2022

For the first few comments of 2023 see the top of the subscriber Home page as the comment page for 2023 is not yet set up.

Markets rose on this second-last trading day of 2022.

The S&P 500 was up 1.75% and Toronto was up 1.05%.

A rate reset preferred share issued by Brookfield Office Properties Inc. (BPO.PR.G) is added to the site and rated (higher) Buy at $18.86 as it yields 8.68% and will not reset for another 4.5 years. Brookfield Office Properties Ltd. is a subsidiary of Brookfield Property partners which is in turn a subsidiary of Brookfield Asset Management. So it’s a complex structure and it was difficult to find information on this share.

There may be credit concerns and this preferred share should be considered to be somewhat risky. Office properties are out of favor and vacancy rates are up. There are also headwinds from higher interest rates.  But while anything is possible, I certainly expect that this entity will continue to pay the dividend and never default.

The yield seems attractive. It would not be wise to get over-invested in this but I think it’s worthy of consideration for those looking for good dividend yields.

Note also that these shares are very thinly traded.

Wednesday was another negative day in the markets. The S&P 500 was down 1.2% and Toronto as down 1.1%.

Almost all the stocks I monitor were down today.

Tomorrow I am adding a rate reset preferred share to the list. BPO.PR.G issued by Brookfield Office Properties a subsidiary of Brookfield Properties L.P. now yields 8.7% and has 4 and a half years to go before it resets again. The structure of this entity is complicated and the credit rating may not be that strong. And office properties are certainly out of favor. But I’d be very surprised if it ever failed to pay the dividend. Nothing is without risk. But the 8.7% yield looks good to me.

Our report on American Express is updated and rated (lower) Strong Buy at $147. (It’s at $145 as I write this).

American Express is a high quality company that is growing its earnings at a strong rate. The current price is a reasonable opportunity to acquire this company at a good price. Obviously it can go lower just with a poor market sentiment. But at 15 times trailing earnings and 13 times projected earnings and an ROE of about 30% it is likely to continue to do well over the years. As always, see the report for much more detail including risks.

On Tuesday, the Toronto stock exchange was closed while the S&P 500 was down 0.4%. On Friday, there was a press release from the Melcor REIT and one from Melcor Developments.

The markets are obviously ending the year on a weak note. The good news is that should set things up for markets to rise in 2023. But that depends on interest rates and the economy and other factors. For investors with larger portfolios it may be a time to take solace in dividends which have generally continued to increase.

I have an update to post soon for American Express. It’s a high quality company and I believe it is attractive at this time. The rating will be (lower) Strong Buy at $147. Longer term VISA certainly remains dominant by far but the lower P/E ratio of AMEX makes it a good investment at this time I believe. 

The Melcor REIT announced that it would (as expected) pay off a maturing $23 million debenture on Schedule on December 31 using its line of credit. The REIT would have liked to borrow on another  5 year debenture but the interest rate is considered to be too high. This was actually an extendible debenture and in theory they could have kept paying interest instead of paying it off. But that would have likely have  sent a very bad message to the market.

Their payout ratio is about 76% of adjusted funds from operations and the dividend totals about $14 million per year. Therefore they are likely accumulating cash at a rate of about $4 million per year. At that rate it is going to take quite a while if they want to pay off the line of credit that way. Their cash flows appear set to increase in the coming quarters. But overall, there is probably not much hope for a distribution increase. 

With higher interest rates it is now very difficult for this REIT to add to its assets. It likely has to continue to just harvest cash flows from its existing properties. If it can get a good price it might even want to sell off some buildings to build cash.

It has another debenture coming due in two years on December 31, 2024. That one is for $46 million and trades as MR.DB.B and has a 5.1% interest rate but trades at about 90 cents on the dollar. That means the return should be about 10% per year if it matures on schedule at $100 in two years. I don’t think there is much risk that it would not be paid off on schedule. But, then again, the REIT does not have such an easy ability to borrow to pay it off. I suspect they would definitely pay it off on schedule even if it meant paying a high interest rate. This REIT will also have to renew some other maturing debt at high interest rates in 2023 and 2024 unless interest rates decline. But it does have good properties and an improving vacancy rate. I was thinking this Debenture at $90 looks attractive but given the debt situation  maybe it is not such a bargain.

Meanwhile Melcor Developments announced that it had completed this year’s share buy back program. They bought back 1.642 million shares at an average $11.88 spending $19.5 million dollars. The purchases were largely in block repurchases. This is the first time in many years (possibly ever) that they have bought back shares fairly aggressively. This is a good sign of confidence. Melcor Developments has ample cash on hand and could possibly increase the dividend. But given higher interest rates they may prefer to sit on the cash. These shares appear to be seriously under-valued. But unfortunately they may continue to languish unless something develops to change the mood. I have been in contact with Melcor’s CEO and Board and they do seem to agree that something needs to be done. The share buybacks were at least a start on doing something to improve the return on equity.

Markets were weak again on Thursday. It seems the market is giving back gains from this Fall that were mostly based on the wishful thinking that interest rate hikes were very soon to end.

The S&P 500 was down 1.45% and Toronto was down 1.1%.

Almost all the stocks of companies I follow were down. FedEx was an exception and rose 3.3%. 

Couche-Tard today announced the acquisition of a relatively small chain of car washes. This has been an extremely well managed company. But I do wonder if they are starting to fear the Electric Vehicle wave that is coming. They will install chargers but “gas stations” will no longer be the only option for “fueling” vehicles. Most charging will be done at home in suburban garages. And lots of work places and shopping places will have chargers. A LOT of corner gas stations are going to have to disappear in the next 10 to 20 years. Big highway gas stations and truck stops will remain. Couche-Tard is also huge in the convenience store business and that will continue. But surely the EV wave is a big headwind for them.

Canada’s population growth in 2022 is absolutely epic. A lot of it due to non-permanent residents from Ukraine. But many of them will stay and in any case they are here right now. The population increase in the first 9 months of 2022 was over 3/4 of a million. The highest annual total eve and we have the Q4 number to add to that. We are on track for a population increase of one million people in 2022! 

This has to be good for a lot of businesses such as cell phone companies, grocery stores and clothing stores. Almost all businesses probably get some benefit. This may not fully offset other headwinds in 2023 but it is a help.

Here’s details for Canada

https://www150.statcan.gc.ca/n1/daily-quotidien/221221/dq221221f-eng.htm?CMP=mstatcan

Alberta got a massive population increase of 52,000 people in Q3 alone. Check out the graph here: It’s EPIC!

https://economicdashboard.alberta.ca/NetMigration#alberta

Seems like it would be a great time to own apartment buildings in Alberta.

Markets rebounded on Wednesday. Apparently, this was partly due to good earnings from Nike. And probably bargain hunting after several weak days.

The S&P 500 was up 1.5% and Toronto was up 1.4%. 

lululemon was up 3.1%. RioCan was up 3.4%. 

I was  bit mixed up yesterday when I said U.S. November CPI was to be released today. That came out last week. And with that and the FED announcement last week that’s why I was not expecting any significant economic news to drive the markets in the last bit of 2022. Canadian CPI came out today. That does not count as significant news. In any case it was not much different than expected. December CPI could show a good improvement due to lower gasoline prices (at least in Alberta.

AutoCanada is updated and rated Strong Buy at $22.22. While the stock is down a lot this year, the company has been doing very well. There are always risks but this stock appears to be very cheap on a price to earnings basis. Back around 2017 this company was under terrible management and made some big mistakes. The new management that too over in 2018 has been excellent. But they did run into the pandemic which seriously derailed the company for a time. That’s behind them now. Higher interest rates and a probably recession are headwinds but this company is likely to thrive and the price is beaten down at the moment due to various fears.

Markets were modestly positive on Tuesday as the S&P 500 rose 0.10% and Toronto rose 0.45%.

AutoCanada was down 3.9% to $22.35. This will be my next update and I will likely rate it Strong Buy based on its very low price / earnings ratio of 4.9 and its 28% ROE. The company today announced a successor CFO and also announced that it will file for another normal course issuer bid to continue buying back its shares. It does face headwinds from the sharply higher interest rates and a possible recession. But the company has strong cash flows and appears to be very well managed. The decline in the share price may relate to tax-loss selling or may be general nervousness about vehicle sales.

The Melcor REIT units were down 3.7% to just $5.17. That brings the shares down to just 53% of book value. This REIT is tight for cash but with steady cash flows it does not appear to be in any financial danger. I’ve been expecting them to issue a press release confirming that they will pay off a debenture that matures on December 31. They indicated they will likely use their line of credit to pay this off. They are tight for cash and it is always possible that they could reduce or suspend the distribution to build cash although there was no indication of any plans to do that. I suspect the recent selling pressure was due to tax-loss selling and a general sense that this REIT faces interest rate risks and a generally unfavorable economic climate at this time. But I see no reason that this REIT will not continue to survive and grow at least slowly over time. I could not resist buying some units today at this low price.

The November CPI data for the U.S. will be released before the open tomorrow morning. This could possibly propel market higher if inflation comes in lower than expected.

Monday was another negative day in the markets with the S&P 500 down 0.9% and Toronto down 1.25%.

AutoCanada was down 7.8%. Coincidentally, it will be my next update and I expect to rate it a Strong Buy. They have doing very well in terms of earnings and cashflow. There are headwinds including higher interest rates and a possible recession. A shortage of inventory appears to be helpful since they don’t have to cut deals to sell cars.

Penny stock Freshii was taken over today at a 134% premium to Friday’s closing price. This goes to show that there can be some real bargains in the market. 

Markets were weak again on Friday with the S&P 500 down 1.1% and Toronto down 0.8%.

I had been mentioning that the gains in recent months seemed to be based on wishful thinking that the FED interest rate hikes would soon end. Now the market is facing the reality of higher rates.

There can always be positive news to drive the markets but I would certainly not count on the market gaining in the final two weeks of this year. 

RioCan Real Estate Investment Trust is updated and rated Buy at $21.07.

This is a relatively lower risk investment but it is also not a very high ROE investment. It has a great portfolio of properties with 53% located in metro Toronto and almost all the rest in the next five biggest cities. It’s shopping centers are largely in the category of outdoor “Power centers” with only 5% being traditional enclosed shopping malls. It has a strong group of tenants as well with a heavy focus on grocery stores and other essential retailers including value retailers.  Traditionally almost entirely devoted to retail tenants it is now building a strong presence in residential apartments mostly in Toronto. And it is also building and selling condos and Townhouses. It’s a very well managed outfit.

