overall. The stock looks attractive at this price and may be particularly of those interested in mining and/or looking to diversify in that direction.

BHP has one major Canadian mine: the Jansen Potash mine that it has been developing since about 2010 but which will not begin production until 2027. Jansen is a huge boost for Saskatchewan with a $7.5 billion investment over the next  six years and then ongoing operations. BHP has already spent some $5.6 billion on Jansen to date. This is a big investment for BHP. But Canada will remain a small part of BHP’s operations considering it has U.S. $109 billion in assets. In addition, BHP is in the process of buying a relatively small mining company Noront Resources Ltd. for about $450 million Canadian which is not a particularly material investment for BHP.

Wednesday was a rare down day for stocks. (That’s not to say that down days will always be rare but they have been rare for the past 18 months.) The S&P 500 was down 0.5% and Toronto was down a full 1.0%.

This was an eventful day in the Canadian markets. The Bank of Canada indicated that it will begin raising interest rates as soon as next Aril (only about six months away). More shockingly, the bank said it will immediately stop its Quantitative Easing program of buying $3 billion in government bonds each week. And the bank said it expects higher inflation until mid 2022. Basically all roads now seem to lead to higher interest rates.

All else equal, higher interest rates are a negative for stocks. They tend to push down P/E ratios. Investors demand higher yields which leads to lower prices on stocks (and similarly on existing bonds). I am wondering now if I should have been more aggressive in raising cash lately. 

This development caused the Canadian dollar to rise somewhat to 80.8 U.S. cents. 

Canadian stocks did not really show that much reaction. They were mostly down but mostly only in the range of 1.0% or so.

VISA Inc. was down a hefty 6.9% on a disappointing earnings report. I think VISA will remain a good long term bet and I will update my analysis before too long.

Rate reset preferred shares should do well as rates rise. In particular those that are trading well below the issue price of $25 could rise. I am not a fan of any that are already at say $26 becasue the issuers have rights to buy them back on the 5 tear reset dates at $25. The Enbridge rate rest on out list at $21 might continue to do well. It only edged up 0.7% today. Some of you may have bought rate resets when the were far lower over the past few years. For a very long time rate resets were frustrating money losers. But not lately.

I recently talked about and bought a perpetual preferred share that pays 4.5%. This was a Great West Life preferred share with symbol GWO.PR.Y. In theory this will fall in price if interest rates increase. But today it was actually up marginally to $24.80 Just yesterday I had added to my position in at $24.60 (I managed to get at the low price of the day yesterday – that saved me only $30 on 300 shares but still it was nice to get the lowest price. I had entered an order to buy at $24.60 when it was trading at $24.75 and happened to get a fill.

I am continuing my analysis of BHP the giant miner. It will always be an unpredictable company due to commodity price movements. But I like it at the current price. I bought some today in the U.S. “side” of an RRSP account. For tax reasons I don’t like it in taxable accounts and I’d rather not buy in a Canadian dollar account since that involves currency transfer fees (It’s not the wholesale exchange rate that is a concern at all but rather the extra 2% or more the broker tacks on  and that applies to dividend receipts as well).

West Fraser Timber reported Q3 earnings after the close. Profits looked good but far lower than the blow-out profits of Q2. I won’t speculate which way the stock will move tomorrow. 

Markets were “mixed” on Tuesday with the S&P 500 up 0.2% but Toronto down 0.5%.

Shopify was down 4.4%.

AutoCanada was down 3.85% and was down yesterday as well. It continues to be surprisingly volatile from day to day. 

Couche-Tard was down 2.6%.

West Fraser Timber was down 3.1% after announcing another acquisition of a mill in the southern U.S. This is the second acquisition this month. These are not huge acquisitions but the market may have preferred the cash be used for dividends or share buy backs.

Costco finally had a down day falling just 0.9%.

I mentioned I am working on BHP the giant mining company. This stock is unpredictable by nature. Its fortunes change as commodity prices change. But it appears to be quite cheap. It also pays a surprisingly large dividend although it sharply reduces the dividend in down years. And the dividend is not eligible for the dividend tax credit in Canada. I believe it is taxed as regular income like interest. Therefore I would hold this in a non-taxable account such as RRSP (RIF) or TFSA. I rather regretted selling this a couple years ago and I will likely buy some tomorrow. I like the BBL shares on New York and not the BHP shares (same company) as I will explain in the report. 

So, let’s see what markets did on Monday… They went up again. 2021 has seen the market rise seemingly about 9 days out of 10.

The S&P 500 was up another 0.5% and Toronto was up another 0.3%.

Costco was up $8.11. That’s “only” a 1.8% gain but this pushed it over $490 and it seems like $500 is within reach. But no stock is immune from a pullback. I’ll sell another portion of what I hold if it hits $500. In fact, just while typing this I have gone and put in an order to sell 20% of my Costco shares if it hits $499. Again, this could well be a mistake but with interest rates potentially in the rise the P/E ratio here looks rather rich. Hopefully, I can buy back later at a lower price.

CN Rail was down 1.2% today. I sold a few shares this morning before the price drop. Again, this one looks a bit rich but is also a great long-term hold. 

The control battle at Rogers Communications is entertaining. It’s probably a buying opportunity but I have not analyzed the company. I have always said that family control situations can be potentially a bad thing but often it’s been fine. There are many Canadian companies with family or founder control that have been great investments. Canadian Tire is one. Couche-Tard is another. When there is a family control block it is often held in a holding company and there is usually zero transparency as to how the holding company is controlled. In the case of Rogers the family holding company has some unique features it seems.  It’s interesting to that there is apparently an appeal to the B.C. courts. Why would that be when this is ostensibly an Ontario company. It always bugs me when companies sort of shop for a better jurisdiction to register in for some kind of tax or control-type reasons.

I’m working now on an update for BHP the giant Australian mining company. It might take a while given that the annual report is just over 300 pages! It’s an interesting company and I think a real contributor to society. But whether it is a good investment right now, I will reserve judgement although my suspicion is yes and I would not mind owning some shares. But I will wait until I analyze it further.

Friday was a flat day on the markets as the S&P 500 was down just 0.1% and Toronto was about unchanged.

Costco was up another 1% to $482. Earlier today I saw it was at $484 and decided to sell what amounted to 1/6th of my shares. I still have a reasonable allocation to Costco. I may well come to regret selling such a wonderful company. But this allows me to harvest some gains and build cash. This was in an RRSP account where tax is not an issue and I would not mind buying these shares back at a lower price later. The question now is are these shares getting too far over-valued? Are people buying them just becasue they have risen lately? Much is going to depend on interest rates. If rates stay low then maybe 41 times trailing earnings and 38 times forward earnings for such a high quality company can make sense.

CN Rail was up another 2.0% to $167. My rating just ten days ago (before the Q3 earnings report) was Weak Buy / Hold at $144. So now at $167 I am certainly tempted to harvest some recent gains here. These decisions are always tough.

AutoCanada was up 4.8%.

Shopify was down 4.7% – which is perhaps a reminder than any stock can have its down days. 

Stocks managed another positive day on Thursday as the S&P 500 closed 0.3% higher and Toronto edged up 0.1%.

Stantec was up 9.4% after announcing a moderately large acquisition. It’s a $500 million acquisition which is not huge compared to Stantec’s $6 billion equity market value. It appears that the market liked the price paid.

AutoCanada was up 6.9% although it did not release any news. It has a heavy presence in Alberta and it may be that better days in the oil patch is part of the reson for optimism on this stock.

Stocks have done very well this year to date. Personally, I would like to reduce my equity exposure but it is always hard to decide what to sell.

I mentioned having an order in to reduce my Costco position a little with the stock having such a high P/E ratio. With the stock at about $460 a few days ago I had put an order to sell a few shares at $474. It blew past that today to close at $477.23 and so I (automatically) sold a few shares at $474.

Markets do not seem worried about higher interest rates. But that could change quickly…

Wednesday was yet anther strong day in the markets. The S&P 500 was up 0.4% and Toronto was up 0.5%.

It’s easy to get complacent but I’d like to be prepared for any pull back with some cash on hand as well as an allocation to dixed income including rate reset shares to cushion the blow if markets do head lower.

CN rail was up 5.2% on its good earnings report. 

Toll Brothers was up 2.6%.

Costco was up 0.6% to $470. I was tempted to reduce my position just a little a few days ago at about $460. Instead I put in an order to reduce it if it gets to $474.  It hit $472.50 today. It’s a fantastic company and selling has been a mistake in the past. But it is richly priced. I would not be at all surprised if it announced another special dividend of $10 to $15 in mid November. It’s same store sales have been roaring ahead. The danger is that this is now the expectation and any return to more modest same-store sales growth could push the stock down at least temporarily.

I mentioned yesterday that I had put in an order for some of the 6% ECN Capital debentures that TD Direct was selling in its new offerings category. I got allocated 70% of what I asked for which indicates the issue was fairly popular with investors. But I have no idea of the extent to which it was sort of flogged to full service investors. I believe this is the only non-convertible bond/debenture that I own. I will be interested to see what price I would be able to sell it at if I choose to sell later. My assumption is that I will face a substantial discount (3% at a very minimum) to sell and that I might have little choice but to keep it for the five year term. And as long as it pays its promised 6.0% and redeems the principal in 5 years, that will be fine. I could also see what the price would be to add to my position later. But if TD is not going to be a market maker for this bond, will I even be able to buy more? This I will soon learn.

Tuesday saw the S&P 500 rise another 0.7%. Toronto was up 0.5% to 21,087 as it pushed over the 21,000 level for the first time. 

West Fraser Timber was down 3.4%. Possibly this was linked to lower home starts in the U.S. 

After the close, CN Rail announced results that appear to be moderately better than expected. In New York the shares were up 3.8% in after-hours trading. But after-hours trading can sometimes be misleading and we shall see what the market reaction is in Canada tomorrow after the analysts have this evening to digest the results.

CN also announced that its CEO will retire. They allude that this was previously planned but it may also have been in reaction to activist share owner pressure. 

I first started looking at CN over 20 years and it has always struck me as a very responsive company. It may be a small thing but they answer my (very occasional) emails promptly. They are one of the first Canadian companies to report earnings each quarter. There is a saying “The way you do anything is the way you do everything”. I believe this applies at CN. They do things fast and well. They have responded very quickly to the matter o f the recent activist share owner.

It’s very tough to get a good rate on U.S. dollars for a vacation. 

For example most Canadian dollar credit cards will tack on around 1.5 cents as the bank’s exchange fee and then add another 2.5% to that. For a total around 4.0%. And they will hide this in with the wholesale exchange rate. I just looked up an actual example. On August 30 the wholesale exchange rate to buy a U.S. dollar was $1.261. I made a U.S. dollar purchase on that date with a Canadian dollar credit card and the exchange shown is 1.30285 or 4.185 cents and 4.185% above the wholesale rate. 

A debit card is even worse and will add 3.5% over and above the bank’s standard 1.5% or so. For a total of about 5.0%. At least that is the fee for TD Bank debit cards.

You could carry paper U.S. dollars and can probably get those for a fee of around 2.5% (but maybe more) at your bank. But realistically we pay with plastic most places.

A partial solution is to have a U.S. dollar credit or debit card.

But you still need to have U.S. dollars to pay your U.S. dollar credit card balance.

 Today I was wanting to transfer some money into a U.S. dollar bank account that I have.

Doing so through TD Direct is supposed to be my cheapest route at T.D. But I found they wanted 3.0 cents above the wholesale rate for amounts of $1000 or $5000 and not much lower than that even if I did $10,000 or $25,000. I ended up calling TD Direct and they did it for 1.8 cents above the wholesale rate. So, in this case it was worth phoning in.

I find all of these rates even 1.8% to be too high. 4.0 and 5.0 cents above the wholesale rate is outrageous and the banks charge it just because they can get away with it. (Which is why owning some big bank shares is usually a good idea).

So, how to get around it? 

If you have a U.S. dollar margin account for investing you can accumulate U.S. dollars there through capital gains or dividends and transfer those to a  U.S. dollar bank account to pay your U.S. dollar credit card. It’s not worth doing this just for exchange rate savings since it creates tax complexities. But if you have U.S. investments outside of registered accounts this might be an option. You can also move Canadian dollars to the U.S. side of a non-registered investment account using “Norbert’s Gambit”.

TD Direct is out with an offering of a 6.0% non-convertible five year debenture from ECN Capital. 

I’d prefer a convertible debenture both for the potential upside and because it would trade. Strangely, in this case TD has it under the category “convertible debentures” but further down the summary it clearly states it is not convertible. 

If you buy this you have to be prepared to hold it for the full five year term. You might be able to sell it early but maybe not and if you do you will face a large bid/ask spread and likely have to sell below face value.

Looking at ECN Capital it seems to be a reasonably successful lender. I have a little bit of familiarity with it as it split off of a lender I briefly looked at some year ago and the name Steve Hudson that I see on its web site is a little bit familiar to me.

The company has a BBB(low) credit rating. That means it is a not a very strong credit but is at least investment grade. I believe these debentures (meaning bonds not secured by any particular assets) are a little step above junk bonds.

With this sort of thing, I think the key is diversity. The 6% is attractive but I don’t want to get over exposed to one issuer in case they do run into financial trouble.

I was hesitant but decided to put in an order for what amounts to 2% of my spouse’s RRSP. I want some fixed income and putting 2% of the RRSP into this debenture does not seem overly risky.

I also considered that this is a “bought deal” meaning that the brokers are confident they can sell it.