While there are some headwinds including higher interest rates, the timing looks good here with the units trading at 81% of book value. I suspect that the distribution currently yielding 4.8% will be increased early next year.

Yesterday I suggested that markets were more likely to decline by the end of December rather than rally.

Today the market agreed, as the S&P 500 was down  a hefty 2.5% and Toronto was down 1.5%.

Costco was down 4.1% to $464. Still not cheap but I’d possibly consider nibbling at that price. But I’d prefer to wait and hope to get it somewhat lower still.

On Wednesday the markets were a bit unsure how to react to the FED rate increase of 50 basis points (as expected) and the indication that the the FED rate will likely rise somewhat higher than previously expected. The S&P 500 ended the day down 0.6% and Toronto was down a similar 0.7%.

At this point there is not much reason to think the market will rally into the year end. I’d say the risk is more to the down-side.

On Tuesday, the S&P 500 was initially up sharply as U.S. inflation came in slightly lower than expected. The rally then fizzled but then rallied back somewhat and at the end of the day the S&P 500 was up 0.7% and Toronto was about unchanged.

Yesterday, after the close the Bank of Montreal came out with a share offering at $118.60. The closing price had been $125.13. As would be expected the stock price declined on this news. But It only declined 1.8% to $122.89. The share offering was scooped up rapidly. Those who bought got a good deal. Perhaps the lesson is if any of the other big banks come out with a share offering priced below the market it might be a good bet to grab some. But I am not sure that any of the other big banks will be issuing shares. Banks usually claim to have “excess” capital although that usually means in excess of the bare minimum required by regulators.

One thing I have not heard in this FTX scandal is “what about the auditors”. Remember in the case of ENRON the entire Arthur Andersons accounting firm was taken down even though it was only small number of Arthur Anderson auditors who worked on ENRON. Okay, Google tells me some have questioned the auditor’s role. The auditor was Armanino. I’d be pretty worried if I worked there.

Tomorrow’s excitement will be the FED’s interest rate increase any commentary about the future path of interest rates. This will likely make or break the direction of markets for the rest of this year.

On Monday the S&P 500 was up 1.4% while Toronto was up 0.4%.

I’m surprised that the price of Western Canadian Select is not even lower given the Keystone line shutdown. I had understood it carried 600,000 barrels a day which would now be backing up in Alberta filling storage tanks. But today I heard that much of the oil gets taken off on a lateral before the shut down point. Nevertheless it sound like quite a lot of oil going into storage in Alberta and this could ultimately cause a very steep price drop if it continues. 

And of course the spill gives ammunition to the anti-pipeline protestors. 

My next update will be for RioCan which is a very well managed REIT.  It faces the headwind of higher interest rates but is still doing well.

Friday’s action saw the S&P 500 down 0.7% and Toronto down just 0.1%.

Costco was initially down 2.3% due to its earnings report not quite meeting expectations. But at the end of the day the stock was about unchanged. It’s hard to keep such a strong company down. But it is down about 10% from its November high and down 21% from its 52 week high which goes to show that even the strongest companies can get over-valued at times. Costco almost never gets truly cheap. I’d look for a bigger decline before buying at this point.

lululemon got hammered down 12.9% after reporting strong earnings but a more subdues outlook. I was tempted to add to my small position but did not happen to have any U.S. funds on hand to do so. It will likely continue to be a long-term winner. 

This week, the market will turn its attention to a FED interest rate hike on Wednesday and especially to any hints of whether the FED believes it is close to the end of the interest rate raising cycle. A higher-than-expected producer price inflation measure on Friday sent something of a chill through the market.

On Thursday, the S&P 500 was up 0.75% while Toronto was about unchanged.

After the close several companies reported or had news:

Costco reported and the reaction after hours was moderately negative.

lululemon reported with strong earnings but lower guidance and got slammed down 7.5% in after-hours trading.

Boston Pizza Royalties announced a modest 2% distribution increase and also announced a small special distribution of 8.5 cents per unit. 

The Keystone pipeline is shut down due to a spill in the U.S. portion of the line. Predictably this caused the price of Western Canadian Select to drop quite noticeably as there will not be a glut of that stuff if the shutdown continues for more than a few days. At 600,000 barrels per day that glut could build quickly. This is not good for Alberta but will likely be resolved quickly. It could be an opportunity for oil by rail depending if the tanker cars are available.

Wednesday was another modestly negative day for stocks with the S&P 500 down 0.2% and Toronto down 0.1%.

Toll Brothers was a winner with a strong 7.75% gain after its earnings release. Given the negative sentiment in housing it may be difficult for the stock to hold that gain.

The Bank of Canada raised its benchmark rate by 0.50 to 4.25%.

Commercial bank prime rates no go to 6.45%. This has got to have an impact and slow the economy soon.

The market however, is not yet convinced that the higher rates will last all that long.

The five year government of Canada bond yield slipped under 3.0% today. This may even lead to a little dip in 5 year mortgage rates. Anyone thinking of locking in might be wise to look for a good opportunity to do so this week.

This 3.0% five year Canada bond is also negative for rate reset preferred shares which just never seem to catch a break. 

The report on Andrew Peller is updated but rated Weak Sell / hold at $5.06

This report was not due for an update yet but I wanted to update it because I am going to be talking by phone to their CEO, John Peller.

This seems to be a sad case of a company that finds itself in a very tough industry. Previously they were making low double digit ROEs but then they got really walloped by the pandemic. And then they got further walloped by huge cost increases for imported wine, transportation and for glass bottles. And they don’t seem to see a lot of improvement in the next 18 months but express a lot of confidence about the long term. They face very stiff competition from imported wines which they claim are subsidised by the growing countries. It seems to be a  very tough business. 

Sadly, it seems that a lot or most of their sales are in the low-end wines where they must compete strictly on price. Competing on price is never a recipe for high profits unless you have clear cost advantages like Costco or Walmart.

On a positive note, the shares trade below book value and in reality their assets (lands in particular) may be worth far more than book value.

On another positive note, they are expecting to very soon get a grant from Agriculture Canada which is providing some assistance to Canadian wineries. But the need for such a subsidy points out the weak economics of this business.

I hold some shares and will likely continue to hold them rather than sell at the recent very low price. 

Owning a winery is often thought of as a hobby or vanity enterprise for wealthy retired people. Possibly this is more of a hobby investment for wine aficionados as opposed to a good long-term investment.

As an investment, it is speculative at best and just not a great business in the long term.

Markets continued to slide modestly on Tuesday with the S&P 500 down 1.4% and Toronto down 1.25%.

After the close, Toll Brothers reported its Q4 and fiscal year results. They had a VERY profitable Q4 and fiscal 2022. But the market has now softened greatly. Due to their backlog 2023 is expected to be another good year for profit but is contracts for new homes remain very soft then 2024 will be very soft.  In after hours trading the stock was little-changed. The stock continues to look very cheap based on past earnings and near-term earnings but the market may bget spooked by fears of what 2024 earnings will look like.

In somewhat related news, Canfor corporation announced production cuts at its lumber mills. It seems to me that West Fraser Timber has held up pretty well in the face of sharply lower lumber prices. It may be that the various lumber companies have tried to signal each other to share the pain of production cuts which could benefit all of them as long as it does not amount to overt collusion.

Markets were lower on Monday. That’s not surprising given that markets had risen so much in the  past seven weeks based mostly on hopes for an end to the increases in interest rates.

The S&P 500 was down 1.8% and Toronto as down 1.2%.

Checking insider trading for Melcor Development, I was able to confirm that they have made another block repurchase. This time 290,000 shares last week at $10.88 for a total of $3.16 million dollars. This brings the total to 1.4 million shares at a cost of over $17 million. This will reduce the share count by about 4% and is a significant and welcome step. It’s also a sign of confidence that they feel they can spare the cash. It may not be a coincidence that I have been on their case very hard for over a year now to do something about the low ROE. This will help. To my knowledge this is the first time they have ever done any such block share repurchases.

Last week I sent in a rather hard-hitting submission to their Board. 

On Friday, the S&P 500 was down 0.1% and Toronto was down 0.2%.

Canadian Western Bank was disappointing with a 4.5% decline despite Q4 earnings that apparently met expectations.

It appears that the bank is pointing to better days ahead but that may be a year away. On Wednesday, they will hold an investor day presumably to try to convince Analysts that they are on the right track.

Markets were relatively quiet on Thursday with the S&P 500 down 0.1% and Toronto up 0.35%.

Shopify was up another 5.5%

Costco got spanked down 6.6% after its weak October report on same-store sales growth.

I had thought that Canadian Western Bank was reporting earnings on Thursday morning but its actually Friday morning that they report.

I see tonight news that AutoCanada has bought another dealership in Ontario. By coincidence I was in their largest dealership in Edmonton today. Crosstown Motors which is right across from their headquarters. It’s HUGE. It is also very spiffy. I need to do an update on this company but my sense is that they are doing well.

Well, wow! It was quite a strong day in the markets indeed with the S&P 500 up a hefty 3.1% and Toronto up 0.9%.

As I listed to FED Chair Jerome Powell earlier today, I heard him say that once rates do get to some terminal rate, they would be staying there for a while. He said it would be a mistake to then start cutting rates too early. I thought stocks would fall on the news. But he also indicated that the next rate hike might be 50 basis points rather than 75. And the market interpreted his remarks to indicate that the terminal rate that the FED would get to before pausing would be somewhat lower than previously thought.

Overall, my sense is that the market may have over-reacted to the upside. Time will tell.

Stocks rising on this and perhaps other news included:

Shopify, up 9.5%

VISA, up 3.8 % and Apple, up 4.9%

After the close, Costco released November same-store sales growth of 5.3% (this excludes the impact of volatile gasoline prices and foreign exchange impacts). I believe this is the lowest same-store sales growth figure in several years or longer. Starting with the pandemic int he Spring of 2020, Costco has reported very strong same-store sales often in the mid-teens and finally slipping back under 10% earlier this year. 

5.3% year over year same-store sales growth seems low in light of inflation. It suggests that volume was down. 

I wonder if this is some kind of “canary in the coal mine”. Are consumers finally starting to get taped out? Or have they returned to shopping at smaller grocery stores?

Canada at 6.6% was stronger than the U.S. stores and that does not surprise me given what I see on my occasional trips to Costco.

I’ll be interested to see any analyst commentary on this tomorrow. I just checked and I see Costco is down 3.0% in after-hours trading due to the lower same-store sales growth.

Also tomorrow, I will be watching for the earnings release from Canadian Western Bank. As noted previously, I expect a decline in profit due to higher operating costs and a write-off of some software. The adjusted earnings growth will also be modest or perhaps a small decline I think. But I expect loans and deposit growth to be strong and the bank to have a rosy outlook for 2023.  I don’t expect big issues with actual loan losses but the models may require an increase in projected loan losses due to economic conditions.

On Tuesday the S&P 500 was down 0.4% while Toronto was up 0.4%. So, not a lot of movement.

In Canada, the big news was that Royal Bank (RBC) was buying HSBC Canada (subject to regulatory approval) for $13.5 billion. This was considered a very high price in relation to earlier estimated that it would be sold for $8 to $11 billion.

When it comes to valuation, I was interested in the price to book value paid. It was high at 2.5 times book. I also saw something about the P/E ratio being only 9.4 times which would be a bargain price. However a different article clarified that this was 9.4 times estimated 2024 earnings after the earnings would be greatly boosted by RBC cutting operating expenses by 55%. So, the more relevant figure, I think is the 2.5 times book value.

I wondered what this transaction might say about Canadian Western Bank’s value if it were acquired (It’s not for sale). CWB trades at a lowly 0.82 times tangible book value. If it was actually worth a similar 2.5 times book value it’s share price would be triple. Now, that’s probably very wishful thinking. I have not looked at HSBC’s return on equity and it may be far higher than CWB’s for some reason. But this transaction does add to the evidence that CWB is probably under-valued.

HSBC has $134 billion in assets making it over 3 times larger than CWB. As HSBC Canada it had the advantage of being a banking name well-known to many immigrants and offered international banking. 

As an investor, this proposed transaction is a great thing. As a citizen it reduces competition and forces thousands of Canadians to become RBC customers when they may have specifically chosen the far smaller HSBC.

I believe that the Competition Bureau should definitly oppose this merger. And I see no political upside whatsoever for the Finance Minister to allow it. It obviously lessens competition to some degree and RBC has signaled that it will be slashing staff. I don’t think this transaction will ever actually be approved. I don’t usually go in for conspiracy type theories, but it’s even possible that RBC made this offer simply to keep HSBC out of the hands of a smaller competitor at least for the next year as this winds its way through the approvals process.

It was not surprising to see that markets were down on Monday. The markets have been quite optimistic lately and that makes them vulnerable to any bad news. Today, the concern seemed to be mostly about COVID lockdowns in China (slowing that economy) and protests against those lockdowns (Scary to think how the Chines government will respond to such protests).

The S&P 500 was down 1.5% and Toronto was down 0.8%.

Shopify was up 4.4% after reporting  strong Black Friday sales on its platform.

Friday was a quiet day in the markets with the S&P 500 about unchanged and Toronto up 0.2%.

Monday appears set to open with a market decline due to concerns about unrest in China.

On Tuesday we will get the first of the Q4 earnings reports from Canada’s largest banks.

When it comes to Canadian Western, they already indicated in their Q3 report that Q4 will include a material write-off of some older software associated with their efforts to switch to a more advanced and advantageous way of calculating their risks and the capital that they need to hold in each loan category. Also they continue to indicate that their operating expenses are higher than normal as they invest for future growth. Therefore, expect the headline number to be a bit ugly. I don’t expect any issues with actual loan losses but it seems likely that all the banks will have to increase their provisions for possible loan losses due to forecasts of recession and a softer economy as well as higher interest rates that could push more customers into insolvency. Overall, I expect Canadian Western Bank to continue to be attractive at its current price. But we will know a lot more this coming Friday morning when they release earnings. They are holding what I understand is their first ever investor day in Toronto on December 7th. I don’t think they would be holding their first investor day and doing it in Toronto if they did not have good news and optimism to share.

With the U.S. markets closed for the holiday, Toronto gained 0.3% on Thursday.

Canadian Tire was up 2.0%. 

According to CBC radio, Alberta at noon, Albertan’s are facing long waits when wanting to buy the most popular vehicles such at the Toyota Rav 4 Hybrid. That would seem to bode well for AutoCanada which has many dealerships in Alberta.

Wednesday was another positive day in the markets as the S&P 500 rose 0.6% and Toronto rose 0.3%.

Toll Brothers was up 2.6% as New Home Sales in the U.S. unexpectedly rose modestly in October versus September.

Shopify was strong with a 4.1% gain.

U.S. markets will be closed for the Thanksgiving Holiday tomorrow and so Toronto will have to chart its own course.

Markets were strong on Tuesday with the S&P 500 up 1.4% and Toronto up 1.2%.

The market seems to be more confident that the end is nigh for the interest rate hikes. If that turns out to be wishful thinking then we could certainly see a market decline.

After the close Couche-Tard released yet another strong quarter. Gasoline margins appear to be almost epically high. There seems to be less competition among gasoline retailers. President Biden’s calls for lower gasoline margins are apparently not having an impact.

Markets were down modestly on Monday with the S&P 500 down 0.4% but Toronto was about unchanged.

West Fraser Group was up 3.4% and has held up very well in the face of lower home construction. 

Home Capital was in the news today with a take-over at a 63% premium to its stock price as of Friday.

Home Capital had been trading well below book value due to fears of sharply lower mortgage growth and fears of bad loans. 

An acquisition offer at a high premium like this illustrates the fact that the stock market sometimes greatly under-valued and at other times greatly over-values certain companies. 

Grocer / Pharmacy chain Metro inc. is updated and rated (lower) Buy at $76.67. (It closed slightly higher than that today)

It’s a high quality company that could be bought and held for the very long term. 

Melcor Developments has a share buyback program and has been buying back shares regularly. However, due to its very thin trading liquidity it is limited to buying just 1281 shares per day on the open market. This is a very tiny amount. It’s welcome but can be described as more symbolic than significant.

However, for the first time in at least many years if not ever it has done some block trade buybacks this year. On November 11th it bought back 485,000 shares in a block trade at $10.91 for a total cost of $5.3 million. And on November 14th it bought back an additional 41,000 shares in a block trade. All told it has now done 5 block trades since late May totalling 1.1 million shares at a cost of $13.4 million. 

This will reduce the share count by about 3.5%. It’s not that huge but it’s a move in the right direction and it is a sign of confidence that the cash can be spared.

On Friday, markets did well as the S&P 500 and Toronto were each up 0.5%.

This will likely be a fairly slow week for stock market news since the Q3 earnings reporting season is largely over. The next FED interest rate change is not until mid December. Of course geopolitical events could arise at any time.

In Canada we will get the fiscal year-end bank earning reports starting in about 10 days. There should be no big negative surprises there at all. Well, possibly the models will start to predict somewhat higher projected loan losses due to higher interest rates and a slowing economy. I don’t see any reason to suspect that actual loan losses will have started to increase yet, just projections. We will also get another interest rate hike on December 7th.

Markets were down on Thursday with the S&P 500 down 0.3% and Toronto down 0.4%.

I’m not surprised to see markets down since the recent gains were based on some pretty thin evidence that inflation is starting to cool and therefore the hope that the FED will soon start to moderate its interest rate increases and then cease in the first half of 2023. If in fact the FED raised another 0.75 basis points in December then we could certainly see another noticeable dip in the markets. A balanced approach would be to have a good exposure to equities but also some cash in case better bargains arise.

With Restaurant Brands up another 4.4% today I sold part of my position in that company just to raise cash. It’s a high quality company but I don’t have a high enough allocation to cash. 

I posted the update to Dollarama. It’s a really great company but unfortunately it is expensive. It is a good long-term hold and one to look to buy on dips in particular.

My last update of Dollarama was January 27, 2021 where it was rated (lower) Buy at $50.77 and I indicated it was a quality company and that I was buying some. Dollarama is a great company but is not cheap. Currently I am rating it Weak Buy / Hold at $77.47.  It is a real powerhouse and a great money-maker. But there are headwinds including the lower Canadian dollar and higher interest rates as its debt matures. (It may decide to pay off some debt rather than continue to buy back shares so aggressively). The price could certainly dip but ultimately this stock is almost sure to be higher several years from now.

Not surprisingly, markets gave back some ground on Wednesday. The S&P 500 was down 0.8% and Toronto was down 0.2%.

But Restaurant Brands was up 7.0% after posting higher than expected earnings and announcing that it has hired the ex-CEO of Dominos as executive Chairman. Tim Hortons is a powerhouse for Restaurant Brands.

I’ll post my update for Dollarama tomorrow. It’s a true powerhouse but it’s not cheap. I own some and will definitely keep my shares. My next update after that will be for grocer/pharmacy chain  Metro Inc.

Markets were higher Tuesday morning due to the news of slight drip in the producer price index (a measure of inflation) in the U.S. Then news broke that the Russians had apparently (and hopefully accidentally) fires two missiles into Poland near the Ukraine border killing two people. The markets ended the day with the S&P 500 up 0.9% and Toronto up 0.4%. 

That was surprising strength in the face of news that could draw NATO a lot further into this war. And futures are higher tonight. 

Tomorrow, Canada reports October Inflation. Apparently the expectation is that it will have risen a little rather than dipped. That’s not good news for anyone.

On Monday, markets were positive for most of the day but turned negative later in the day.

The S&P 500 and Toronto were both down 0.9%.

Canadian Tire was down 6.3% after a similar sized gain on Friday. There may have been more focus on what the lower Canadian dollar and inflation is doing to its costs.

On Friday, stocks surprisingly added to Thursday’s big gains with the S&P 500 up 0.9% and Toronto up 0.9%

Shopify was up 7.6%.

Canadian Tire was up 7.3% as analysts decided its Q3 report was not too bad despite lower earnings than Q3 2021. Earnings were down about 20% but sales were up. They face the headwinds of inflation and the lower Canadian dollar.