On the other hand I notice that the offer has been open for over four hours by the time I noticed it and that indicates that demand for it is not particularly heavy. Still, I expect it to sell out and I may well not get my full allocation. That could be annoying.

P.S. Sorry, this one closed just as I was finished writing this… It will be interesting to see if I get any. Again, if you are interested in new issues like this you pretty much have to register with your broker to get the alerts and then you have to act fast when they come around. Unfortunately there is very little time to think about these or analyse them.

Stocks rose on Monday with the S&P 500 and Toronto each up 0.3%.

Costco was up 2.1% to $462. It’s a fantastic company. It always seems expensive on a P?E basis and is even more expensive than usual at this time. I’m somewhat tempted to reduce my position modestly.

Toll Brothers was up 2.2%. It’s not an expensive stock in relation to earnings but is inherently far more cyclical than the likes of Costco.

Constellation Software was up 2.7%.

lululemon was up 3.4%.

Penny stock RIWI was up 8.3% after it released news about a survey of what it calls Gen COVID investors. RIWI is attempting to showcase the value of its unique approach to collecting survey data and understanding various trends.

Friday was a positive day in the markets with the S&P 500 up 0.75% and Toronto up 0.50%.

Amazon was notable with a 3.3% gain.

West Texas Oil is at U.S. $82.66

The Canadian dollar is at 80.9 cents or $1236 to buy a U.S. dollar at the wholesale rate. It could go higher. But if you need U.S. cash such as for a winter trip it’s probably prudent to transfer some now especially if you can get a good rate (not too much of an additional charge for converting). 

On Tuesday the S&P 500 was down 0.2% while Toronto was up 0.1%.

West Fraser Timber was up 3.3%. This was prior to an announcement after the close that it will acquire a mill in the U.S. for $300 million.

The Boston Pizza Royalty units were up 9.9% due to its announcement of a distribution increase (see post below about that).

Penny stock RIWI bounced down 14%. This was on low volume and therefore seems fairly meaningless.

Oil is at about $80 U.S. and with the Canadian dollar at 80 cents U.S. that’s $100 Canadian which is lucrative. 

Canadian National Railway is updated as Weak Buy / Hold at $144.24. It is moderately expensive but is a high quality and stable company that has done very well over the years.  I added a little to my position this morning even though it does look somewhat expensive.

The report on CWB is updated and rated (higher) buy at $38.78. I was quite bullish on this one when it was last updated at $32.39 on March 31 and it has done well. Earnings have increased and so it is just as attractive now as it was then. I am tempted to add to my position but it is already my second largest position.

The analysis of Costco is updated and rated Weak Buy / hold. I would put emphasis on the Hold. It is a fantastic company but it is expensive at 40 times trailing earnings.  And after a long string of same-store earnings growth it could always experience a slow-down. Those holding it should probably continue to do so. I hold it and if it does happen to fall down close to $400 I will add to my position. Selling this company due to its high P/E ratio has proven to be a mistake in the past. At the same time it is expensive and so this does not seem like a good time to buy. Or if buying for the first time, start out with a small position and be prepared to add on any dip.

Costco is up 20% this year. I (and I think also the market to some extent( had expected it to struggle to show same-store growth as it started to lap the start of the pandemic which had boosted sales last year. Instead, same-store sales accelerated even more in the last six months.

 This is a great company to own for the long term . It’s a simple to understandable business. We are all familiar with it. It would be hard to walk into a  store and fail to realize that it is a very profitable business. 

Whenever a new store opens, you know there will a traffic jam on opening day and that’s without basically any advertising. How many retailers could say that?

Friday’s action saw the S&P 500 finish down 0.2% and Toronto unchanged.

AutoCanada bounced down 3.0%

Linamar was up 2.6%. It is holding up very well in the face of the continuing chip shortages that are lowering auto production and that will likely be a big headwind for Linamar for Q3 and Q4. Linamar is a great company and any big dip will be a buying opportunity.

Penny stock RIWI bounded up 13%. It’s likely to continue to be volatile.

The trading yesterday in Alanna was interesting and provides some lessons. On Thursday night I noted:

“After the close, Alcanna announced it will sell itself to a company called Sundial Growers. this is a sale for shares of Sundial and not for cash. Sundial trades on NASDAQ. A the current price of Sundial the transaction is worth $9.12 per Alcanna share. The deal will not close until late December or perhaps later. It is subject to certain regulatory approvals. Alcanna closed today at $8.09 and it seems the reason it rose from $7.00 on September 8th was that word of the transaction had leaked out (which is not impressive as management is supposed to keep such things secret by law). I’m not sure this stock will go up much tomorrow given the uncertainty in the value that will ultimately be received (Sundial shares could decline) and given the wait involved. I know nothing about Sundial and if I still owned this I would likely sell tomorrow.”

As it turned out Alcanna opened Friday morning at $8.63 and within a few minutes peaked at $8.93 and then fell as low as $7.77 and closed the day down slightly on the day at $8.06. Volume was heavy with 790,000 shares traded compared to the daily average of 99,000 shares.

What appears to have happened is that some investors initially saw the $9.12 transaction price and bid the price up. But then the market started to focus on the fact that this was not in cash but in shares and there would be several months delay in getting those shares. Also the buyer Sundial initially opened higher but then fell as the day went on.

If I had been quicker in my thinking on Thursday night I might have recommended a trading strategy I have mentioned before. Say you held these shares and wanted to sell on Friday morning. Rather then wait till morning, you could place your limit order at a price you were okay selling at such as $8.50 in this case. Then if it opened higher you would get the price at the open, in this case the $8.63 (assuming your order did not push the open price down). If it opened lower than your $8.50 you would still have had the same ability to sell at the market price on Friday mornings or to decide to just keep holding.

What I would not have recommended on this stock in the middle of news like this was to enter a market order on Thursday night. That would have been an order to sell at a unknown price which could potentially be lower than you were comfortable selling at. Market price orders are fine during the trading day although only on high volume stocks. A market order even on a blue-chip is dangerous to place outside of trading hours since you never know what news could arise by morning.

******************

In other news, I was surprised at the Boston Pizza Royalties Income Fund’s announcement that it is raising its monthly distribution from 6.5 cents to 8.5cents. I would have thought they would be struggling due to the continued partial lock-downs and that more locations would be closing. This gets them fairly close to back to the 10.2 cents of pre-pandemic (They had been at 11.5 cents in 2019 but found that unsustainable even before the pandemic).

As an Income Fund, the BP fund is exempt from income tax but only if it distributed essentially all of its earnings. For that reason it is not in a position to just let extra cash build up. Keep in mind too that this is a top-line fund. It is not directly tied to profits at the restaurant level but just to food sales (alcohol is not included).  Perhaps the future is not so bad here, higher food prices will lead to higher menu prices and higher revenues and higher distributable cash for the fund if customers return to their old eating-out patterns.

Yesterday I added Enbridge Inc. to the list with a rating of Buy at $50.70. That was my analysis price from Wednesday and in fairness I will note that it closed Friday at $51.59. 

I’ve been aware of Enbridge since about 1990 when it was a far smaller oil-only pipeline. It was then called IPL which I believe stood for International Pipeline Company and it was headquartered on Jasper Avenue in Edmonton. 

I actually had it as a Buy on this site back in the years 2000 to 2003 and it did well but at some point I thought it looked aa bit over-valued. I am clearly way over-due adding it back to the site. It probably should be a core holding for many Canadian investors that like to hold blue-chip dividend-paying type Canadian stocks.

It was interesting to read about its now much larger operations. It has grown both organically and by making acquisitions – some of which it issued many shares to pay for. I hope to gain more insight into it as I update it again in future. I believe I mentioned some weeks ago that I have bought shares in Enbridge. In particular, I thought it might get a bump as its Line 3 expansion pipeline started delivering oil finally in recent weeks.

On Thursday markets were higher as fears of a sort of debt-ceiling crisis in the U.S. abated. (There was not a great deal of fear but some…)

The S&P 500 was up 0.8% and Toronto was up 1.1%.

Most stocks were higher. Shopify was notable with a 3.4% gain.  Also AutoCanada with a 3.1% gain. 

After the close, Alcanna announced it will sell itself to a company called Sundial Growers. this is a sale for sjhares of Sundial and not for cash. Sundial trades on NASDAQ. A the current price of Sundial the transaction is worth $9,12 per Alcanna share. The deal will not close until late December or perhaps later. It is subject to certain regulatory approvals. Alcann a closed today at $8.09 and it seems the reason it rose from $7.00 on September 8th was that word of the transaction had leaked out (which is not impressive as management is supposed to keep such things secret by law). I’m not sure this stock will go up much tomorrow given the uncertainty in the value that will ultimately be received (Sundial shares could decline) and given the wait involved. I know nothing about Sundial and if I still owned this I would likely sell tomorrow.

I had bought shares of Alcanna in September last year and added it to the site at $4.14. I sold in March and rated it (lower) Sell at $7.83. 

Some years ago this same company then under the name Liquor Stores N.A. was on our list but fared quite badly under the former at times incompetent management (notably the American CEO Stephen Bebis). The management that took over from Bebis in a hostile take-over of the Board have not ultimately done very well with it either. Liquor retailing is a tough business because they sell a commodity product and so they end up competing by discounting prices. And all competitors buy from the wholesaler at the same price with no volume discounts although the bigger players were better able to stock up when the wholesaler or alcohol producer offered sale prices. Well, it was fun learning about the liquor retail business over the years.

Going back much further in time when it was managed by its Edmonton founders it did very well for a long time. 

Meanwhile I did finish my analysis of Enbridge. It will be rated Buy and I will post the report tomorrow. 

Markets were volatile on Wednesday. There were down much of the day but rallied in the afternoon with the S&P 500 closing up 0.4% and Toronto closing just slightly up (less than 0.1% up) 

Oil exports to the U.S. from Canada are at record levels and rising as the Enbridge Line 3 expansion has come on stream and as other smaller capacity upgrades have occurred. Combined with higher oil prices a lot of money is flowing north.

Inflation talk seems to be everywhere. Most notably today it was gasoline prices jumping.

consumer demand appears to be raging for many products causing shortages especially when combined with certain supply chain issues and it seems sudden lack of willing labor supply in many places.

This is positive for stocks. The fly in the ointment is the risk of higher interest rates so some caution is still warranted.

A perpetual preferred share offering at 4.5%

At this moment TD Direct has on offer a new issue of Power Financial preferred shares paying 4.5% annually.  It’s unfortunate that they do not label these as perpetual which is certainly what they appear to be. That is, they are not rate reset preferred shares.

These will be a good investment is interest rates remain low and would be a poor investment if rates rise significantly. We could be stuck holding 4.5% shares in a world where the market rate is 6%. But as of now that seems unlikely. 

I think these type of shares deserve a place in the portfolio of many investors especially older investors with larger portfolios.

A week or so ago I noted that Great West Life had an issue of 4.5% perpetual preferred shares out. That seemed attractive. I “put in” for 1000 shares and I see today I was allocated only 300. That indicates that the 4.5% was popular with investors.

Having only gotten 300 of my order for 1000, I am not going to bother with this one although it looks attractive.

I suspect this Power Financial issue will sell out quickly. If interested in this sort of thing be sure to register for announcements of new issues with your broker. It’s an unfortunate reality with these these new issues that you often have very little time to investigate the offer or think about it. You have to move fast if you want them.

There are various complexities of these shares such as the right of the issuing company to buy them back. And the credit rating of the issuer can be important. Typically only strong companies get to issue these preferred shares. I am not sure there is such a thing as “junk” preferred shares except where a strong issuer later becomes financially weak (known as a fallen angel).

On Tuesday markets partially rebounded as the S&P 500 rose 1.05% and Toronto rose 0.65%.

FedEx was strong with a 2.9% gain.

There has been a number of new IPOs coming out on TD Direct which is probably indicative of continued strength in the markets.

Oil remains strong at $79 U.S. which is $100 Canadian. Oil is at a seven year high in U.S. dollars and probably longer in Canadian dollars.

Natural gas prices are also strong.

Markets were somewhat weak on Monday as the S&P 500 was down 1.3% and Toronto down 0.5%.

West Texas Oil is at U.S. $78 and the Canadian dollar is at 79 cents U.S. I’m not sure if anyone (such as BNN Bloomberg) noticed that West Texas in Canadian dollars actually poked its head above $100 this morning. Right now it’s about $99. Although oil has been higher than that at times this is by no means a low price. The Canadian oil industry can do very well indeed if we stay around these levels.

I will be adding Enbridge to the site most likely rated Buy in the next couple of days. It’s now a massive company. I think it will continue to be a  good investment.

On Thursday, the S&P 500 was down 1.2% and Toronto was down 0.4%

It’s possible that a somewhat persistent negative sentiment has come over the market as fears of interest rate increases grow.

Those with cash can consider nibbling on bargains but should not be in a big hurry to deploy cash since this is a modest decline do far.

With Canadian Tire down 3.3% to about $177 (versus its high of $214) I decided to add to my position today. Then, quite coincidently, I went to Canadian Tire where I will be spending at least $1200 for four new tires. It may not be the cheapest place around but it’s very convenient for me an I have been dealing with the same service advisor there for about ten years. A lot of people mistrust Canadian Tire. Whatever, it won’t do my life any good to stress over what I spend there. I occasionally have something to complain about there but in general I am satisfied with the service I get there.

Other stocks on the move today included:

Toll Brothers – down 4.0%

Aecon Group down 4.5%.

I was looking today and I see that RBC has a little report out on Melcor Developments dated September 26 and with  a target price of $17. That probably explains the recent bit of buying interest and higher price.

Today marked the end of the third quarter of the year. Within two weeks we will see the first of the third quarter earnings reports come in. The music never stops in the markets. 

On Wednesday markets were relatively flat as the S&P 500 rose 0.2% and Toronto was down 0.1%.

West Fraser Timber was up 3.6%.

Melcor is hanging on to its recent gains and was up another 0.5%.

The Enbridge rate reset preferred share on our list was up 3.6%.

Market interest rates have risen. The Canada five year bond yield is at 1.1%. It was last that high about 20 months ago and in the interim briefly reached lows of 0.33% (while shell-shocked from COVID) and it spent the last eight months of 2020 under 0.5%. Rates are still very low but directionally higher rates are negative for investments except for things like rate rest preferred shares that benefit from higher rates.  The movement in interest rates is definitely something to keep a close eye on.

Tuesday’s markets featured a 2.0% drop in the S&P 500 and a 1.4% drop in Toronto.

After all the gains this year, such a drop is not necessarily any big concern. It’s possible a bigger decline will ensue but for the past 18 months it seems that every minor setback has been reversed. In any case declines also provide opportunities to add to positions. 

The decline today was linked to higher interest rates in the bond markets, a fall in U.S. consumer confidence and fears that Biden’s massive spending plans will be derailed in congress. 

Some of the more notable declines included:

Toll Brothers -down 5.2%.

Shopify – down 4.8%

Penny stock RIWI – down 10.1%

lululemon – down 3.8%.

But Melcor Developments rose another 2.5% to $15.04, a level it has not seen since the Summer of 2018. It’s still quite light volume – although higher than normal. Melcor continues to buy back (most days) the modest 3781 shares per day that it is allowed under the rules. The last buy reported was on Friday at $13.78. This was reported today and so it may be that they did not buy any today or yesterday. Overall, the buying interest is nice to see but given the thin trading is not necessarily indicative of much.

On Monday, the S&P 500 was down 0.3% while Toronto as up 0.3%.

Oil is strong at U.S. $75.36. This bodes well for Alberta.

Perhaps not coincidentally, Canadian Western Bank was up 2.6%.

The oil and gas ETF XEG was up 3.0%. 

Melcor Developments was up 5.0% to $14.67. That’s on thin volume but it has now been pushing higher for about three weeks. Checking insider trading for Melcor Developments I see the company itself bought back a few shares at $15.54 on Wednesday last week. Previously it seemed they had capped their bid at $12.50 so this is a bit of a good sign. But overall insider trading does not really support a higher price. What I think will support a higher price will be the Q3 results when released in November.

West Fraser Timber was up 2.7% to $107.52. Over the summer, lumber prices had declined but in September they have bounced somewhat upwards.

On Friday, the S&P 500 was uo 0.15% and Toronto was down 0.3%.

AutoCanada bounced down 4.1%.

Melcor was up 2.4% and has shown some recent strength.

Costco was up 3.3%.

U.S. markets were strong on Thursday as the S&P 500 was up 1.2%

Toronto was only up 0.3% despite oil gaining ground today.

American Express was up 3.5% although it apparently did not yet release earnings but will do so tomorrow morning. Visa was up 2.5%. 

Costco released earnings after the close and apparently exceeded expectations. 

On Wednesday, the S&P 500 was up 0.95% and Toronto was up 0.8%.

AutoCanada was up 6.3%. For the last six months it has had a number of dips and then recoveries. 

Melcor Developments was up 3.1%. But as is virtually always the case that was on a tiny volume and so may be a meaningless move.

Aurora Cannabis is closing one of its facilities in Edmonton. I have not had a rating on it for a long time but my past comments have been negative. This company over-expanded some years ago and has been in poor shape for quite a while.

Oil is strong at over $72 U.S. dollars for West Texas.

FedEx was down 9.2% after releasing disappointing earnings. This company has had far more volatile earnings than would be expected. It had gotten a big boost from all the COVID-related home shopping.

The FED today signaled that its bond buying would soon start to taper off. This was as expected. But they also signaled they might taper it down to nothing by mid-2022 which is a bit sooner than had been expected. They also signaled no interest rate hikes for now. But there are indications that the FED rate will go up from about 0% now to about 2% in a couple years. The market seems to be ignoring that. It’s well accepted that ultra-low interest rates are responsible for high P/E ratios (and therefore high level) of the market. Investors should be aware that a P/E contraction could certainly occur over the next couple of years. That is, it might be wise to have some cash and certainly to not be 100% in equities especially for older investors. Such caution has NOT been rewarded since the market bounced off its lows around late March 2020. But at some point caution (perhaps a better word is prudence) will likely be rewarded.

I was at Costco from about 5:15 pm to 6:15 tonight. It was of course busy. Not jammed by any means but reasonably busy. I marvel at their success and the prices on products. Not everything in there is cheap of course. I saw $1000 dollar speakers for example. I like owning shares even if the stock always does seem expensive.

On Tuesday the S&P 500 was down0.1% while Toronto was up 0.45%.

Alcanna was up 5.0%.

Couche-Tard bounced back up 2.3%.

TD Direct alerted me today to a new bond issue. A 10 year City of Montreal bond paying 2.0%. There is no way I would even think about buying a ten year bond at 2.0%. But to each his own. But I do think it is smart for the City to borrow at that rate. Smart of them to lock in their debt for a longish period at such a low rate.

Markets were down noticeably on Monday. By most accounts it is just a healthy breather of sorts for the markets. It will not necessarily signal the start of a bigger decline. The S&P 500 was down 1.7% nd Toronto was down 1.6%.

Accordingly, almost all the stocks on our list were down.

Fortis Inc. bucked the trend and gained 0.4%. Wine producer Andrew Peller was up 2.1%. 

I took the opportunity to buy back another chunk of the CN Rail shares that I had sold last month due to uncertainty about the Kansas City Southern deal. This is a high quality company and I would like to just hold it for the long term.

On Friday the S&P 500 was down 0.9% and Toronto was down 0.5%.

CN Rail was up 2.4% after announcing some new plans to boost profits. They also indicated that they will actually come out ahead by about 600 million dollars in deal0break fees when the dust settled. I believe they may be booking that now but I wonder if some of that depends on the CP deal to buy Kansas City actually getting approved. It’s been quite a saga. I’m glad I bought back about half of the CN shares I sold. I’m too stubborn to buy the other half back unless the price drops to about the $147.50 which I sold at. In the meantime I bought Enbridge shares and it is another high quality company.

Couche-Tard was down 3.0%. I mentioned some risks in my recent update but overall this still seems like a good long term holding.

AutoCanada bounced up 4.0%.

Markets appear set to open moderately lower on Monday.

It’s election day in Canada and the outcome could affect markets on Tuesday.

On Thursday, the S&P 500 was down 0.2% and Toronto was down 0.4%.

Alcanna was up 3.8%

Linamar was down 3.2%. It may continue to suffer due to the microchip shortage that is lowering vehicle production. But ultimately it remains a very good company and I believe is one to buy on dips. But it certainly can be volatile.

I noticed today that TD was selling a new issue of Chorus Aviation debt due June 30, 2017 (so almost six years from noe) and paying 5.75%. The issue sold out quickly raising $85 million. The 5.75% seems attractive. But in order to buy these you have to be registered for the alert emails from your broker and you have to be willing to act very quickly. There is often little or no time for analysis. In this case it is unsecured debt. These debentures are NOT convertible. The most you will get is your 5.75% return. The worst that could happen is the company goes broke and you lose much or all of this. It’s hard to make a snap judgement about the financial strength and risk of Chorus Aviation – my sense is that they are reasonably strong but I really don’t know.

These debentures do not trade. If you bought you are in until June 30, 2027. If you are going to invest in these sorts of things it would be wise to spread it over a number of names in order to limit the risk.

Overall, I’d rather try to find a convertible debenture. For example the Melcor REIT debenture which I own and which I have mentioned pays 5.1% and matures December 2024. You buy it around par or maybe 101. So not as high as 5.75% but it trades because it is convertible. The conversion price is probably too far out of the money to be worth anything but then you never know.

HOUSING STARTS

The August house start figures from CMHC came out today. The headline is that starts are down slightly from the July level. But the fact is they are at very high near record levels.

Given my Melcor Investment, I am highly interested in single family detached home starts in Alberta. These were up 73% versus August 2020 and in Edmonton up 40% and in Calgary were up 148%. But of course 2020 was hit hard by the pandemic. Comparing to August 2019, Alberta single family home starts this year are up 78%. But if we compare back to August 2014 before oil prices declined sharply then Alberta starts are down 24%. Therefore it looks like the Alberta home starts are fairly robust but not as high as 2014. A look at total housing starts (includes multi family and attached) confirms the same, Alberta starts are well above the levels of a few years ago but not back to the boom year levels. Overall, I believe the figures support a view that Melcor Developments will report strong sales in the last half of this year.

Meanwhile the pandemic is a concern and could slow job growth and then housing starts in Alberta. The new Vaccine Passport should help to get more people vaccinated. 

Wednesday’s session saw the S&P 500 up 0.85% and Toronto up 0.7%.

Starbucks was down 3.55%.

Oil was higher and is at U.S $72.45 this evening.

Alberta is introducing a Vaccine Passport and a partial lockdown. Not good news for the restaurant and bar industry which for the last few weeks have had to stop selling Alcohol at 10 pm and now face indoor dining closures unless they accept vaccine passports to get an exemption.

Not great news for commercial REITs including Melcor REIT – but I think the Melcor REIT is cheap enough that it should not be pushed down on this news.

Alcanna the Alberta liquor store chain should benefit. I had soured on it due to its expected lower sales as they divested a lot of stores outside of Alberta and due to losses in Cannabis. But this latest news is directionally good for them.

Yesterday I said that August housing starts would be out today. They come out on the 11th working day of the month. Actually that is tomorrow.

On Tuesday the S&P 500 and Toronto were both down about 0.6%.

Melcor Developments was up 4.9%. But this was on thin volume and so is pretty meaningless. I look forward to seeing the housing start report for August which will be released tomorrow by CMHC . I suspect Alberta starts were strong.

Oil is hanging onto recent gains and rose a little today to $70.77. Natural Gas in Alberta is reportedly at a four year high. The outlook for Alberta is strong although the COVID situation is certainly a risk to that scenario.

On Monday, the S&P 500 and Toronto were each up 0.2%.

Readers may notice a couple of ads now appearing on this site.  I am not endorsing the products sold in the ads. I will see how this goes and if the ads are not causing harm I will leave them. An ad provider approached me and I said I would give it a try but that I was leery of what type of ads might appear.

Oil is back over U.S. $70 which is nicely profitable for most oil producers.

I’m working now to add Enbridge to the site.

The rail saga today saw CN shares down 1.9% and CP about unchanged. I was able to buy back CN shares at about the same price I sold recently. This was in a non-taxable account. I bought back half the CN shares I had held. I may buy more if the price dips. I had meant this as a long-term hold but sold when they got the unfavorable ruling about the Kansas City purchase.

The actions of the activist 5% shareholder group are interesting. They do have a good group of four directors proposed. But CN is not in such bad shape at all that it really needs to listen to this group. Going in with public insults to the current Board may not be a great way to get them to listen. I’m not sure anything will come of it at all.

Alimentation Couche-Tard is updated and rated Buy at $49.85

It has a fantastic history and trades at an attractive price. There are some concerns regarding the eventual impact of electric vehicles and there is also a concern that profits could dip temporarily if and when the currently very high profit margins on gasoline fall back down to more normal levels. But overall, this company seems like a long-term keeper.  

This company and its management are a fantastic success story. Just since I added it to this site on March 31, 2005 rated (lower) Strong Buy at a split-adjusted $2.90 it is up 1619%.

Alain Bouchard founded this company in 1980 and his shares are now worth $6.1 billion.  An original partner and co-founder in 1980 has shares worth $3 billion. He brought in two more partners in 1984 who are also considered founders and their shares are now worth over $1 billion each. This is truly remarkable. Not to mention the fact that with vast international expansion this has become one of Canada’s largest companies by revenue. (And not so far down the list by profit either).

Friday’s session saw the S&P 500 down 0.8% and Toronto down 0.35%.

Apple was notable with a 3.3% decline.

Today (Sunday) Kansas City Southern announced that it now accepts and prefers Canadian Pacific’s bid rather than CN’s. Since CN shareholders did not seem to favor the deal it’s quite possible CN’s price will rise on this news. Perhaps if CP’s price dips that will be a buying opportunity. I now see that CP will apparently reimburse CN for some $1.4 billion in break fees if the CP deal goes ahead. Perhaps this is not a bad outcome for CN. 

Markets were modestly weaker on Thursday with the S&P 500 down 0.5% and Toronto down 0.2%.

lululemon was up 10.5% after reporting strong earnings.

Dollarama was down 3.1% after reporting a rare drop in same-store sales. This was blamed on lockdown provisions in Ontario. Dollarama has been extremely well managed and well positioned. It will likely continue to be a good long term investment.

Markets are set to open higher this morning.

I watched about half of the leaders debate last night. Quite a snoozer of a debate. My impression was that the moderator won – hands down. 

As of mid-day Friday markets are about unchanged. Thursday they were down modestly.

Penny stock RIWI was up yesterday and is up another 12% today although on low volume of trading.

lululemon is up 11% today after releasing a strong earnings report.

Yesterday the Bank of Canada indicated it will continue to buy government bonds each week for some time yet. This bond buying is part of what is suppressing interest rates and pushing up the values of stocks and houses and other assets. Government as well as personal and commercial borrowing (greatly encouraged by the low rates) is directly adding to the money supply and is inflationary for all goods and services. When this will end, no one seems to know.