This morning markets are down modestly.

My next update will be for Dollarama. It’s a fantastic Canadian business but I’m not sure about the valuation until I run the numbers.

The report on Melcor developments is updated and rated (higher) Buy at $10.90. 

This has been a disappointing company and investment for many years now. But it is yielding 5.5% and trades at a seemingly ridiculously low price to book value of just 0.30 so 30 cents on the dollar of book value. 

Its rental buildings had a noticeably improved occupancy as of Q3 and this is set to improve again in Q4 and Q1 based on committed space. On the other hand higher interest rates and the need to refinance some debt at higher interest rates is a concern. And I expect market value losses on the investment properties.

Higher interest rates are definitely a head wind for their main business of developing and selling home building lots. But the Alberta economy remains strong and it appears that Q4 will be strong. They have a good number of lots that will be ready for sale in Q4 and my understanding is that builders already have commitments to buy most of those although I am not certain on that point. Also they are expected to book a significant amount of lot sales in the U.S. in Q4 although that is not certain until it is done.

Overall, I have come to realise that the land development business seems to be fundamentally a low return business due to having to tie up equity for so many years before land is developed and sold. In addition, in my opinion, top management is complacent about the low profit levels and the low share price and do not appear to be overly ambitious to change things. The CEO seems to blame the chronically low profits (to the extent he even seems them as low) on the state of the economy and outside of his control.  It may be that they find themselves overwhelmed running the business day to day and lack the time and energy to really improve things. Looking at the far higher ROEs of grocery stores, I ask myself “why it is consistently more profitable to put a can of soup on a shelf” than it is to go to all the work of developing land for home building lots. (On that note, I will be updating the report on Metro Inc. before too long. Grocery stores are known to have low margins on sales but for investors it is return on equity that matters.)

At this point it is really only the huge discount to book value which also greatly pushes up the yield that attracts me to this company. 

The report on the Melcor REIT is updated and rated Buy at $5.59. The cash yield is very attractive at 8.6%. And they have had good success in leasing space such that the occupancy level improved in Q3 and is set to improve again by Q1. On the other hand, higher interest expenses are a headwind both due to higher costs on renewing debt and due to probable (I would almost say certain) mark to market losses on building values. 

The Alberta economy is strong and this REIT is likely to grow although slowly over time. 

I think it’s a Buy but that is not to say that it is the BEST buy around right now. Real Estate is out of favor with investors due to higher interest rates.

Stocks soared on Thursday and the U.S. inflation report came in slightly lower than expected. The hope is that inflation is now trending down and that the FED can begin to ease off on its interest rate hikes. Possibly the FED will raise 50 basis points in December rather than 75.

The S&P 500 was up a very hefty 5.4% and Toronto was up 3.3%.

AutoCanada was up 24% after its earnings report.

Shopify was up 16.5%. lululemon was up 10.1%

Toll Brothers was up 11.0%.

This rally may well prove to be over-done but that remains to eb seen.

Canadian Tire was down 2.4% after its earnings release disappointed the market.

After the close, Stantec released earnings which it said were a record high for Q3.

Markets were down on Wednesday. Possibly this was due to the market being disappointed that he Republicans did not do a bit better. 

Also there was really no good reason for the markets to have risen in the past week in the face of coming higher interest rates. So perhaps just a retreat for that reason.

In any case, the S&P 500 was down 2.1% and Toronto was down 1.6%.

Intact Financial was down 5.2% despite what looked like a good earnings report yesterday. 

Apple was down 3.3%. I’d be tempted to add to my position. 

After the close, AutoCanada reported earnings. At a quick glance revenue was up but earnings down modestly. We shall see how the market reacts. 

Tuesday was another positive day as the S&P 500 and Toronto both gained 0.6%.

After the close, FedEx revealed that package volumes are running below projections and blamed this on e-commerce sales reverting to physical retail as the pandemic ebbs. That would mean it’s not a sign of a softer economy. FedEx may also be losing market share.

Also after the close Intact Insurance reported higher earnings. That probably surprises no one.

Melcor Developments reported Q3 results. At my initial look this looks to be a positive quarter but management is cautious about the next several quarters. Most likely the market will take no notice since this stock is so thinly traded.

One thing I have noticed is that the Melcor REIT and Melcor Developments have not increased their “cap rates” very much at all. I was expecting an increase that would push the mark to market value of their rental builds down. It’s hard to imagine that the return needed on rental buildings has not increased with the big increases in interest rates.

Penny stock RIWI reported a large gain in earnings in Q3. This looks quite positive but I will have to dig into the details.

The market seems to want to sort of forget about last week’s bad news that interest rates will go even higher than recently expected by next Spring. On Monday, the S&P 500 was up 1.0% and Toronto was up 0.5%.

Companies are still taking over other companies at what looks like high prices.

Summit Industrial REIT is being taken over and jumped 25%. It’s yield at the new price is just 3.2%. I don’t know anything about it but that looks like a high valuation. The market cap is listed on Yahoo at $3.4 billion, so this is a big take-over.

Richie Brothers auction company is buying IAA a Chicago based auto auction business for some $6 billion and at a big premium to its recent price. Ritchie Brothers fell on the news as it seems the market does not like this deal. 

The point is that big corporate players are seeing value in the market.

Tomorrow is the big mid-terms election in the U.S. The market may react to the result on Wednesday morning especially if the results are different than expected.

Fortis Inc. is updated and rated Buy at Canadian $53.35 or U.S. $39.63.

It’s been almost two years since I last updated this in January 2021. But not much has changed. The price is almost the same as it was then although in the mean time it had risen over 20% before giving that back due to higher interest rates. This stock is good for a very long term hold. It’s not a high growth stock at all but it is lower risk. The dividend is ultra reliable and increases every year. In the near-term the lower Canadian dollar will boost its earnings due to its U.S. operations. But higher interest rates could continue to push down on its P/E ratio.

On Friday the markets seemed to have trouble reacting to the strong jobs report in the U.S. (and Canada although markets primarily key off the U.S). A strong jobs report is good except it would signal the FED to keep raising interest rates even higher which is bad for stocks.

At the end of the day the S&P 500 was up 1.4% and Toronto was up 1.1%. Most stocks were up on the day.

I trimmed my Starbucks position after its gain. I normally would not have but I want to raise some cash. I would not be surprised if it bounces down again but it will gain in the long run.

On Thursday, the S&P 500 was down 1.1%. That was not surprising as the market is glum about the FD chair’s statement yesterday that interest rates have to climb somewhat higher than he had previously thought.

Toronto was down 0.2%.

Restaurant Brands reported good earnings this morning and indicated that the Tim Hortons sales were strong. So far it seems that inflation and higher mortgage rates are not preventing most Canadians from spending apace.

After the close, Starbucks reported stronger than expected earnings as price increases have not deterred tis customers.

Also after the close, RioCan released a strong earnings report.

And the Melcor REIT released its  Q3 earnings. There were no big surprises. The vacancy rate improved slightly. But earnings were down somewhat due to higher utility costs. And there were some additional mark-to-market losses on building values. I’ll be looking closely at this report shortly but overall it suggests to me that REIT units are under-valued.

Next up, I am taking a close look at the results for Fortis Inc. which most likely remains “a keeper”.

Markets fell hard on Wednesday with the S&P 500 down 2.5% and Toronto down 1.2%.

This came after the Federal Reserve Bank in the U.S. raised interest rated buy 0.75% and, mor importantly, indicated that rates were going to ultimately have to go somewhat higher than they previously thought.

The brutal math of the matter is that higher interest rates are a gravitational forced on the value of future cash flows and therefore essentially all financial assets including stocks.

Markets are likely to continue to go down or at least not rise until there is some indication that inflation is starting to come down which is what the central banks need to see before they will stop increasing rates.

Stock markets will ultimately reach new highs but it seems likely that the rough patch that we have expereinced in 2022 is likely to continue.

After the close Costco reported October-same store sales as well as same store sales for September and October combined. Adjusted for currency changes and gasoline price volatility the same store sales in October were up 6.7% versus October last year. That’s lower than the double digit increases they had posted most months since the  start of the pandemic. It also was likely driven mainly by price increases as opposed to volume. Costco has been doing extremely well in sales and this is just a bit softer but still a good gain. Costco shares always seem expensive but its sales and earnings growth has kept its P/E high. I’m not a buyer at the recent price and although I hold some I am more inclined to trim that position than to add to it at this time.

The Melcor REIT reports tomorrow after the close. Since the units are already down in price, I don’t expect any news that would push the price down further. The Alberta economy is doing well. Melcor does have a lot of older vacant office properties but that already seems to be reflected in the share price. Between the REIT and Melcor the parent company they do have a quite a bit of vacant space. The Melcor REIT has a convertible debt maturity coming up at the end of December and I am hoping they will explain how they will refinance that debt. I’d be surprised if they issue a new convertible debt offering since the interest rate would be high, but perhaps that will be their best option.  Given higher interest rates and the possible difficulty of borrowing as debt matures I no longer expect to see any near-term increase in the distribution. They will likely want to preserve cash. But this is just speculation, we will see what they have to say tomorrow evening.

I neglected to make my usual daily comment yesterday. My apologies to anyone who looked for it.

On Tuesday, the S&P 500 was down 0.4% while Toronto was up 0.5%.

AutoCanada was up 4.9%. 

In the U.S. the jobs market remains tight and a report today indicated there are 10.7 million open positions. This was more than the 10.0 million that analysts expected. This brings fears that wage pressures will continue which will fuel inflation and higher interest rates which is bad for stocks.

The FED will raise rates tomorrow and the consensus is that they will raise by 0.75%. The market will focus on what they say about future raises and whether the end to interest rate hikes is in sight. 

Comments on Canadian Western Bank:

Yesterday marked the end of the fiscal year for the banks. CWB will report earnings on December 2. They have already signaled that Q4 will be weak as they are writing off some software and they continue to invest in staff to meet future growth. They announced today a rebranding of their various Wealth management operations. They also announced today that they will host an Investor Day in Toronto on December 3. My suspicion is that they think they have a lot of good things to tell the analysts about. Hopefully their investments in staff and software are set to pay off in the next year.

Cameco, the big uranium miner is added to our list but rated only Highly Speculative Weak Buy at $32.99.

I wanted to take a look at Cameco because the nuclear power generation business appears to be on the upswing as a solution to getting to net zero carbon and as reliable domestic power source for many countries. 

Cameco is in a tough and competitive business. It’s mines are complex and subject to major risks (primarily water infiltration). Uranium is also in a state of over-capacity which drives the price down.

Cameco expects the capacity situation to tighten up causing uranium prices to continue the uptrend that began in mid 2021. 

Investing in Cameco is basically placing a bet that nuclear power will enjoy a substantial resurgence of popularity and that uranium prices will increase substantially. 

If interested, a reasonable strategy would to make a relatively small investment at this time and then continue to monitor the company. 

Friday’s market nicely capped off a strong week for equities.

On Friday, the S&P 500 was up 2.5% and Toronto was up 0.6%.

Apple Inc. was a stand-out today with a 7.6% gain. By far, most stocks were up today.

But TFI International was down 6.0% after reporting Q3 earnings after the close on Thursday. 

This break-in and assault of her husband at Nancy Pelosi’s house is distressing. I hope it’s not an indicator of the possible mayhem that the mid-term elections could feature. I used to say the United States could be dangerous because there are so many poor people who feel the system is unfair and many of which have guns (and that’s before I realised that so many have machine guns – automatic firing assault rifles). Now I might say the United States is dangerous because they have so many brain-washed conspiracy nut people – and many of those people have guns. This kind of lunacy could have a negative impact on stock prices as well as all its other terrible effects. The 2020’s are clearly and sadly not the finest hours of the United States of America.

Thursday’s  action saw the S&P 500 down 0.6% but Toronto was up 0.4%.

Shopify was up a hefty 17.1% after releasing Q3 earnings.

Amazon was out with earnings after the close and is down a further 12% in after-hours trading

Meta (formerly facebook) was down 25% today. Ouch. Yahoo Finance says it is trading at 12 times estimated forward earnings which seems attractive.

The Amazon results may mean that the S&P 500 will be down tomorrow. 

U.S. markets were down on Wednesday due to weakness in the big “tech” stocks. The S&P 500 was down 0.7%.

In Canada, the Toronto stock index was up 1.0% after the Bank of Canada raised interest rated by 0.50% rather than the expected 0.75%. This signaled that an end to the interest rater increases was possibly in sight. The 5 year Canada bond yield fell 18 basis points on the news.

CN Rail was up 3.0% after its strong earnings report and given the lower increase to the Bank of Canada rate.

Visa Inc. was up 4.7% after its strong earnings release.

In the next two weeks we will get lots more earnings reports. There will be a Fed interest rate decision (hike) next Wednesday. The U.S. mid-term election results (and potential ballot box and vote counting mayhem) will also be a newsmaker for markets.

After the close, West Fraser Timber announced earnings. They were significantly lower than last year but that would have been expected. Also Aecon released earnings which are probably better than expected. 

Tuesday was a positive day in the markets as the S&P 500 rose 1.6% and Toronto was up 0.9%.

lululemon was up a hefty 7.7%.

Toll Brothers was up 4.3%.

After the close, CN Rail released very strong Q3 results and raised their outlook for the full year. They had originally forecast adjusted earnings growth of 20%. But they lowered that in the Spring to 15 to 20%. Now they suggest the adjusted earnings per share growth will come in at 25%. This is a very strong and very well managed company. I’m glad I own some.

Also after the close VISA Inc. released strong results. This is an extremely strong and well positioned company. As with CN, I am glad to own some.

Investing and especially investment analysis always involves waiting for the next bit of news and the next earnings report hoping that previous predictions pan out. Tomorrow we get a Bank of Canada rate increase as well as their thoughts on the economy and the future. And we will continue to get Q3 earnings reports.

On Monday the S&P 500 was up 1.2% and Toronto was up 0.3%.

Costco was up 3.9%.

TFI International was up 4.2%. 

Starbucks was down a hefty 5.5% due to its heavy presence in China after the Chinese leader consolidated his power over the weekend and it is feared that China may become more insular. The situation in China is a risk for Starbucks and other western companies operating there. Hopefully these risks will not materialise.

We’ll continue to get more earnings reports this week as well as the Bank of Canada rate decision and economic update on Wednesday.

Markets were surprisingly strong on Friday with the S&P 500 up 2.4% and Toronto up 1.5%.

Markets  may continue to drift down with higher interest rates as well as lower growth in earnings. We know that short-term interest rates are still rising. The longer term outlook and the level of long-term interest rates such as the 10-year bond is much more in question.

In the next few weeks we will get Q3 earnings reports from the bulk of Canadian companies. The around end of Nevember we will get the Canadian Q4 bank earnings.

This week we will get the next interest rate raise from the bank of Canada 

The U.S. mid term election is just over two weeks from now and will probably be a market-moving event.

Developments int he Ukraine war can move markets at any time.

In other words, never a dull moment. It would be nice to have a dull month in the markets but that does not seem to be in the cards.

I am now working to add uranium producer Cameco to the site. This is a very interesting company. It will not look cheap and therefore will be a speculative pick. But Nuclear is gaining important traction in the quest for net-zero carbon. I think it’s a good speculative pick at this time. Their annual report is extremely informative about the industry and its prospects. 

On Thursday, markets started out higher but ended the day with the S&P 500 down 0.8% and Toronto down 0.5%.

TFI International has held up well this year but today was down 4.9%.

Despite the housing slowdown caused by higher interest rates, Toll Brothers today announced the opening of 15 new communities in California. They seem to remain optimistic although of course the market has definitely softened to some degree. 

I’m planning to next take a look at Cameco with a view to adding it to this site. Nuclear’s day may have come.

On Wednesday, markets gave back some of the gains of Monday and Tuesday. The S&P 500 and Toronto were each down 0.7%.

Toll Brothers was down 5.1%.

AutoCanada was down 6.8%. It’s been a very volatile stock. But it is well managed and I suspect it will do well over the years.

It was interesting to hear today that Parkland Fuels is taking a large inventory write-down in its U.S. division after gasoline prices declined. It’s very logical that when the market drops a retailer sitting on higher cost inventory nevertheless has to meet the new lower price in the market. This is very true for a gasoline retailer since drivers can easily switch brands and tend not to have much loyalty since gasoline is a commodity product.

I wondered if Couche-Tard might face the same issue. But I don’t ever recall Couche-Tard making such a write-down. Couche-Tard’s gasoline margins have been unusually high for at lest two years now and they may well report a much smaller margin when they next report.

Canada’s inflation in September was moderately higher than expected and there was a lot of focus on food inflation. This led to expectations that the Bank of Canada will raise interest rates by 75 basis points next week as opposed to the hoped for 50 basis point. More gravity for stock and bond prices, unfortunately.

On Tuesday, stock markets managed t a second day of gains with the S&P 500 up 1.1% and Toronto up 0.95%.

After the close, Netflix released results that exceeded expectations and this could provide support for stocks on Wednesday.

I notice that the 7.5% convertible debenture that I mentioned yesterday has not yet sold out at TD Direct.  Investors are being cautious it seems.

CMHC released housing start statistics and September was another strong month.

They indicate that the trend line is 278,000 dwelling units per year. Confusingly they also report that the September standalone seasonally adjusted figure was 300,000! My understanding is that due to month to month variability and randomness the trend line figure is more representative. Any way you look at it housing starts remains very robust in September. It may be that this was momentum from deals agreed to before mortgage rates rose so much.

The figures for Alberta remained quite strong versus last year. This should be good news for Melcor Developments but management there tells me the market is weak.

Our report on Aecon Group is updated and rated Weak Sell / Hold at $9.96. Possibly it should be rated Sell but I am reluctant to rate it Sell at the low share price. The company enjoys growing revenue but faces a number of headwinds. Most notably cost over-runs on four major projects. They hope to collect some extra fees from the customers on those but may not be successful. It’s quite disappointing that they refer to these project’s as “legacy” projects from 2018 and earlier. It’s true that this was under a different CEO. But that does not absolve management of responsibility. And they are still taking the risk of doing mostly fixed price contracts although they are trying to reduce their exposure to those.

This company undertakes huge projects but it seems to be a low profit business. I find it bizarre that profits are consistently higher for putting a can of soup on a shelf (grocers) than for constructing a huge bridge. The company is trying to lower it risks and improve profits but it has been a tough industry.

Monday featured a welcome rally in stock prices after Bank of America posted strong earnings growth.

The S&P 500 was up 2.65% and Toronto was up 1.6%.

Almost all the stocks that I monitor were up on the day.

After the close, I saw that TD Direct was out with a $45 million  convertible bond offering of Slate REIT paying 7.5%. This is a “bought deal” meaning the banks are confident that they can sell this investment.  The offering is still “open” as of 9 pm easter but I suspect it will sell out.

Last year this same REIT raised convertible debt at 5.25%. So this goes to show that REITs and other borrowers are obviously facing higher interest rates on new debt.

I suspect that this is an attractive yield but I am not familiar with this REIT.

The REIT disclosed that it is buying an office building in Chicago for  US $20 million. The cap rate is 8.4%. That’s a LOT higher than cap rates that I have seen in Canada. But with higher interest rate, cap rates must be higher now. Most REITs will likely face some mark-to-market losses due to higher cap rates when they report Q3 results. Perhaps the REIT unit prices are down enough to already reflect that.

The Melcor REIT faces a convertible debenture renewal at the end of December. They may finance the renewal in a different way since a new convertible debenture is going to have a high interest rate.  But they won’t want to use short-term financing so perhaps there is no way to avoid the higher rate. It all probably means that they will not be increasing the distribution anytime soon. 

It was not too surprising that markets on Friday gave back most of Thursday’s big gaisn. That’s because the gains on Thursday really seemed to have come for “no particular reason”.

In any case the S&P 500 was down 2.4% ad Toronto was down 1.5%.

On Friday I heard Janet Yellen describe how the G7 and a few other countries are nearing completion on a plan to have a voluntary price cap on Russian oil. The idea is that the Russian oil will still flow but it will be cheaper. This is likely a negative development for oil prices in general which is not good for the TSX.

And the market is still adjusting to higher interest rates which are truly a gravitational force on stock prices.

And U.S. inflation came in high adding to expectations of higher interest rates.