On Tuesday the S&P 500 was down 0.3% and Toronto was down 0.1%.

There were no particularly big moves in the stocks on our list.

The CN Rail saga is rather perplexing. Last week they got the ostensibly BAD news that the regulator was not going to allow a “voting trust” that they hoped to have in order to expedite their hoped for purchase of Kansas City Southern. And I believe the comments in that decision were not favorable to the idea of the acquisition. On that “bad” news the stock rose and over a few days rose 17% from about $138 to as high as $161 before slipping back to $155.50

CP Rail which now has a better chance of “winning” the competition to buy Kansas City Southern initially fell from $91 to $86 but then rose to $93 before slipping back to $90.

Given that CN’s price rose on the “bad” news about the deal it seems that the market believes that CN will ultimately not buy Kansas City Southern AND that his is quite a good thing in spite of the money spent to date and a break-fee of some $1 billion dollars.

But CN has indicated they still plan to pursue the deal saying it is in the public interest.

Meanwhile a major share owner TCI Fund (they own about 5% of CN) came out with very strong criticism of CN over this deal and over management in general. They are demanding the CEO be fired and Board replaced. I find their criticisms and threats to be a bit much. Who do they think they are? It’s true that CN’s earnings fell in 2020. Its revenues were down presumably largely due to the pandemic. But CN has had a stellar record since it was privatized in 1995. A 5% share holding simply does not guarantee even one Board seat let alone give TCI the power to elect a whole new board. I suspect TCI is over-playing their hand and making a lot of noise that will not go anyplace. Time will tell.

I find all of this rather perplexing. I sold my CN shares too early when the shares popped on the news last week. A more prudent action would have been to sell half and wait to see how things settle out. 

On Monday markets were closed for the holiday.

On Friday, the S&P 500 was about unchanged and Toronto edged up 0.1%.

West Fraser Timber was up 3.6% to go back over $100.

As of Monday evening, markets appear set to open slightly higher on Tuesday morning.

Oil is at $68.88.

Questions now include whether inflation is set to continue or instead to settle back down

The yield on a 5 year government of Canada bond is 0.79% per year. Yet extremely few people would forecast inflation to be that low. (David Rosenburg might).

Other questions include the extent of COVID shut downs this fall. Millions of people will have made plans to travel this coming winter. Will those plans have to change? I certainly hope not.

Thursday was yet another positive and record day in the markets. The S&P 500 was up 0.3% and Toronto was up 0.5%.

The Energy ETF, XEG was up 3.5% as oil touched $70.  This likely has room to keep going up. The opening of Enbridge’s line 3 capacity addition could be a spark there. Speaking of Enbridge, I have not analyzed it but I like its prospects and I may buy some tomorrow.

Aecon was notable with a 3.3% gain.

Canadian auto sales numbers for August were released by Desrosiers today (man they are fast). They were disappointing with an 11% decline versus August 2020. In part this was blamed on microchip shortages which they say could persist through the end of this year. If there is a shortage of vehicles for sale and if demand is stronger than supply, that could be good for profitability at AutoCanada and other car dealers. 

I took a look at Andrew Peller’s latest earnings release. The stock is down and so I thought it might look more attractive.

Also they just announced that they just sold a piece of land in B.C. for $9.0 million that had a book value of $1.3 million. That’s intriguing because it is very easy to imagined that most of their land holdings are worth FAR more than book value. But then again, how relevant is that if they have zero intention of selling additional parcels of land? The B.C. situation was somewhat unique.

Unfortunately, their recent quarterly earnings for their Q1 ended June 30 were quite weak. Profits were WAY down but that was mostly due to added expenses associated with reopening of wineries to the public. That’s unfortunate but perhaps forgivable.  But also of concern their revenues were down 6% and the explanation was that it had to do with pandemic-impacts. They claimed that Q1 in 2020 benefited from the pandemic. But sales in that quarter were only up 4.4% so it does not seem like such a tough comparable.

All in all,  Andrew Peller is a fairly cheap stock. It remains profitable and should not have a lot of downside. The dividend seems quite safe but is only a 2.8% yield. But it’s in a tough business. Wine is generally cheap and that’s due in good part to cheap imports. They sell some high-end wine but it seems that the bulk of their business is in cheap brands. I own some Andrew Peller shares and do not plan to sell. But I will wait for a better quarterly report before buying more.

On Wednesday the S&P 500 was about unchanged adn Toronto was up 0.5%.

Dental Corporation (not on our list but which I have mentioned a few times) was up 5.0%. 

CN Rail was up another 3.8%.

TFI International was up 2.0%.

After the close, Costco reported yet another month of quite strong same-store sales growth.

In regards to CN, I took a look at the rail car loading report today.

Earlier in the year , Canadian rail car loadings had been running above the 2020 numbers although generally somewhat below the 2019 numbers. But as of about two months ago they began to run well under the 2019 and similar to the 2020 numbers. Grain and motor vehicles (plus parts) have been weak.  CN itself reports that while rail cars on the line are down noticeably in the past few weeks, revenue ton miles are down only modestly. It may be too early to judge but overall this looks negative for CN and CP.

Our report on Ceapro Inc. is updated and continues to be rated Speculative Buy. Earnings are down in the first half of 2021 but this is due to increased spending on its Phase 1 (safety) trial of its Beta Glucan pills. The company is generating ample cashflow and has virtually no debt. The hope if that some of its research efforts will payoff which could potentially be quite lucrative. But this remains a speculative investment.

On Tuesday, the S&P 500 and Toronto were each down about 0.1%.

CN Rail was a big story with a 7.4% gain. That’s a lot when we are talking about a $100 billion in market value.

Initially the stock was up on news that a large investor had a 5% position and wanted a board seat.

Then the Surface Transportation Board released a ruling that CN would not get the voting trust treatment that it asked for in regards to its hoped-for takeover of Kansas City Southern. A headline said that was a blow to CN. But wait, the stock rose on the news. That surprised me given if the deal does not go though CN will have spent about a billion dollars in payments to CP and to Kansas City and have nothing to show for it. But perhaps the market thinks that wasting the $1 billion is better than over-spending on a $30 billion acquisition. Seeing the stock up rather than down on the apparent bad news from the regulator I decided to sell my shares, take my gain and move on.

Then, after the close the major shareholder with the 5% position blasted CN and called for the ouster of its CEO and of tis chair. They want nothing to do with the acquisition of Kansas Southern. All very strange. I suppose that by tomorrow, the analyst will have a better explanation of why the stock rose on the news.

I was quite surprised to see that CN Rail gained today when the Surface Transportation Board rejected its proposal for a voting trust for Kansas City Southern. Given that gain and an earlier gain today I decided to sell my CN shares. Perhaps I am being hasty as it is a great long-term hold. But I took this money off the table at a gain and will look to redeploy in another high quality company. It will be interesting to see how the market digests this news overnight. For whatever reason the impact was seen as negative on CP rail and positive for CN Rail. 

The report on RIWI is updated and rated Weak Sell / Hold.  The results of the past three quarters have been disappointing. Revenue growth has slowed but is still positive. Earnings have declined to near zero although the company explains that this is due to investments in sales employees and software projects that will lead to increased sales. 

The decline in the share price is certainly disappointing. In part it may be due to an early investor that wons over 10% of the company wanting to sell in a thinly traded market.

The company has potential but with the recent low earnings it is not a rated as A Buy until and unless it shows improved results. For those holding, it may be worth holding onto given that it has potential and also given that it has ample cash and no debt and therefore is in no danger financially and can continue to fund its growth.

On Monday the S&P 500 was up 0.4% while Toronto as down 0.2%.

Canadian Western Bank was up 2.9%. 

Apple was up 3.0%.

Penny stock RIWI was down 5.1%. I will post an update for it tomorrow. The insider selling that I noted in the last update has continued at lower prices. The latest quarter makes three quarters of very low earnings. It may still have good potential but it is getting harder to have faith. 

Our other penny stock, Ceapro was down 7.5%. 

On Friday, the S&P 500 was up 0.9% and Toronto was up 0.7%.

West Fraser Timber was up 2.5%. Toll Brothers was up 2.1%.

As of Sunday evening, futures markets indicate that markets should open little changed on Monday morning.

Oil is holding onto the gains of the past few days.

On Thursday, the S&P 500 was down 0.6% and Toronto was down 0.4%. The terrorist attack on the airport in Kabul as well as the potential outcome of a FED meeting at “Jackson Hole” were factors Weighing on the market.

Penny stock RIWI managed an 18% gain. This little company will be my next update.

Natural Gas prices are elevated compared to the price over about the past ten years and this bodes well for Alberta. The fact is that natural gas for heating at least in Alberta has been basically dirt cheap for years. The price is still no where near all-time records.

On Wednesday, the S&P 500 and Toronto were each up 0.2%.

West Fraser Timber was up 3.3%.

Toll Brothers gained 4.3% on its strong earnings release.

The big banks have once again exceeded earnings expectations. I also expect Canadian Western Bank to report a strong quarter. They will report Friday morning.

On Tuesday, the S&P 500 was up 0.15% and Toronto was up 0.3%.

Toll Brothers was up 2.8%. Then, after the close, they released stellar earnings. Their gross margins in particular were the highest in quite some time. Much of this may have been expected and the stock rose only modestly after hours. In any case as an owner the results looked very good to me.

West Fraser Timer was up 4.0%.

So, markets continue to do well. Meanwhile I heard President Biden today talk about raising corporate taxes at least for those large companies that make profits and manage to pay no income tax. Perhaps the assumption is that he will never have the votes to do much. We shall see.

There is also talk of FED tapering which would push interest rates up. The market seems unconcerned. Again, we shall see. But I would be at least a bit concerned.

WSP Global is updated and rated (lower) Sell at $162.67. A reasonable strategy might be to sell half.

WSP has grown by acquisitions from a relatively small Canadian engineering consulting company into a global giant still head quartered in Canada. It has basically not made a major mis-step in a decade or more. The stock has done extremely well. As a result of the past success and a current strong growth outlook it trades at a rather rich multiple of about 40 times trailing earnings and 30 times analyst-projected forward earnings.  That valuation would suggest a rating of Sell unless it is assumed that the P/E ratio will remain quite elevated – driven by continued strong growth. I was inclined to rate it Sell based on the valuation but decided on (lower) Sell in respect of its past success. Perhaps selling half would be a reasonable approach.

I look at Linamar which I updated yesterday trading at 8.5 times earnings and marvel at the contrast in valuation. But Linamar is indeed far more cyclic while the market prefers more predictable companies.

On Monday the S&P 500 was up 0.85% and Toronto was up 0.7%.

Oil was up about 5%.

Penny stock Ceapro was up almost 8% after announcing that a research institute in Boston would do some pre-clinical evaluations of Ceapro’s products. No detail was provided as to timing or who would pay for the cost of the research or who would own the findings. Therefore it’s not clear that this development is of any real significance.

An interesting development today was National Bank announced it would eliminate trading fees for its discount broker customers. A number of U.S. brokerages had done that but this is a first for Canada. It’s apparently a loss-leader strategy. It’s not at all clear to me how they will make a profit doing this. It’s interesting that these trading fees have always proven to be so competitive and prices have come down. Given that discount broker customers would tend to be “sticky” it’s a surprise to me that the industry is so price competitive. Compare that to fees on mutual funds where there seems to be little impetus to compete on price.

The report on Linamar is updated and rated (higher) Buy at $69.13. Over the last three quarters reported Linamar has staged a very strong profit recovery. Yet the stock price showed little reaction and even the gains it made earlier this year have now slipped away. It’s a cyclical business and that will always be a mark against it. The stock market seldom puts a high multiple on a cyclical business. I’m attracted to the fact that it trades at book value while earning a reasonable ROE of around 12% currently and historically higher. And it is very well managed and has credible long-term growth plans. 

However, I do note that insiders were selling in 2021 after the stock recovered from brutal lows in 2020. 

As a manufacturer, this company will not have the enormous ROEs that some software companies can make. But it should continue to do in excess of  10% ROE over the long term. If so, it will be a good investment at book value.

Linamar has recently reduced its debt level quite dramatically. That leaves it very well positioned to make a large acquisition, to sharply increase the (small) dividend or to do a large share buy-back operation. Any of those three could be a catalyst to drive the share price higher.

I plan to add to my position.

On Friday markets partly recovered losses of earlier in the week. The S&P 500 was up 0.8% and Toronto was up 0.6%.

Melcor Developments bounced up 7.8%. But this was on its usual tiny volume and comes after recent declines. Therefore I read nothing into this.

Toll Brothers was up 2.8%. WSP Global was up another 3.3%.

The virus situation continues to be a concern that could push markets lower.

On Thursday the S&P 500 recovered from earlier losses to end the day up 0.1%. Toronto was down 0.4%.

Penny stock RIWI was up 11% after announcing a new CEO.

See my comment below about Melcor. It will interesting to see if the market reacts tomorrow. 

Our report on the Melcor Real Estate Investment Trust is updated and rated Buy at $6.71. The key factor is the 7.2% yield which seems sustainable the fact that the units are trading at under book value. This is not expected to be a high return investment but is attractive for the distribution.

There was a surprise announcement from both Melcor Developments and the Melcor REIT today, after the close of trading. Darin Rayburn the chief executive of both is retiring at the end of this year to pursue personal interest. My suspicion is that he felt constrained by the controlling family and was not being given sufficient freedom to run the company. This retirement (more like resignation?) does not seem like good news. 