Soon however Canada and the U.S  will have “lapped” the start of the high inflation last year and this likely means that the year over year inflation numbers will be lower. 

An interesting bit of news is that Social Security payments in the U.S. are set to increase 8.7% in January. I thought last year’s increase of 5.9% was epic as it had been the highest in many years. Now they are getting another 8.7%.  That will likely add fuel to millions of workers who will also want big raises. Why should seniors on Social Security get larger increases than workers? In Canada, the CPP is also fully indexed to official inflation but on a lagged basis using the average inflation for the 12 months ending October. In January that’s going to be over 6%. It will be enough to be headline grabbing and workers here too will ask why they should not get at least that much. Hopefully by the time January rolls around inflation will be well under 6% as we lap the relatively high numbers of last Fall.

Our report on CN Rail is updated and rated (lower) Buy at $148.60 or US $107.

CN is truly a great company and has been extremely well run. Despite having been very profitable for many years they are always striving to increase profits. They constantly seek to be more efficient. The simple idea of moving trains faster and decreasing the time that locomotives and cars sit idle adds to return on assets. 

They were pioneers in the concept of running a scheduled railroad  which greatly benefits their customers. Now they are embracing digitization in a big way. Customers will be able to track the location of their freight and plan accordingly.

Their Prince Rupert line is a big advantage and given the congestion in California ports can get Asian freight to Chicago far faster than the American railroads. 

The stock price is not a compelling bargain especially given the higher interest rates that push acceptable P?E ratios down. But this is a case of paying up for quality. It’s likely to continue to be a solid long-term investment.

They will report Q3 earnings on October 25th. It will likely be another strong quarter.

The report on lululemon is updated adn rated Speculative Buy at U.S. $296 (it has slipped to about $289 as I post this). It remains an expensive stock and is pricing in strong growth. But it has a history of strong growth and it has set out ambitious plans for continued growth. Given the generally negative market trend and the higher interest rates that are negative for P/E ratios it may well continue to slide and so I would certainly not go “all-in”. But it’s a strong company that should continue to do well over time.

On Thursday, markets were initially lower due to the higher-than-expected U.S. CPI report. But then for apparently “no particular reason” markets staged a surprising rally and the S&P 500 ended the day up 2.6% and Toronto was up 2.2%.

Given that there was really no good news to explain the rally, it may be short lived.

The focus may now turn to Q3 earnings reports as well as any developments in the Ukraine war.

On Wednesday, the S&P 500 slipped another 0.3% and Toronto was down 0.1%.

Linamar was down 2.2% after it announced weaker market conditions.

Thursday’s focus will be on the U.S. CPI data. 

I have not heard much news about Q3 earnings. Many companies will be reporting Q3 earnings in the next couple of weeks.

With Canadian Western Bank’s shares sown so low I took a look at insider trading adn see that there has not been much activity. But notably one insider bought 5000 shares in June and another 5000 in September. It’s trading at about 65% of book value and 6 times trailing earnings. That seems remarkably cheap. 

The Toronto market was down 2.0% on Tuesday. In part, this was becasue it was catching up on Monday’s U.S. market losses since Toronto had been closed for the holiday on Monday.

The S&P 500 slipped another 0.65%.

At the moment it appears that things will likely get worse before they get better. But of course things can change quickly.

U.S. inflation numbers will be reported on Thursday and if inflation happens to be lower than expected that would be good news for stocks. 

Interest rates such as the ten year U.S. treasury yield have continued to rise and the gravitational effect of higher interest rates has dragged stock prices down. Longer term bonds automatically go down with higher interest rates.

After the close, Linamar provided some information on market conditions that it faced in Q3. In their mobility sector (basically automotive) They indicate: Light vehicle production in Europe was down meaningful from expectations adn various categories of cost were up. Asian production was up but overall they appear to be signalling bad news.

Agricultural and industrial equipment sales in Q3 were lower than expected and they note continued supply chain issues and higher costs. 

I found their message a bit hard to understand but overall it certainly looks like bad news and will likely send Linamar’s share price down noticeable on Wednesday.

But meanwhile Cameco and Brookfield renewable are buying Westinghouse Electric for $.4.5 billion. This is an indication that institutional investors see value in buying corporations.

The report on Costco is updated and rated Weak Sell / Hold at U.S. $468. Costco is a fantastic company and is growing strongly. But even after the recent decline its P/E ratio of 36 may not have come down enough to reflect the higher interest rate environment. I’d like to add to my position (cash permitting) but there may be a better opportunity ahead. 

Investors got spanked again on Friday as the S&P 500 fell a hefty 2.8% and Toronto fell 2.1%. 

Most stocks were down about 2%. Shopify was notable with a 9.6% drop.

The S&P 500 remained up 1.5% for the week.

The reason for the drop on Friday was that the U.S.jobs report came in strong which suggests that the FED’s interest rate hikes have not yet had the desired cooling affect on the economy. This led to fears that the interest rates may rise even higher than was already expected.

Bonds were down as well as interest yields rose.

Both stocks and bonds may continue to slide due to continued interest rate increases.

On top of that is the increasing rhetoric about the potential for Putin to use nuclear weapons. That would likely be very bad for stocks but might push government bonds higher.

Markets are always unpredictable but the level of uncertainty is unusually high at this time.

It’s going to take good news on the inflation and war to move markets higher or perhaps even stop the decline. 

On Thursday we will get the U.S. inflation numbers for September. If there are signs of lower inflation excluding energy then that will be good news.

Meanwhile for those with cash to invest: I see the Canadian Western Bank rate reset share CWB.PR.D closed at $24.03. It pays $1.50 per year to yield 6.2% which is attractive. In a panicked market this type of thinly traded share can certainly plummet so be aware of that. But I think the risk that it would not continue to pay its dividend is pretty remote. These shares will reset on  April 30, 2024 at a very high spread of 5.04% over the 5 year Canada Bond. For that reason, I would expect the bank to redeem them on that date at $25.

Markets gave back some more ground on Thursday as the focus returned to how much higher interest rates are going. Central banks in the U.S and Canada signaled hat they are far from done with raising rates.

The S&P 500 was down 1.0% and Toronto was down 1.3%.

Most stocks were down on the say. Toll Brothers was an interesting exception as it rose 2.1%.

The market is now awaiting the U.S. jobs report out tomorrow. The hope is that the unemployment  will be up indicating that the higher interest rates are cooling the economy as intended.

It was not surprising to see that the markets on Wednesday gave back a little of the big gains of Monday and Tuesday.

The S&P 500 was down 0.2% and Toronto was down 0.7%.

OPEC pledged to reduce oils production quotas by 2 million barrels a day. But apparently they were already under-producing the quota by 1 million for some reason and so it is apparently more of a net 1 million barrel reduction that has been agreed to. Not exactly an earth-shattering development.

Tonight there was news that WestJet is planning a very major expansion in Calgary over the the next eight or so years and that the Alberta government has pledged some kind os assistance in terms of training programs and other (it was not clear) assistance to help WestJet. Sounds like great news for Calgary and a bit of a snub for Edmonton. (Maybe a major snub, actually).

After the close, Costco announced yet another strong month of same-store sales growth. Costco will be my next update. It’s clearly a great company. It is still expensive in relation to earnings but not at the nosebleed levels that it was not so long ago. I like owning some and would definitely never even think of shorting it even if it does seem expensive. Instead, I’d be more inclined to buy on dips and to load up if it ever gets really cheap again.

Suncor is selling its wind and solar assets to Canadian Utilities for $730 million. Suncor will focus on oil as well as hydrogen and “renewable fuels”. 

Markets staged a big bounce upwards on Tuesday, adding to Monday’s gains. The S&P 500 was up 3.1% and Toronto was up 2.6%.

Shopify bounced up 12.7%.

Almost all the stocks I monitor were up. 

It remains to be seen if this is just a bounce or more of a change in the downward trend. 

This evening there is news that Elon Musk will be buying Twitter at his original offer price.

Markets had a noticeable bounce upwards on Monday with the S&P 500 up 2.6% adn Toronto up 2.4%.

Virtually all of the stocks that I monitor were up on the day.

In part it was likely due to the U.K. government backing down on a promise to cut taxes for the wealthiest (really?) after the move was taken by the bond market as a really bad idea that would add significantly to the U.K.’s sovereign debt. (And I suppose they never even asked, Charles III,  the new sovereign what he thought of the idea).

Higher oil prices “fueled” by a possible OPEC production cut also helped push many stocks higher.

Whether today’s bounce signals any kind of a turnaround or is just more in the nature of random noise remains to be seen. In any case it was a welcome respite from the recent declines.

Friday marked the end of the third quarter and saw the S&P 500 down another 1.5% while Toronto finished unchanged on the day.

So, what’s next? That’s hard to say of course but the following are some thoughts.

September inflation for the U.S. will be reported on October 13th. It will almost certainly show deflation versus August in the headline CPI number and possibly even in core inflation. But year over year inflation will still be high. It’s possible that the FED and the market will see the month over month number as a sign that interest rates don’t need to go much higher.

Markets will also react to positive or negative news regarding the Ukraine situation. At the moment the risk seems to be that the ware will get worse before it gets better.

The third quarter earnings will start to get reported within two weeks and those will drive markets and individual stock prices especially where the results are different than expected.  Data from S&P indicate that analysts now expect the S&P overall earnings to come in about 2% lower than last year on a GAAP basis but 6% higher on an operating earnings basis. If operating earnings fail to rise at least 6% for the overall S&P 500 this would be a negative factor. 

While there are risks, it’s probably not a wise strategy to panic and sell. Most who sell in fear will not manage to buy back in at a lower price and we don’t know for sure if markets will keep going lower.  For most investors a policy of staying the course tends to work over time. If you have a reasonably diversified portfolio including an allocation to fixed income you will do well over the long term. There are also bargains to be had for those with cash to invest.

Thursday turned out to be another negative day in the market as the S&P 500 fell 2.1% and Toronto was down 1.1%.

Linamar was down a hefty 11.6%. Shopify was down 8.0%. 

Fortis Inc. announced a 6% dividend increase but the stock nevertheless fell 3.1%.

It feels like things will continue to slide. On the other hand things can turn around quickly. 

I expect inflations reports later this month to show that prices likely declined overall in September versus August and that would be good news for the market.