Coincidently, I drove through one of Melcor’s larger projects to today. Jensen Lakes in St. Albert. There were quite a few homes under construction and the existing developed lots are filling up fast. This should lead to sales of more lots as other parts of the property are developed which is currently under way. This property also has an attractive newer multi-building shopping area. There I saw that all or nearly all of the existing developed buildings are rented and occupied and more space is under construction. Overall, the impression was favorable as the project looks prosperous and yet Melcor Developments continues to trade far below book value.

Markets were moderately lower again on Wednesday as the S&P 500 fell 1.1% and Toronto was down 0.3%.

Stocks are set to decline again to day. This year has seen huge gains in the markets and so it is not surprising to see some of that being given back.

The latest Teranet home price index is out and. By clicking the link you can explore the increases in 32 different cities or metro areas across Canada. Their headline is that the price growth remains strong but slowed in July.

BHP was down 6.2% as the market is not impressed with the profit potential of the huge new Potash mine it is developing in Saskatchewan. The spending on that mine is large boost for the Saskatchewan economy and so is very good news for the province. But BHP has indicated that it is only going ahead with the project because having spent U.S. $4.5 billion to date, it makes sense to spend another U.S. $5.7 billion or so rather than write-off the $4.5 billion. In addition BHP is divesting its oil and gas operations and announced a large dividend. The company also has a strange dual share listing and the two different shares trade at different prices despite being supposedly economically equivalent. They now intend to unify the two share classes. I have previously written that would pick the lower price share since the premium for the other one did not make sense to me. BHP is a commodity company and inherently hard to predict as an investment.

Markets are about flat this morning.

There is interesting news from West Fraser Timber which is up 4.4% to $92.24. They announced that the result of their Dutch Auction to repurchase one billion dollars worth of stock will price at $97. That’s at the high end of their intention to purchase at $85 to $98. Lumber prices have fallen since the offer was made. It’s not clear to me if they were pretty much obligated to go ahead at this point or not. Overall, I suspect they are reasonably happy to pay $97 and that they believe that the shares remain under-valued. 

When a company buys back a very substantial amount of shares like this it is a big vote of confidence by management. The last Dutch Auction that I wrote about on March 29, 2016 was when TransForce (TFI International) bought back shares at $22 in 2016. Today those shares are around $140 so those selling at $22 did not get a great deal. West Fraser is a far more cyclical company and so we should not expect a repeat of the TFO experience but West Fraser is likely still positioned to do well.

Also, when a company or any investor wants to buy or sell a very large amount of shares the current market price is not necessarily what they will get or pay. The current market price is based on the most recent transaction for as little as 100 shares. It’s highly relevant to small retail investors but not as relevant to big institutional investors or the company itself.

It would be nice to see more of these Dutch Auctions or very substantial buybacks in cases where shares are under-valued. But the company also has to have the cash to do it or the borrowing capacity and willingness to borrow. Often they don’t have the cash and are unwilling to borrow. And in some cases the share price has little to no impact on the company itself and so they are just not that motivated to buy back shares.

Markets were negative on Tuesday and that was even after some recovery later in the day. The S&P 500 ended the day down 0.6% and Toronto was down 0.6%.

The pattern for the last 16 months or so has been that dips are short-lived. Still, I like the idea of holding some cash just in case. I also note the big drop in U.S. consumer confidence reported last week. That’s a concern. As is certainly the flaring up virus situation.

July housing starts show that single family starts in Alberta remain strong. The increase in Alberta was 85% versus 2020. That’s hard to interpret given the impacts of the pandemic last year. But the national average increase was far lower at 29% and so the growth in single-family housing starts in Alberta in July was much higher than the national average.

Melcor is set for strong results over the last half of 2021 based on housing starts, the number of lots it is developing and a pending large bulk sale of developed lots in Colorado. It also already announced a sale of undeveloped lots in the U.S. as well as a sale of a building there both of which will add to Q3 earnings. Melcor has remained stubbornly under-valued for a long time and continues to suffer from lack of analyst interest. 

The report on Melcor is updated and remains rated Buy.

On Monday the S&P 500 gained another 0.3% while Toronto was down 0.2%.

After the close, Alcanna reported Q2 results. While Liquor operations were down modestly the company made a loss due to its Cannabis operations.  I had rated Alcanna a (lower) Sell in March. The reaction of analysts and the market tomorrow may indicate if I was on the right track. Possibly they will forgive the Cannabis losses as being basically start-up losses. But liquor profits will also be lower than previous due to divestitures of stores. 

On Friday, the S&P 500 was up 0.2% while Toronto was about unchanged.

AutoCanada surged 10.7%. It’s been a stunning turn-around for this company after years of woes caused by the former poor management and then exacerbated in the early stages of the pandemic when things looked grim.

Pre-market futures data suggest a moderately weak open to trade on Monday – but we shall see what the day brings.

On Thursday the S&P 500 was up 0.3% while Toronto was down 0.2%.

AutoCanada had bounced down about 4% but has bounced back up this morning.

Markets are moving modestly higher this morning.

Boston Pizza Royalties came out with results. A 104% payout ratio at the current distribution level seems not bad but also not great. The units are down slightly this morning so perhaps the results are about as anticipated.

I’m just back from four weeks of travel and will be focusing on some updates. 

Ever since the market started to recover sharply (from the COVID crash) in late March to April of 2020 the winning strategy has been to ride it up. Taking profits or building or holding cash for prudency has not been rewarded. But the danger now my be of getting complacent and feeling the danger is past and there will be no imminent correct such as due to higher rates. And that may be. But it remains prudent especially for older investors to use some caution and to to have some fixed income and/or cash. 

On Wednesday, stocks continued to mostly move higher. The S&P 500 was up 0.25% and Toronto was up 0.3%

WSP Global was up 6.0%. 

AutoCanada was up 3.6% on strong earnings.

Toll Brothers was up 3.9%

The Dental office corporation DNTL that I mentioned a few days ago was up 4.8%.

The general pattern seems to be that the stronger companies continue to be the ones pushing ever higher. Of course that pattern can change but in general it is always the strongest companies that are more suited to buy and hold for the long term even if they do seem expensive.

P.S. 9:45 eastern: Canadian Tire released strong earnings this morning. Another example of strong companies continuing to prosper. The stock is about flat this morning indicating that the strong results were expected. I like the chances for Canadian Tire to continue to be a  good investment.

On Tuesday, markets were up modestly as investors once again mostly gained ground on the day. The S&P 500 was up 0.1% and Toronto was up 0.3%.

West Fraser Timber was one of our bigger movers, up 2.3%.

Yesterday I send out an edition of the free newsletter focusing on the fear of Making Investment Mistakes (which can hold us back) and on how young people can easily get started investing. 

I am seeing lots of corporate merger activity. In general the market seems in an optimistic mood. There is no sign of an impending “correction”. But keep in mind that negative surprises tend to be, well, surprises.

Yesterday I bought some McDonalds shares because I keep seeing how busy they are and the P/E looked okay.

On Monday, the S&P 500 was down a modest 0.1% and Toronto was down 0.2%.

On May 10 I mentioned I was buying some shares at the IPO of DentalCorp. (DNTL on Toronto) It has been fairly flat but rose 5.7% today after announcing an arrangement with Loblaw / Shoppers Drugmart where it will tie in with the PC Health app. I don’t know that much about it but it owns dental offices which I think are likely to do well.

On Friday, the S&P 500 was up 0.2% and Toronto was up 0.5%. Markets hit new highs.

Andrew Peller fell 3.0% despite what looked like a decent earnings report. These shares at $8.37 are cheaper than all but the very cheapest bottles of wine. Unfortunately it has not been a high return business. But they have good assets and the shares seem under-valued. Wine drinkers might want to buy some shares and follow the company just for interest and education and probable long-term upside.

Oil has fallen back to $67 but that is still quite profitable for most Canadian oil companies.

While there are always reasons to fear a decline, in general I don’t see much reason to expect a big pullback at all.

On Thursday the S&P 500 was up 0.6% and Toronto was up 0.2%.

After the close, Melcor Developments reported Q2 results. Results were good in my opinion but that was expected.

The dividend was increased to 12 cents from 10 partly restoring to pre-covid levels. 

Lot sales and revenues were up quite significantly. FFO was 49 cents per unit.

They are very active in developing new lots for sale to meet continued strong demand. Q3 and especially Q4 are typically by far the best quarters and Melcor is on track for a very strong profit this year it appears.

They do note the uncertainty in their rental buildings especially office due to continued Covid impacts.

Gross profit on lots seems too low at 35%. Indications are that their costs of lot development are somewhat high.

The shares closed Thursday at $12.21 versus book value of $32.10 It’s been a long wait but this gap should begin to close as they post better results.  Hopefully, the dividend increase will spark some interest starting today.

On Wednesday, the S&P 500 was down 0.5% and Toronto was down 0.2%.

Oil fell over $2.00 to about $68.

Border Service Agency workers are preparing to strike. Are these the same people who were likely all kept working despite almost no one allowed to cross the border for over a year? Interesting.

Toll Brothers was down 3.5% but I did not see a reason for that.

Andrew Peller reported good earnings in Q2 and raised the dividend. 

On Tuesday, the S&P 500 was up 0.8% and Toronto was up 0.4%.

Couche-Tard was up 2.7%.

There was news today the the Mutual Fund Dealers Association will merge with Investment Dealers regulatory Association. The merger of the regulators will likely have no immediate effect. But longer term it might mean that mutual fund dealers could also acess Exchange Traded Funds – that would be a big change. The trend will likely continue away from trailer fees to charging a fixed percentage of a portfolio – and investors with advisors will not see any big reduction in fees.

On Monday, the S&P 500 was down 0.2% while Toronto was closed for the holiday.

VISA was down 2.7%.

Markets appear set to open moderately higher on Tuesday.

The Melcor REIT announced good results for Q2 on July 27 and will increase the distribution by 17%. It’s still 29% below the 2019 level but this is good progress. They do note that the long-term impacts on its office properties remains to be seen. The market basically yawned at this news.

Melcor Developments will report after the close on Thursday. I expect strong lot sales but the market may not react much to the whatever the news is.

Traveling this past week in Nova Scotia. The economy is surprisingly strong. Halifax is bussing with activity with reportedly more jobs than people available to fill them. A lot of residential buildings going up and some larger commercial projects as well. Traffic was heavy on the highways over the weekend. People are eager to resume a more normal life. This bodes well for the economy.

I see Bausch Health is in the news about lawsuits dating back to 2015 or so. This was about aggressive /misleading accounting under its former name Valeant Pharmaceuticals. That’s one I got right as I called it a sell at about $330 in 2015 and it very soon went down to about $38 and has stayed there. Basically it is still being accused of a sleasy maneuver to this day. I have no opinion on whether it has reformed. But I try to avoid unethical companies like the plague (i.e. like COVID?). I’m not talking about when a company sells an unhealthy product –  that’s no big concern to me. I’m talking about when I see evidence of very aggressive tax avoidance or highly exaggerated profits. I can forgive poor business performance where there is effort. But I can never forgive unethical accounting and such.

Here was my comment on Bausch (Valeant) from 2016. I hope I helped one or more readers dodge a bullet on that one.

On Friday, the S&P 500 was down 0.5% and Toronto was down 0.1%.

Melcor was down 1% to $12.62 which is disappointing to see it under $13. Hopefully the Q2 report around August 12 will improve the price.

Restaurant Brands was up 5.2% after reporting earnings. Once again, holding solid companies proves to pay off.

Amazon was down 7.6%.

On Thursday, the S&P 500 and Toronto were each up 0.4%.

West Fraser Timber rose only 2.4% on its strong earnings. It may be trading mostly on the Dutch auction offer price. Also, lumber prices while still strong are way down from the peak.

RIWI was down 17% to $1.20. The market is just not impressed. It’s probably too late to bother selling so I will hang on but this has been a clunker. It’s not in any danger of going broker or anything that serious.

Toll Brothers was up 4.5% after announcing a couple of new projects. 

Premarkets indicate the markets will be done modestly today.

bOn Wednesday, the S&P 500 was about unchanged and Toronto was up 0.3%.

AutoCanada was up 7.8%. 

After the close West Fraser Timber released (as expected) very strong Q2 earnings. The focus now will be on the outlook with lower timber prices. Recall from my July 7 post that they have a Dutch auction buyback offer out that will price between $85 and $93. I have not planned to tender. Whether or not to tender could be re-evaluated after we see the market reaction to this earnings release.

Penny stock RIWI released Q2 earnings and it appears at a quick look to be luke warm results at best. They touted a revenue increase but did not even mention earnings in the press release. This is a tiny company. Definitely a higher risk investment.

On Tuesday, the S&P 500 was down 0.5% and Toronto was down 0.2%.

TFI International was up another 7.1% to $140.86. This was after releasing earnings. The performance here has been stunning. I’ve always sung the praises of its management. But this is a mature trucking company, albeit growing by acquisition. The recent gains are remarkable. I sold too early but still made strong gains. A thought that comes to mind is “winners win”. I’ve written about that before. I’m talking profits more so than stock prices but the earnings drive the stock price.

Shopify just reported another quarter of great growth. It’s been the type of stock that defies my analysis. Always looks extremely expensive but then outperforms. I would note that the vast majority of earnings this quarter came from an equity investment and not its own operations. But it can probably increase earnings on its own operations at will. It continues to focus on growth and it has been a huge success.

Pre-markets indicate that stocks will rise today. Onwards…

Monday’s action had the S&P 500 and Toronto each up 0.2%.

Shopify was down 3.9% but that’s from recent record highs.

Oil remains strong at $71.90

The Canada five year bond yield is 0.78%. Down from levels around 1.0% earlier this year but now holding fairly steady. I would not mind seeing some of the rate resets preferred come down to reflect the lower rate in which case I might buy. In general yet another increase in interest rates has fizzled out. Hard to believe rates have stayed so low for so long. If it were all due to central bank buying and sort of manipulated you would think that at some point a a sort of spring pushed down would rebound. Perhaps there are structural factors beyond government and central bank manipulation.

Markets are set to close the week on a high note.

Aecon Group is up 9% today after releasing earnings.

TFI is up to $129.56 and has been a stellar performer. 

Oil is at $71.84 which is good for Alberta. 

Markets are set to open higher this Wednesday morning..

With the 5 year Canada bond yield down to 0.775% rate reset shares may continue to slide back somewhat.  The Enbridge one on our list PFA.A might be a good choice especially under $18. The CWB ones on our list seem too high.

I won’t have any further comment today and possibly not tomorrow due to some travel. 

Not too surprisingly, markets on Tuesday recovered a lot of the losses of yesterday.

S&P 500 up 1.5%, Toronto up 1.1%.

After the close, CN Rail posted strong results.

The latest Teranet index of home prices is out and is worth exploring.

In general, home prices are at record highs across Canada.

But Edmonton remains about 3% below the peak reached back in 2007. And Calgary about 3% below the 2014 peak. With low interest rates and an improving economy, and with immigration resuming, I suspect new peaks will be reached soon. 

On Monday markets were down quite noticeably – the S&P 500 was down 1.6% and Toronto was down 1.3%. 

RioCan might be worth considering now at $22.06. I would not be in a hurry to deploy cash but would look to nibble if prices on certain stocks keep dropping.

Markets are down due to the virus (especially Delta variant) now spreading fast including in the U.S. Obviously the pullback could deepen but overall there is little indication that a big sell-off is underway. In any case it would be an opportunity for those holding ample cash.

I notice this morning that the North American Construction Group 5.5% debenture was down to $103.50. It declined because the stock declined and it is convertible. It’s now back down or close to a point where it is a reasonable fixed income investment even if it never converts. I put in a order for some at $102.50 but I may not get it at that price. One interesting thing: You don’t have to worry whether a bond has just paid its six month interest or is close to its next payment. Instead, if buying you must pay the accrued interest since the last payment since you will get that but have not earned it. It just means you don’t have to worry about that aspect of the timing.

Oil is down 4,4% due to the OPEC agreement that I mentioned yesterday.

Canadian Tire is down a bit more to $186 and I am adding a little to my position.

On Friday, the S&P 500 was down 0.75% and Toronto was down 1.0%

Most stocks were down on the day.

This coming week we will see more Q2 earnings reports come in particularly for U.S. stocks and that may be a driver for some individual companies. So far, nothing seems have to changed the general positive outlook for the markets.

OPEC is apparently planning to increase production at least by September 2022 as oil demand increases. Oil prices may have reached a maximum for now. In any case prices are still high enough to be positive for Alberta.

An early comment today because I will be flying to Nova Scotia later today. It’s a long-delayed trip for me and it’s great to see Air Travel start to ramp back up.

This morning Couche-Tard is up 5%. I don’t see any news so this is probably based on an analyst upgrade.

Penny stock RIWI continues to do poorly, now down at $1.35. There has been no news and so this could just be frustrated investors abandoning the stock. As our report indicates it is an unusual company selling a unique service. The founder and CEO had resigned earlier this year but was staying on the Board. It’s hard to know if that should have been considered a major red flag or not. We’ll have to wait and see how its Q2 results come out which will likely not be released until late August.

West Fraser Timber is hanging in well at about $89 despite the decline in lumber prices. It presumably made a LOT of money in Q2. Commodity linked stocks are always very challenging to predict. See my recent comment about its large share buyback.

On Monday, the S&P 500 was up 0.1% while Toronto was down 0.6%.

TFI International rose 8.75% after pre-announcing certain good results for Q2. 

Apple was up 2.4%.

All in all, the outlook for stocks remains positive.

On Tuesday, the S&P 500 was down 0.35% while Toronto was up 0.2%.

Apple announced it is looking for its suppliers to increase iPhone production by 20%. This stock appears set to keep on rising. 

OPEC has made progress in dealing with the demands of the United Arab Emirates (A member of OPEC). While UAE will get a higher quota, production curtailments will now likely be extended to the end of 2022. The bottom line is that this is supportive of higher oil prices. However, these deals and agreements to curtail production can fall apart quickly and the smaller members of OPEC are notorious for exceeding their quotas. Alberta has benefited greatly for the past 50 years from OPECs efforts to boost world oil prices and maintain them higher than would be the case in a free-for-all type market.

The reopening is happening fast now.

I was at West Edmonton Mall Monday around 2:30. Quite busy but I would not say packed. (It’s not Christmas after all and it was Monday afternoon). lululemon was packed. The big Sport Chek store was busy (Canadian tire will continue to do well)

Pepsico just reported a big sales surge as restaurant and bar sales resume. 

Keg Royalties doubled the distribution . Now 7 cents, still below the pre-pandemic level of 9.5 cents but impressive and bodes well for Boston pizza Royalties.

Edmonton had second highest single family home starts in the country in May. 508 starts. Only Toronto was higher at 599. Calgary also strong at  460. This bodes well for Melcor which certainly needs to have a strong year to make up for too many weak years.

On Monday, the S&P 500 was up another 0.35% while Toronto was down 0.1% as oil prices were marginally lower.

Berkshire Hathaway and Questar Energy jointly canceled Berkshire’s previously agreed purchase for $1.3 billion of the Dominion pipeline. This is no big deal for Berkshire. But it was canceled becasue President Biden signed an executive order meant to curtail certain large mergers in the pipeline and transportation segments.  This could definitely affect CN Rail’s proposed takeover of Kansas City Southern. I’m surprised that CN shares did not fall on the news. CN probably remains a long-term buy but I am concerned about this development. Apparently Biden specifically mentioned rail mergers.  

And shares in Kansas City did fall on the news last week. My understanding is that if the deal does not go through, CN will have paid about $1 billion in break fees (part to CP, part to Kansas City for nothing. Not good.  But presumably the rail road analysts have looked at this and judged that CN’s shares were still good value. The impact of the Biden order is too specialized of an area for me to know which way it will turn out or even have much of a guess. At the moment I would not be a buyer of CN until this settles out a bit more. But I also don’t plan to sell the shares I hold.

On Friday, markets were sharply higher erasing most or all of the loss from Thursday. The S&P 500 rose 1.1% and Toronto was up 1.0%.

Most stocks were up on the day.

Oil is continuing to be strong with a price of U.S. $73.63 indicated as of Sunday at 1:20 eastern time. That’s a highly profitable price for most of the Canadian oil producers. Alberta oil production volume is strong but remains below peak levels. 

This week, Q2 earnings reports will start to come in from U.S. companies with Canadian reporting coming mostly towards the end of July. The U.S. system reports earlier but it does so without full details. They do a press release early but then the official report follows later (often two weeks later). In Canada we get the press release and full details including management discussion and analysis and the financials statements all at once. But we have to wait a bit longer for it. Some U.S. companies (Berkshire Hathaway in one) do it similar to the Canadian rules giving the full report all at once with no advance press release.

RioCan is updated and rate (lower) Buy at $23. It, like so many other investments, has had a huge recovery from the lows last year. It’s outlook continues to improve. It may have a couple dollars higher to run based on the improving outlook and especially if it partly restores the former distribution level. But,  I don’t expect it to fully restore the distribution anytime soon since they want to pay down debt and will generally be cautious.

Markets had a relatively rare negative day on Thursday as the S&P 500 fell 0.9% and Toronto fell 1.1%.

Toll Brothers was down 3.85%.

West Texas oil is holding up very well at $73.20.

Costco was up 0.6% after reporting that same-store sales growth in June was 18%. And that’s on top of the 14% gain reported in June 2020. This company is a juggernaut. It always looks expensive but has been worth paying up for.

I saw some disturbing news today that might affect CN rail. Apparently President Biden signed an executive order that is attempting to get more competition in freight rates and the headline was that he opposes rail mergers. I have not seen specific commentary regarding CN but this looks like something to worry about for CN share owners.

I’m currently updating RioCan which I think will be rated Buy. 

On Wednesday, the S&P 500 was up 0.3% while Toronto was basically unchanged with a modest decline of 0.05%.

West Fraser Timber was up 7.1% to $93.00 after announcing that it will buy back up $1 billion in shares in a “modified Dutch auction” process where it is offering to pay between $85 and $98. This will reduce the share count by about 10%. This move is likely related to the fact that West Fraser has been very profitable recently due to high lumber prices. I take this as a positive development.

This auction could allow some institutional share owners to sell without pushing the price down. Normally, when an institution attempts to sell a large block of shares in any company they may have to accept a price lower than the recent market price. Such trades are sometimes done as “block trades” outside of the stock exchange.

On Tuesday, the S&P 500 was was down 0.2% while Toronto managed a gain of 0.1%. 

Shopify surged another 5.6%. Wow! and Amazon was up 4.7%. Also wow!

Linamar was down 3.0%. AutoCanada bounced down 4.75%.

Yesterday, I saw commentary that if OPEC could not reach its latest agreement which included somewhat higher production quotas as well as an eight month extension of the quotas to the end of 2022, then there might be a shortage of oil in August – and therefore a price spike. That did not make much sense to me since presumably a fracturing OPEC would mean countries would be more likely to ignore quotas and pump more oil. Today, the commentary I heard was more along the lines of excess production. Nevertheless, oil prices are holding up well at a current U.S. $73.52. I’m not one to predict oil prices but if I had to bet, I would likely bet that oil prices move lower. Luckily the current price offers good profits for most producers in Canada.

On Monday, Toronto was up 0.75%. U.S. markets were closed for the holiday.

Boston Pizza Royalty units were up 5.1% to $14.87. That’s a better recovery than I would have expected. But if only a few restaurants end up permanently closing then it could certainly push higher as things open up.

West Texas Oil rose 1.9% to U.S. $76.61 as the OPEC plus group failed to reach an agreement to extend their price-fixing (by curtailing volume) agreement by about 8 months to the end of 2022. Normally OPEC falling apart would potent lower prices as each nation would be free to pump more oil. This time, it seems that the current volume quotas could leave the world short of oil next month. I’ll believe that when I see it.

After the close it was announced that Alberta is taking a 50% stake in a problematic relatively new refinery near Edmonton that was previous owned by North West Refining and Canadian Natural Resources. I have mentioned it before. The Alberta government had contracted to supply bitumen to it. The refinery went way over its construction budget and was years late becoming operation. Canadians often suggest that “we” should refine more oil in Canada – A case of careful what we ask for.

The report on Alimentation Couche-Tard (owner of the Circle-K chain) is updated and rated (higher) Buy at $46.82. It’s been a great investment over the years and has excellent management. There is always uncertainty but this should continue to be a good long-term investment.

On Friday, the S&P 500 was up 0.75% while Toronto was up 0.3%.

AutoCanada was up 3.1%.

Alimentation Couche-Tard was up 2.8% after releasing earnings.  This is a wonderfully successful company. I will be updating the report on Couche-Tard tomorrow and it be rated probably (higher) Buy. There are always risks and uncertainties. Analysts are expecting its earnings to decline in the next year. But despite that possibility, I believe this is good investment. I will add to my small position in it on Monday. My only hesitation is my desire to keep a significant allocation to cash and fixed income for stability.  As already mentioned I also intend to add to my small Canadian Tire position.

U.S. markets are closed tomorrow (Monday) for the July 4th holiday.

Home sales in Calgary for June set a record for any June. That’s one more indication that the Alberta economy continues to recover.

Canadian Tire is updated and rated (higher) Buy at $196. (It closed today at $194.67, but my analysis was based on a price from June 30.)  Its sales and earnings grew strongly in the past three quarters. Some of that growth was pandemic-related and is not sustainable. But meanwhile in the quarter just ended it is set to report very strong results in comparison to A2 2020 when it was negatively impacted by pandemic-related closures. The price has recently dipped from a peak of over $210. The price to earnings ratio is now quite attractive at about 12 based on trailing earnings. The Analysis forecast P/E ratio is similar at 12 but this does mean that analysts expect its earnings in the last half of 2021 and first quarter of 2022 to fail to meet the elevated results in the comparable quarters. This company has been exceeding expectations for many years.  I will be adding to my position on Monday.

Happy Canada Day! Wow, half way through 2021… Toronto markets are of course closed today.

On Wednesday, the Toronto was about unchanged. Couche- Tard was up 3.5% after its earnings release. West Fraser Timber was up 3.2% and AutoCanada was up 3.2% as well. 

The next update will be for Canadian Tire and it will be rated (higher) Buy or possibly (lower) Strong Buy. It’s been firing on all cylinders for a long time and the recent price drop is a good opportunity I believe. I plan to add to my position. I think it is a high quality name for a long-term hold.

The S&P 500 was up about 0.1% on Tuesday and is up 0.3% this morning. 

On Tuesday the S&P 500 was about flat and Toronto edged up 0.1%.

Was in Costco today. Busy of course. Good to own shares. Similar story at Canadian Tire to a lesser degree.

Couche-Tard reported after the close. Looked like fairly good results at a quick glance.

Markets were “mixed” and little-changed on Monday with the S&P 500 up 0.2% and Toronto down 0.4%.

Bigger movers included Linamar down 3.5% and Alcanna down 3.2%.

The next updates planned are for Canadian Tire, Couche-Tard and RioCan.