And within about 10 days we will start to get Q3 earnings reports. Some of those could certainly be better than expected.

My own strategy will be  to stay the course and look to use dividends to add to positions at lower prices. 

Markets bounced up somewhat on Wednesday with the S&P 500 up 2.0% and Toronto up 1.9%.

Toll Brothers was one of the higher gainers with a 5.4% increase.

Statscan released figures today that showed that Canada gained a huge number of people in the second quarter of this year. The population increase was sharply boosted by people coming from Ukraine and other troubled areas. 

 “This was the highest growth in the number of people in Canada of any quarter since the addition of Newfoundland to the Confederation in 1949” !!!

Alberta gained a total of 35,000 immigrants in the quarter with over 9,000 of those being people who moved to Alberta from other provinces (this is after subtracting those that left for other provinces). Inter-provincial migration into Alberta likely cooled somewhat after Q2 but I suspect it remains quite strong.  International migration to Canada was also likely fairly strong in Q3. This would seem to be positive for Melcor Developments and for the residential apartment REIT sector.

Markets were initially higher on Tuesday but then faded for a loss on the day. The S&P 500 was down 0.2% and Toronto was down 0.1%.

This may be an opportunity to add to a quality stock like Visa Inc. It’s not exactly cheap but it is certainly cheaper than it normally is. I have a small amount of U.S. cash in an RRSP account and will look to use it to buy a few more Visa shares. I don’t like the idea of using Canadian cash to buy U.S. stocks at this time with our dollar this low.

The report on Melcor Developments is updated and rated (higher) Buy at $10.00. This has been a very disappointing investment for years. But the recent price seems almost absurdly low in relation to its book value of over $34 and in relation to its earnings and even its dividend as it now yields 6%.

An interesting development is that on September 15 the company bought back 458,000 shares in a block trade at $12.47. That was a total investment of $5.7 million dollars. There was a smaller such block purchase of 30,000 shares on September 6th at $12.13 and one of 139,000 shares in May at $13.99. I believe these are the first such block trades in at least decades if not ever. This shows confidence on the part of management. There was no press release about the large block trade buyback. Therefore “the market” (to the extent it ever pays attention to Melcor may be largely unaware of it although it was posted to the SEDI.ca web page where all Canadian insider trades must be reported. In addition Tim Melton purchased an additional 75,000 shares in his holding company since May.

While it’s been a terrible holding, now is not the time to panic and bail on this investment. I have recently added a small amount to my own position.

Monday was another down day in the markets with the S&P 500 down 1.0% and Toronto down 0.8%.

While this can be depressing it can also provide buying opportunities.

This is one reason why it is never a bad thing to have some allocation to cash.

Friday was another negative day in the markets with the S&P 500 down 1.7% and Toronto down 2.75%.

Almost all the stocks I monitor were down on the day. Thinly traded ones like Melcor get hit hard as it only takes a few owners bailing out to push the price down hard. 

Those with cash can use some to pick up bargains but of course there may be even better bargains ahead. 

The report on the Melcor Real Estate Investment Trust is updated and rated Buy at $5.89. The higher interest rates are a definite head wind in three ways: Firstly, the price that investors are willing to pay for any dollar of earnings or dividends declines with higher interest rates – this affects all investments. Secondly, the REIT faces higher interest expenses as a material amount of its debt matures in the next year and will be refinanced at higher rates – most of its debt however is locked in for at least several more years. Thirdly, The company faces higher interest rates. Thirdly, it faces market value losses on its buildings since those market values (estimated by “capitalization rates” decline with higher rates – this is somewhat unique to the real estate business. Offsetting this is the high yield and the face that the Alberta economy has been improving. It’s retail properties should continue to have strong occupancies and rental rates. Its office properties are however somewhat problematic and the outlook is not clear. The cash distribution overall appears quite safe as the recent payout ratio was 63% of funds from operations. The unit price may be getting pushed down now by what smacks of panic selling. This could continue. But this valuation does look attractive.

Markets declined again on Tuesday with the S&P 500 down 0.8%and Toronto down 0.95%.

Shopify was down 6.25% and is at a 52 week low.

Higher interest rates and fears of recession continue to add to the negative sentiment and trends.

Putin’s threats of using nuclear weapons are another negative.

Futures markets suggest that markets will open lower this morning.

It will likely take good news on the inflation front or on the Ukraine situation to reverse the trend.

Those with sufficient cash can find bargains but likely don’t need to be in too big a hurry to buy. At the same time waiting for the ultimate bottom is usually not a reasonable strategy since things can turn around quickly.

With Canadian Western Bank down again yesterday I added to my position.

Markets ended lower on Wednesday. The decline was not due to the 75 basis point increase by the FED which was as expected. The decline was due FED remarks and forecasts for further interest rate increases taking rates ultimately somewhat higher than has been expected before today.

lululemon was one of the larger decliners with a 4.1% decline.

There is a growing consensus that the U.S. will enter (or has entered) a recession. 

Markets were down again on Tuesday as the S&P 500 fell 1.1% and Toronto fell 1.0%.

Almost all the stocks that I monitor were down.

Apple was one exception with a gain of 1.6%.

Stocks may continue to go down and may continue to offer some bargains.

I like Canadian Tire at around $155. But of course it may go lower as people run out of buying power and becasue people bought so much from Canadian Tire during the pandemic. They also face credit card losses. And they face higher costs due to the higher Canadian dollar. But they have managed such challenges well in the past and will likely do so again this time. Given the risks it’s probably better to nibble than to pile in.

I’d say much the same for Canadian Western Bank. They have managed recessions and the risk of bad loans very well in the past. Their stock has been far more volatile than their earnings.

On Friday, markets rallied somewhat in the afternoon and the S&P 500 was up 0.7% and Toronto was up 0.9%.

West Fraser Timber was up 3.2%. But there is news this morning that CanFor is cutting production due to weak markets so West Fraser could decline on this news.

TFI International was up 3.8% despite the woes at FedEx.

This morning StatsCan reported that Canada experienced modest deflation in August and the year-over-year inflation rate declined to 7.0%. This is good news. If it had been a U.S. number markets would respond positively.

Markets fell on Friday which may have been largely due to FedEx announcing that its express air business and its ground deliver business were both much weaker than expected in the three months ending August 31 and that it was getting even worse in the final weeks of that period. 

This could be taken as a canary in the coal mine indictor of recession. Or it may be partly due to FedEx’s own failings. The market on Friday apparently took it as a bad sign. 

The S&P 500 was down 0.7% and Toronto as down 0.9%.

Most stocks fell on Friday. TFI International was down 4.8%. AutoCanada was down 5.5%.

FedEx cratered 21% to $161 which may be an over reaction. This brings it back to the price it traded at in August 2016. Not very impressive!

With Constellation Software down under $2000 again, I nibbled on a few shares. I made a mistake selling my shares in this this company during the pandemic panic in 2020.

On Thursday markets moved lower again as the focus returns to the higher interest rates. The S&P 500 was down 1.1% and Toronto was down 0.8%.

Most stocks were down on the day. West Fraser Timer was down 3.7%.

After the close, FedEx announced some weak results and made some gloomy remarks. This is feared to bean indication of a weaker economy. That may be. But I wonder if it is in part due to other transport companies taking market share particularly in the ground segment. TFI International bought the ground transport operations of UPS and they make be eating some of FedEx’s lunch.

Markets rebounded somewhat on Wednesday as the S&P 500 rose 0.3% and Toronto 0.4%.

Starbucks was the strongest performer on our list with a 5.5% gain after they held an investor day and provided guidance indicating higher growth ahead.

I like Starbucks as a high quality company and I like that the founder is back in charge. 

Markets took a tumble on Tuesday as the U.S. inflation rate came in just slightly higher than expected. This dashed hopes that the FED might soon stop raising interest rates.

The S&P 500 was down a very hefty 4.3% while Toronto as down 1.7%.

Almost all the stocks that I monitor were down. We all know that being invested in stocks is not for the faint of heart and today was a reminder of that.

It’s hard to know if markets will keep going down or not. I am determined not to panic and bail out. My inclination is to keep buying on dips when cash is available. Of course we must all watch our asset allocations and keep some investments in cash and short term fixed income.

The five year Canada bond yield is at 3.35%. And the ten year U.S. Treasury bond is yielding 3.4%. Those rates would seem to suggest that the market still expects that interest rates will not go much higher.  But of course the market could be wrong. The notion that the future is “priced in” to the market can always be a dangerous assumption.

Markets were higher on Monday as the S&P 500 and Toro to each rose 1.1%.

Apple was up 3.85%. 

RioCan was up 2.1%. 

The gains were widespread, as most stocks were higher.

Friday was another positive day in the markets as the S&P 500 rose 1.5% while Toronto as up 1.9%.

With the bank of Canada rate up 0.75% last week I notice that TD bank raised the interest on its TDB8150 product by only 0.60% to 2.85%. I don’t know what other banks did. But it’s up to bank customers to shop around for the best rate if they want banks to be competitive. If the customers are complacent then of course the banks don’t have to compete too sharply. The same though applies to most things that we buy. If people aren’t willing to shop around aggressively then they then are implicitly accepting higher prices. 

Markets moved moderately higher on Thursday with the S&P 500 up 0.7% and Toronto up 0.9%.

lululemon was up another 2.65%. 

After the recent losses on the S&P 500 it was rather surprising to see the S&P 500 gain 1.8% on Wednesday. And Toronto was up 0.8% despite the lower oil price.

Starbucks was strong with a 4.5% gain.

And lululemon added another 2.8%.

The Bank of Canada raised its target overnight lending rate to 3.25%. Several of the Big 5 Canadian banks immediately raised their Prime Rates to 5.45% and they are all expected to have that Prime Rate by tomorrow. 

These rate increases will crimp budgets for all those with variable rate mortgages and with loans out on lines of credit. And both businesses and individuals will be far less eager to take on new debt. This is expected to eventually reduce demand in the economy and reduce inflation.

Higher interest rates are a definite headwind for stock prices. In fact they are a double whammy. I have always described higher interest rates as being a “gravitational force” on stock prices. Higher long-term interest rates in particular lead to lower P/E ratios and so falling stock prices even with unchanged earnings. On top of that higher interest rates are usually a drag on earnings for most companies. 