I see that StorageVault Canada 5.5% non-convertible debenture offering is still open at TD Direct. Often a “bought deal” issue sells out immediately. I just don’t like this one. I suspect the banks are going to have to sort of flog it to get it sold. 

TD Direct / TD Waterhouse sends me alerts for initial public offerings. This mornings they are trying to sell 5.5% fixed income debentures in Storage Vault Canada.

The fact that these are a “bought deal” rather than a “marketed deal” suggests that TD and the others are confident they can sell these which is a positive indicator.

But, I would not buy these for several reasons:

1. They are not convertible and therefore have no upside, the maximum return is the 5.5%. In contrast the recent North American Construction 5.5% debentures that have done well (trading at $110 versus the $100 issue price) were convertible and have risen in price as the share price rose in the past couple of weeks.
2. Since this debenture (which I believe means UNSECURED bond) is not convertible, it will not trade and we would have to hold until maturity.
3. More importantly a quick look at  the balance sheet shows $1.2 billion of debt and only $0.2 billion in equity and it shows a large loss in the latest quarter.
4. Another red flag is that prospectus will not be available until July 6. I don’t know if that is unusual but it looks odd to me.

Maybe this is a fine company. The storage sector has generally been a good investment. But at a quick look here I would definitely not invest. The more I look at this, the more it looks like a bad investment.

Wine maker / wine seller Andrew Peller is updated at rated (lower) Buy at $9.60. It is in a highly competitive and slow-growing business and so will never be a reliable high return investment. But at the current price it could do well over the next couple of years and in any case should not crater. 

It has some high margin brand name products but its biggest seller is unfortunately cheap boxed wine.

In some ways, it could be viewed as a way to have ownership in land assets that are very likely to increase in value over the years.

Hopefully, the opening of the economy will provide some boost this summer. But is was actually not much affected by the pandemic overall even though it does have some estate wineries that rely on tourism.

On Friday the S&P 500 was up 0.3% and Toronto was up 01%. 

FedEx was down 3.6%.

Markets moved higher once again on Thursday with the S&P 500 up 0.6% and Toronto up 0.25%.

WSP Global was up 2.6%.

With reopening and with Biden’s infrastructure plan, there is nothing currently on the horizon to derail stock markets. But then again negative shocks to the market tend to come out of the blue.

I’m working now on an update for wine-maker Andrew Peller. It looks cheap but on the other hand has not been a a high margin business in part due to global competition. It did come through the pandemic very well.

On Wednesday, markets ended the day modestly lower wit the S&P 500 down 0.1% and Toronto down 0.2%.

I notice that the North America Construction Group Debentures that I have mentioned a few times lately have jumped to $110.55 versus their recent issue price of $100. I was attracted to these 7 year dentures fort the 5.5% yield. The conversion price at $24.75 was well above the trading price of about $16 when I first looked at this on May 1oth. Now the share price has jumped to $20.50 and so the conversion price is not as far out of the money.

This is nice quick gain of over 10% on an investment that was bought for its 5.5% annual yield. I expect this to continue to be volatile. I liked these debentures at and around $100 but I would not be a buyer at $110.

An investment company called Bridging Finance was in the news today. It is in receivership. It looks increasingly like a fraudulent company and its 26,000 clients/investors may have lost much or all of their investments. The company had loaned some $200 million to a company that would supposedly build a rail line from the Alberta oil sands to Alaska. Why that company would need $200 million for a project that was not yet started (and probably unlikely to ever go through) was unclear. Some $20 million of the loaned money was funneled back to the private bank account of the founder and CEO of Bridging Finance. Yikes! To me, this is another warning to stay away from small investment companies. Some of them may be great. But I feel far safer with investments made through the likes of the large Canadian Banks where I can buy a huge selection of investments and where I am in control of what investments I own . No doubt, there are some great private investments and great small investment firms. But I would be very cautious. In fact, I just would just always avoid them.

On Tuesday, markets were higher with the S&P 500 up 0.5% and Toronto up 0.2%.

Penny stock RIWI was down 7.7%. The market has lost a lot of faith in this little company.

AutoCanada was up 4.5% and despite volatility has had an amazing recovery. 

As of Wednesday morning, markets are down modestly. But oil is up once again with West Texas at U.S. $73.75. 

Warren Buffett is out with an interesting letter on the subject of his philanthropy and also the philanthropy of everyday people. Well worth reading. The headline is that he resigned from the Gates foundation. He has resigned from all Boards except for Berkshire. It’s not entirely clear if this is to distance himself from Bill Gates but it probably is in part especially considering that Gates (quietly?) resigned from the Berkshire Board in March (I had failed to see that nrews until now).

https://www.berkshirehathaway.com/news/jun2321.pdfhttps://www.berkshirehathaway.com/news/jun2321.pdf

Late last week, the markets took a little breather from making investors richer almost daily. On Monday, stock markets got back to work making up even for the weekend with the S&P 500 rising 1.4% and Toronto up 0.8%.

The energy ETF, XEG, was up 4.5%. American Express was strong with a 4.25% gain. Linamar was up  4.0%, WSP Global was up 3.7%.

Couch-Tard was down 3.0%

Alberta continues to see strong housing starts data in May with single-family detached starts up 77% (versus May 2020) to 1121. This along with higher oil prices bodes well for Melcor Developments. True, it has been a disappointing investment. But it is trading well below book value and it appears that 2021 is shaping up to be a very good year for Melcor.

Markets gave back some ground on Friday as the S&P 500 was down 1.3% and Toronto was down 0.7%.

AutoCanada bounced up 7.9%.

There is no indication that this is the start of any downdraft. But in any case those who have kept dome funds in cash can easily take advantage if bargains do emerge.

On Thursday, the S&P 500 was about unchanged and Toronto was down 0.4%.

Andrew Peller was down 8.4%. I will plan to update the analyses soon. From what I see in the Alberta liquor stores a lot of Wine is incredibly cheap. Peller seems like a well managed company but they face stiff competition. And this summer’s winery tour season will once again be hampered by COVID restrictions.

Shopify surged another 7.2%.

RIWI which is basically a penny stock was down 5.3%. 

Oil prices (West Texas) remain above U.S. $70 which bodes well for Alberta.

Alberta is also set to fully open on or about July 1. 

On Wednesday markets were a bit weak with the S&P 500 down 0.5% and Toronto about unchanged.

Shopify was up once again, gaining 3.6%.

Linamar was down 3.5%.

Canadian Western bank was up 2.3%.

Markets were weaker as the Fed hinted at eventual interest rate increase.

There is a debate as to when and hoe fast rates will rise if they do at all anytime soon.

If you do expect rates to rise or want to be positioned for it then avoid longer term bonds for sure. Some of the rate reset shares would do well. But since they can be redeemed at $25, I don’t think those that are trading at $26 or close to $27 can be good bets for gains. Instead those that are well under $25 but that are issued by strong companies might be the better bet. I just sold my Enbridge rate reset pref shares at about $19.50. But if I wanted to bet on an interest rate increase then those shares might be a reasonable pick. 

Andrew Peller (wine) reported after the close with good results. 

On Tuesday. the S&P 500 was down 0.2% while Toronto was up 0.4%.

AutoCanada was down 6.8% as it continues to be volatile. From what I hear, car dealers are very busy lately and they should have a great Q2. But it’s hard to say if too much optimism has already been priced into the stock. I do like the management there who have definitely righted the ship since they took over several years ago.

With West Fraser down around $83 this morning I added a small amount to my position. Lumber prices are down but still remains quite high and they should be reporting a very profitable Q2. But a cyclic commodity company like this is always unpredictable.

On Monday the S&P 500 was up 0.2% while Toronto edged up 0.1%.

Apple was up 2.5%. Shopify was up 4.5%.

Toll Brothers was down 2.3%.

With the Melcor REIT down at $6.90 this morning I bought a few more shares. It’s certainly not a high return entity. But it seems under-valued and should benefit from the reopening of the economy in Alberta. A distribution increase is certainly possible although managements tend to be quite conservative in that regard.

Friday’s action saw the S&P 500 up 0.2% and Toronto up 0.4%.

On Friday, I decided to sell most of my Enbridge rate reset preferred shares. They closed Friday at $19.71 to yield 5.2% which is not bad. But if the five year Canada yield happens to stay at its current level, these shares will reset with a lower distribution. Of course, if interest rise enough then these will reset with a higher distribution.  I had bought these at lower prices. In one RRSP account I was up 26% and in the other I was up 76%. So, I just decided to pull the trigger and sell. These particular rate resets have a reset spread of 2.66%. The various rate reset preferred shares that are trading at $25 and higher have significantly higher reset spreads.

In another two accounts I have a smaller number of shares that were purchased at $25 a long time ago. Although it does not make much sense, I am reluctant to take the loss so am holding there. 

On Thursday, the S&P 500 was up 0.5% and Toronto was up 0.2%.

But a number of the stocks I own missed that little party.

Toll Brothers was down 5.0% to $58.78. I’m tempted to add to my position but I already have a large exposure to it.  And it is a cyclical stock / industry – always harder to predict.

RIWI was down 5%. It’s a penny stock and also in a business that is not easy to understand and its CEO is moving over to be just Board chairman. Not clear if that is a red flag of some kind.

West Fraser Timber was down 2.3% after starting out the day with a gain. Another cyclical stock /industry. It is likely making huge profits right now but the question is how long will it last?

AutoCanada has a very strong day gaining 8.7%. It’s newer management is doing great things with the company. Perhaps I sold too soon.

Fairly big news today was U.S. inflation coming in at 5.0% year-over-year – partly driven by price drops last Spring with the pandemic. But even excluding volatile food and energy the increase was 3.8% year-over year. And the inflation just in the last month was large in the U.S. with a 0.6% increase in one month and 0.7% excluding food and energy. The market is somewhat ignoring inflation treating it as transitory but it is something to watch out for.

The five year government of Canada bond yield has dipped to 0.82% from a recent peak of around 1.00%. So far, rate reset preferred shares have held up well and even increased but if inflation fears start to wane and interest rates decline those rate resets may slip back. Might be time to lighten up.

On Tuesday, the S&P 500 was about unchanged while Toronto was up 0.15%.

TFI International was up 3.7% regaining most of what it lost yesterday. Seems a bit odd, but then again lots of odd things happen in the markets.

The composition of my own portfolio has been updated. This is just to be transparent. To be clear, if I were starting fresh today I would not have such a concentrated portfolio. 

A small rant: I see a press release from Bank of America that they are redeeming (one year early)  $850 million of floating rate notes. The questions that leap to my mind as a shareholder and as an observer are, oh what is the rate and why are they doing this? I find it hard to believe that anyone would write and/or approve a press release like this without addressing those obvious questions. It seems they just went with the bare minimum legally required. Checking their annual report, I don’t see the details for this debt. It appears to be lumped in with other debt in the brief information in the notes. Maybe it is just normal practice to structure debt to be redeemable in the last year and to redeem it. But I just don’t understand why they would not mention the interest rate that they will now avoid or provide any hint of a reson for the redemption. 

After the close, West Fraser Timber announced that is (small) dividend would increase from 20 cents per quarter to 25 cents. They also announced an increase in the buyback program. This should be viewed as positive news for the stock. What I also liked is that their press release was very informative. It was meant to convey information not merely to tick a legal box as was the case with Bank of America.

The price of West Texas Intermediate just poked it head above U.S. $70 for the first time in two years. And many economic indicators in Alberta continue to improve. I’m becoming more optimistic about the outlook for Alberta companies including Melcor and Canadian Western Bank.

On Monday the S&P 500 was down 0.1% and Toronto was about unchanged.

TFI International was down 4.8%. Perhaps my timing in selling out of that recently was pretty good. (That’s with about a week down and infinity go though…) And I sold some shares too early on the way up as well. (No regrets, I made good money on TFI) Long term TFI is likely still a winner. But perhaps it had gotten too expensive recently.

Markets were slightly negative on Thursday with the S&P 500 down 0.4% and Toronto down 0.15%.

Intact Financial was up 3.3%. 

After the close, Costco reported May same-store sales figures which were up 15% after adjusting for volatile gasoline prices and for foreign exchange changes. (Before those adjustments the gain was 22%!).  This is strong growth. Last May Costco same-store sales were up 10% as it was benefiting from some panic buying although it also faced some store closures and restrictions. The bottom line is that Costco continues to be a juggernaut. The shares were down very slightly in after-hours trading but that is often an unreliable indicator.

Also after the close, lululemon reported Q1 results which appear to be stellar. Similar to Costco, the shares were down slightly in after-hours trading. 

Rate reset preferred shares rose slightly today. I sold my Canadian Western Bank preferred D shares. I mentioned these in more detail yesterday. They closed today at $26.95. Reset is three years away and it’s hard to say where interest rates will be by then. But at the moment these shares pay an above-market yield (which is why they trade at a premium) and therefore CWB may redeem them at $25 on April 30, 2024. They just redeemed an issue this week at $25 so clearly they are prepared to redeem above market shares when they get the chance. If in fact they are redeemed then they will pay out $4.50 between now and the redemption date. But the capital loss will be $1.95 at today’s price for a net of $2.55 over almost three years. Not a great return, but not horrible. And maybe they will stay well above $26 until sometime much closer to the possible redemption date. And maybe they won’t redeem. So I don’t consider these to be a screaming Sell but I decided to take my gain and add the proceeds to my cash which gives me more room to buy something else while still maintaining a strong cash position.

On Wednesday, the S&P 500 was up a very modest 0.1% while Toronto was about unchanged and has therefore not yet managed to close above the 20,000 level that it reached (and exceeded) within the trading day yesterday. and again today.

Linamar was down 2.9% and Toll Brothers was down 2.4%. 

The rate reset preferred shares on our list had a strong day.

The Canadian Western Bank  rate reset preferred share CWB.PR.B has now been on our list for almost seven years. It started out paying $1.10 or 4.4% of $25.00 but then reset down to pay  slightly less at $1.07525.  The market basically soured on most rate reset preferred shares and these shares have usually traded below $25 and sometimes well below. There were times when it looked like they would never get back to $25 but they were good investments if bought at the lower prices. Now, with threats of inflation many analysts expect interest rates to rise and so rate reset shares are being bid up in price. This one now looks expensive at $24.59. If the five year interest rate in fact remains around its current level of 0.90% then these shares will reset on April 30, 2024 paying $0.915 or 91.5 cents per year. I would be seller at this price.

The other CWB rate reset share on our list is CWB.PR.D. It was issued in early 2019 at a time when rate resets were unpopular and therefore offers a higher coupon of $1.50 per year or 6.0% of $25.00. It currently trades at $26.85 to yield 5.6%. That’s a great yield but CWB is likely to redeem this at $25.00 on its reset date of April 30, 2024. In that scenario, I don’t like the built in loss of $1.85. But the given the dividends between now and then the return would not be too bad.  And $25.00 should be a floor price on these shares unless the market turns really ugly. I hold some of these and I am undecided if I should sell or continue to hold. The next ex-dividend date is July 22 and that has to be given some consideration if thinking of selling.

A subscriber had a question / comment about that North American Construction Group convertibles debenture that I had mentioned yesterday. With his permission, I thought it might be useful to share the question and my response (with some edits here).

The subscriber wrote:
“I don’t fully understand the offering of bonds at such low interest rates- paying $100 for 5 or 6 percent ? Compounded after 5 years or something else? Ontario is the latest to come out with something at 2 percent and I can’t grasp the nature of it – other than these provinces are broke.”

My response is:

Indeed, several provinces have recently issued 5 year bonds at rates right around 2.2% They need to do this to fund their deficits and/or to pay off existing maturing bonds. With the possible exception of Newfoundland, all the provinces are still strong financially and there would seem to be almost no danger that they would fail to payoff the bonds at maturity. So, these are safe investments. They should however be considered illiquid since they don’t trade on the exchange and brokers charge steep hidden fees in the form of buy/sell spreads if you need to sell. If you buy these at the IPO you avoid the commission but you should plan to hold until maturity.

I agree that the 2%ish yields here are quite unattractive.

In such a low interest rate environment, the 5.5% interest on the North American Construction Group debentures caught my eye. For those wishing to hold a certain amount of fixed income, these perhaps could have a place in the portfolio. It’s far from a fantastic interest rate but it’s better than 2%.

But keep in mind that the credit risk is certainly higher than that of a province.  And keep in mind that these convertibel debenture bonds trade on the market. They are not a substitute for cash given that they would fall in value at times when the market is under stress or when this specific company is under stress.

In summary, I wanted subscribers to know I had bought some of these bonds. But I have not done any analysis on the company. 

I recently covered the topic of fixed income investments in the newsletter back in February (Not that the figures from February are out of date and that the Alcanna debenture mentioned there was redeemed and is no longer available).

On May 10, I mentioned that I saw a notice of a new issue of a 5.5% debenture from North American Construction Group and that I put in for some.  It seems the maximum allowed was $25,000 which seemed low. It was apparently heavily over-subscribed and I was allocated only 30% of what I put in for. Given the strong interest that seemed to be a strong indication that the 5.5% yield was deemed attractive by the market given the risk.

I thought it might start trading somewhat above $100 but if it came out at $100 to $101, I planned to buy more.

It came out today and traded from $100 to $101 and closed at $100.60. I bought more today at $100.60. I’m tempted to add more yet, but I really don’t know anything about the company except that when I looked on May 10, I thought the company was reasonable strong financially – but that was based on a very quick look. And I am comforted by the fact that the issue was heavily over-subscribed.

Anyhow, this is a seven year debenture paying 5.5% and I think that seems attractive even if you pay $101 or a bit higher to get it. I may add this to the list on the Subscriber Home page after I get a chance to look closer at the company.

If interested this can be bought under the symbol NOA.DB.B on Toronto.

Definitely some interesting news today.

The S&P 500 was down a 0.05%, so basically about unchanged.

Toronto however was up 1.2%

The bigger news was that the Toronto Stock Exchange Index poked its head above 20,000 today for the first time ever. It closed slightly below 20,000. 

Higher oil prices are part of the reason that the TSX has pushed higher.  The energy exchange traded fund, XEG was up 4.3% at $8.73. That ETF has been a heart-breaker and value destroyer since it peaked around $28 in mid 2008 (13 years ago). But it has done well this year.

Linamar was up 3.3%. 

One of the big bank analysts this morning recommended selling TFI International. Given I had already sold most of my shares I sold today the last of what I held. I would not mind buying back into this company if it happened to really dip again but that certainly may not happen.

Canadian Western Bank just announced that it will redeem one its preferred shares. They will be redeemed at $25.00. That was the Series 7 trading as CWB.PR.C. It had an above market yield as it paid $1.5625 per year or 6.25% of $25. It was issued at a time when rate reset preferred shares were particularly unpopular and Canadian Western Bank can replace it with a lower yield if it chooses to. What this points out is the fact that most of these rate reset preferred shares can never really trade too far above $25 given that the issuer has the right to redeem them (albeit only on a certain date every five years) at $25.

Canadian Western bank also announced today that it has in place an At The Market equity program. This is new and allows CWB to issue up $150 million in shares by simply selling them into the market at the market price. Normally they would issue shares through a secondary offering at a fixed price. This is to increase capital for growth. It’s a bit disappointing given that CWB has been claiming it has excess capital and that it would be seen to have excess capital if it were allowed to calculate its risk-weighted assets under the more advanced method that the big banks use and that it has been hoping to be allowed to use. But which has been delayed yet again.  It might also suggest that we should not expect a dividend increase given that they need to build capital. But it may be that they will only do this is they get a lot of growth in their loans either organically or through some acquisition.

In other news today, penny stock Ceapro announced the results of voting at its annual meeting. It was rather ugly. Their chairman and one other direct had 46% of the votes withheld. The CEO had 19% withheld. This is a lot of share owner dissatisfaction. this is very unusual.

The U.S. markets were closed on Monday. The Canadian market started out with a gain and pushed up over 19,900 before finishing the day down 0.6%.

I sold most of my remaining TFI International shares today.  This may not have been wise given the performance of the company and given that as I understand it the trucking industry in general is very busy at this time. I held these remaining shares in a corporate account with a 190% gain. I’ll be able to take out half of the capital gain with no personal tax . So, I decided to trigger the gain. Trimming positions has cost me some potential gains this year. But overall my accounts are up about 23% this year and so I don’t think I have much to complain about.

Stantec is updated and rated (lower) Buy at Canadian $54.04 or U.S. $ 44.78. It has recovered strongly. Impressively, it managed to increase earnings in the past year through cost cutting and despite somewhat lower revenues due to the pandemic. The outlook is good although the higher Canadian dollar will be a drag as it converts U.S. earnings into Canadian dollars. And it is looking expensive now.  It may continue to rise in price but it would be a better buy if it happens to pull back below $50.

Further to my comment yesterday on Friday’s market results…

Given its strong earnings report and outlook on Friday morning, It was disappointing to see Canadian Western Bank down 1.6% to $36.60. But strong results were expected and the stock is already up 28% this year. 

One bit of negative news is that they now expect their application to the regulator to move to a more advantageous system of risk management is delayed yet again apparently now beyond the second half of 2022! Meanwhile they are using the tool of the new system in their business but must maintain higher equity capital (for the same risks) than the larger banks which leads to a lower ROE. This move to the more sophisticated risk management standard has been in the works for I believe about six years now and the delays start to strain credibility.

They plan to issue some shares under a new “At the Market” share sale program in Q3. This is the opposite of a share buy back program. In some ways it is positive as it reflects growth. But it also could suggest that they don’t see the shares as over-priced. They would not likely need to do this if the more advanced system of risk management were in place.

Another negative is that they project a higher provision for credit losses in the next two quarters. I find that odd, since if they already know about those upcoming losses why don’t they have to provision now? Presumably, it is simply how the rules work. It’s not surprising that there will be some loan losses as some businesses go under.

But most aspects of CWB’s business, and particularly its growth, appear to be doing very well and I expect the share price to continue to do well.

On Friday, markets pushed higher once again with the S&P 500 up 0.1% and Toronto gaining 0.4%.

There were no particularly notable gains for the stocks on our list. But C.N. Rail was up 1.4% to $136. The dip to $126 last week appears to have been a little buying opportunity.

AutoCanada was down 6.5% to $42.96 as it continues to be a volatile stock after its huge gains in recent months.

With the large and steady gains in the market that 2021 has delivered, it is easy to forget that markets do go the other way from time to time. It remains appropriate to be prepared for those times. 

The report on lululemon is updated and rated Speculative Weak Buy at $330. It’s very expensive but it is also a great business. This is a great Canadian success story. It was founded and is still headquartered in Vancouver, B.C. But it is registered as a U.S. company and trades in the U.S. markets and (for whatever reason) not on Toronto. It also gets most of its revenue from the U.S. and so should definitely be considered a U.S. investment.

Based on value ratios I would rate it a Sell. But I have greatly under-estimated it in the past. It’s growth may be enough to keep the share price moving higher.

It’s set to report earnings next Thursday and it should be another good quarter. I bought just a few shares today ahead of the earnings report. 

On Thursday, markets did what they do most days – they rose a little higher. Toronto was up 0.15% pushing to a new record high and the S&P 500 was up 0.1%. 

C.N. Rail was up 2.7% as worries about its Kansas City Southern deal fade a little.

Linamar was up 4.3%.

Costco reported with strong results after the close. But apparently it may not have beat earnings expectations as the stock was down slightly after-hours. Any dip here is a buying opportunity.

Toronto had a strong day with a 0.9% gain on Wednesday while the S&P 500 edged up 0.2%.

Toll Brothers was up 3.8% on its strong earnings report. I was hoping for more and hope to see it get back to making new highs.

TFI International was up 3.1% to almost $115. Wow.

RioCan has its annual meeting this morning. Management certainly seems upbeat and optimistic.

Ceapro which is a penny stock also had its annual meeting today. It has a lot of research irons in the fire that could pay off. It’s hoping for positive news from its Phase I trial of its Beta Glucan pills as a cholesterol reducer. It announced today that it has completed enrolling patients in the trial. That’s good although it seemed to take an enormous amount of time to get that done. Now, they saw they may start getting results from the trial by the end of this year although it sounded like that could slip to early next year. Arguably, its existing “cosmeceutical” products justify the current price around 70 cents and there is little or no premium in the stock price to reflect the value of the research potential. One could perhaps argue that the research efforts are a bit of a free lottery ticket. In any case though it is a small company and suitable for a modest investment and not a huge bet.

Alberta was the latest province out borrowing money. It offered 10 year bonds today at a yield to maturity of 2.18% and the offer sold out quickly. It’s interesting to see at least four provinces borrowing at around that rate in the past week or so. Do they fear higher rates? Or is this just normal borrowing for cash needs?

On Tuesday, the S&P 500 was down 0.2% while Toronto was up 0.2%.

AutoCanada was up 3.2%.

Toll Brothers was up 2.4%. Then, after the close, it released what seems to be a blow-out earnings report. Profits and revenues were up sharply but that was based on home sale contracts signed some 9 to 12 months earlier and was expected. The better news if that new orders are containing at record levels. I would suspect that this report exceeded market expectations and that the stock will rise tomorrow. I was starting to worry that the price to book ratio at 1.7 might be getting high for a company that is so asset intensive. But they are projection a 20% return on equity in fiscal 2020. That kind of return can easily justify a higher price to book value ratio. This is a cyclical company and things can change fast. But for now the outlook looks very good.

My next update will be for lululemon. This has been a great Canadian success story. I looked at it years ago and under estimated it which was my mistake. I bought their pants when I should have also been buying their shares. I’m not sure about the valuation at this point and that is what I am going to analyse.

TD Waterhouse alerted me to two new issues of provincial bonds this morning. Both look unattractive to me and both sold out quickly.

Ontario sold a 2.15% ten year issue. Nova Scotia sold a nine year issue at 2.0%.  If you want government bonds then buy at the new issue like this and hold until maturity. The hidden commissions (large buy/sell spreads) are too large if you buy from the likes of TD Waterhouse. But I have no interest in tying up money for ten years at about 2%.

I find it ridiculous that Nova Scotia has a higher credit rating than Alberta. Probably higher than Ontario and B.C. as well given the lower rate here.

On Friday, the S&P 500 edged down 0.1% but Toronto was up 0.4%.

C.N. Rail was down 1.9% as investors worry about the Kansas City Southern potential acquisition which faces a lengthy approval process and which (I understand) would see C.N. pay $1 billion in damages to Kansas City if the deal falls fails to get approval. And they are paying $700 million Canadian to C.P. as the fee to break the deal they had earlier with Kansas City. And even if the deal goes through there is concern about the price paid. Nevertheless, C.N. has a great history and is worth considering at this price. 

Canadian Western Bank was up 2.4%. The Canadian banks are expected to post stellar earnings very shortly as they “release” provisions for bad loans (pandemic-related) that have not materialized.

Indications are that the U.S. market will open higher this morning.

Toronto Stock Exchange is closed for the holiday today.