So there are headwinds. But some companies will increase earnings enough to offset. And the share prices of some companies may already have “priced in” the impact of higher interest rates. 

It’s not clear how much higher interest rates will go. The five year Canada bond yield actually fell slightly today to 3.28%. When institutional investors are willing to lock in for five years at 3.28% rather than ride the short term rate at 3.25%  and almost certain to rise, it would seem to indicate that the institutional investors suspect that the Bank of Canada rate will start to come back down within a year or two.

I’ve had some feedback from the very top management at Melcor.

The CEO and Board have not expressed any interest in an analysis I sent them regarding calculating the return on equity by division or on calculating what level of gross margin has led what return on equity in past completed communities. I had hoped that at least one Board member might at least find it interesting enough to ask their staff to do a similar analysis. But I am told there was no response from any Board member. I suspect that their CFO and CEO basically find it insulting that I would suggest that there is analysis that they are not doing. It’s a natural human reaction. 

Top management does not appear to accept that results have been too low or that anything much needs to change. They do say that they are always working to improve shareholder returns.

I’ve been telling that that it looks to me like the gross margins are too low. For example their recent 40% gross margin can’t  possibly generate a double digit ROE if their is little or no debt financing on the land and if the equity is tied up for say six years or more. But I don’t know how long the money is in fact tied up on a weighted average basis.

Top management tells me that while the market was strong in the first few months of 2022 it then softened. They also point to the competitive market in selling home building lots. They suggested that gross margins might even go lower in the last half of this year.

So, it’s not encouraging news. With the headwinds of higher interest rates there is probably not a lot of reason to think that lot sales will be particularly strong in the last half of this year. I had hoped that higher oil prices and in-migration would lead to higher home starts. And in fact so far home starts in Alberta are higher than last year but perhaps they will now cool.

On a brighter note, I drove through their Jensen Lakes community this weekend. There seems to be a lot of building there. It has a large artificial lake and already has two schools. This community is popular and features affordable higher density homes as well as some very expensive homes and lots. It looks like it should be a great money maker for Melcor but that also depends on their land  development costs.

The bottom line is that the Melcor shares may continue to languish. I struggle to understand why they trade at only about 38% of book value.  Modest earnings are part of the reason but there also is an almost total lack of interest from investors. This is a very thinly traded stock and not one we are ever likely to see touted on the Business News Network it seems.

I will continue to watch all the statistics on home building and Melcor’s results and I intend to keep reminding Melcor’s top management that investors are not happy and that they have a stewardship responsibility when it comes to us public share owners.

Stocks moved lower once again on Tuesday with the S&P 500 down 0.4% and Toronto down 0.95%.

lululemon bucked the trend and was up 4.3%. And Starbucks was up 1.9%.

The outlook for stock prices may continue to be negative due to higher interest rates and fears of recession.

But some stocks appear to be very cheap and those with cash can take advantage of that. For example, it’s my opinion that Canadian Tire and Canadian Western Bank represent very good value.

The Bank of Canada will announce its interest rate increase tomorrow morning. The market may not react much unless the increase is different from the expected 50 to 75 basis points.

West Fraser Timber is updated and rated Weak Speculative Buy at CAN $109 or US $83. Based on trailing earnings it could be rates a Strong Buy. But lumber prices have declined and there is probably no reason to expect the shares to rise in the near term. At the same time, I would not sell. The company has been buying back shares aggressively which helps to support the stock price.

On Friday, the S&P 500 was initially higher but ultimately closed down 1.1%. Toronto as up 0.7%.

lululemon gained 6.7% after posting better than expected sales and earnings. While many people struggle with bills due to inflation there are  also many that can afford higher-priced items.

Overall it was a rough week for stock investors. 

The expected additional interest rates hikes by Central Banks are a definite headwind for stocks. It remains to be seen if earnings growth can offset that. But the expected recession will make it difficult to grow earnings. Overall it may well continue to be a rough time for stock investors. Having some cash and/or short-term fixed income remains wise. 

Restaurant Brands, the franchiser of Tim Hortons, Burger King, Popeyes and Firehouse Subs returns to our list rated Buy at U.S. $59.25 or CAN $77.83. Its income comes mostly from franchise fees to its almost 30,000 locations and from selling the coffee and other items to the Tim Hortons franchisees. With a P/E of 20 and with good growth prospects under its ambitious management the valuation is fair. Higher interest rate are a head wind for all stocks and so a reasonable approach might be to take a small position and monitor earnings results as well as the stock price. The analysis here is in U.S. dollars because it reports in U.S. currency. The dividend (yield is 3.6%) is paid in U.S. dollars but does qualify for the Canadian dividend tax credit. Canadian investors should buy it on the Toronto stock exchange. 

On Thursday, the S&P 500 was down most of the day but then rebounded to close up 0.3%. Toronto was down 1.0%.

Couche-Tard did well with a 4.1% gain.

TFI International was also strong with a 3.7% gain.

After the close, lululemon reported a very strong quarter. 

Wednesday was another down day in the markets with the S&P 500 down 0.8% and Toronto down 0.9%.

Almost all the stocks on my list were down.

I notice Canadian Tire is down to $154.47. Its trailing P/E ratio is 8.9 and the forward P/E ratio is 8.4. That suggests that analysts are not expecting much earnings growth at all in the next year. I believe this is the cheapest it has been in relation to earnings in probably 20 years or more other than at times of sheer panic such as in March 2020 and probably during the 2008 financial crisis. On the particular dates that I have analysed it in the past seven years the P/E has usually ranged from 12 to 18). The P/E is lower now on recession fears. Maybe that’s reasonable. But I like the idea of buying it at this cheap P/E multiple. Canadian Tire has been very well run and its management has been ambitious for growth and remains ambitious. I like their chances to achieve that growth. And if they do the stock price will respond. I added modestly to my position in this company today.

Costco reported August same-store sales numbers after the close. It was another solid month of growth with average same-store growth up 8.7%. This excludes the impact of higher gasoline prices and currency impacts on non-U.S. stores. The raw number was 10.1% That’s a little weaker than the string of double digit increases they have reported almost every month going back to early 2020. But it’s still pretty strong. In Canada the growth was 11.7% excluding currency impacts and the higher gasoline prices.

They don’t reveal how much of the sales gain was due to higher prices. I suspect they are definitely gaining market share from other grocers and also gasoline stations but inflation is also part of the story.

Apparently the market was unimpressed and the stock was down slightly in after-hours trading on the news.

I’d welcome the chance to buy Costco at lower prices, even anything under $500 would be welcome although it would still be fairly expensive in relation to earnings. Yahoo says the P/E ratio is 41 trailing and 36 forward. It’s a fantastic company. But does it really make sense that its P/E ratio is over four times higher than Canadian Tire? It is often wise to pay up for quality but is this too much of a premium? I own both, but have more invested in Canadian tire.

Linamar is updated and rated Buy at $63.06. It’s trading at 90% of book value which in my experience indicates a good buying opportunity for this company. And its earnings are emerging from recent weakness related to supply chain issues. And it is very well managed and has an ambitious growth-focused management. On the other hand the predicted recession could rerail its progress somewhat. It’s a cyclical company but I believe it will do reasonably well over the long term. 

On Tuesday markets continued to move down in further reaction to the FEDs announced determination to raise interest rates until inflation is tamed. The S&P 500 was down 1.1% and Toronto was down 1.6% as oil prices slid.

Linamar was one of relatively few stocks to rise and was up 0.6%. 

After the close, Couche-Tard reported another strong quarter of growth.

Shares in BYD were down after it was reported that Berkshire cut its stake from 20.04% to 19.82%. That does not look like a Buffett sale to me. It could be one of his investment managers sold their small position. If Buffett is going to sell something he usually does not fool around with a tiny sale. However, it had been earlier reported that  Buffett’s position had entered the clearing system. That also seems very odd but may be a feature of the Hong Kong exchange. Normally in the U.S. there would be no need to send the shares first to a clearing house to my knowledge. 

On Monday, markets continued to react negatively to the news from the FED that interest rates will probably be going somewhat higher than the market previously expected.

The S&P 500 was down 0.3% and Toronto was down 0.2%.

TFI International was down 6.5%. I did not see any reson for that.

My next update will be for Linamar. It’s been hit by the pandemic and then the supply chain issues in the auto sector. But it is a well run and ambitious company. I suspect it will soon be on the upswing.

I updated Ceapro again for its Q2 results. I had updated it in early July at 56 cents. The Q2 results were good and the stock remains rated Speculative Buy now at 78 cents. Its “base business” supports the share price and if they can announce any kind of licencing deal to monetize some of their research and developments achievements then the stock could certainly get a nice boost. But I will note that we have been waiting for that to happen for years. They do however seem to be getting closer to that happening. failing a licencing deal they hope to develop new products that they can sell directly. However nothing appears at all imminent on that front. A couple of Phase 1 trials are being worked on but even with positive results revenue flows from that could be years away. But again the existing base business supports the stock price and so the potential from its research efforts seems to be a bonus not priced in.

Markets were sharply negative on Friday with the S&P 500 down  hefty 3.4% and Toronto was down 1.5%.

This came after the Fed chair made a speech and dashed hopes that the interest rate hikes would end relatively soon. The market may have been hoping against hope that the remaining hikes would be relatively modest. But the Fed Chair reiterated the need to subdue inflation. 

As result almost every stock on my list was down. 

Canadian Western Bank’s results were about as expected and the stock fell 2.2% which was pretty similar to the overall market decline.

Markets rose on Thursday with the S&P 500 up 1.4% and Toronto up 0.75%.

West Fraser Timber was up 6.4%.

Toll Brothers was up 4.0%.

TFI International was up 3.0%.

Tomorrow the market will focus on the Fed Chair’s speech at the Jackson Hole meeting and in particular his comments on inflation and how much further rates might have to rise to deal with inflation.

Canadian Western Bank reports tomorrow morning. 

Markets were modestly higher on Wednesday with the S&P 500 up 0.3% and Toronto up 0.2%.

AutoCanada was up 5.9%.

Penny stock Ceapro was up 8.4% after announcing strong Q2 results. It has a lot of research irons in the fire. If some of its research finally pays off then this stock could go a lot higher. And meanwhile its traditional base business if growing and is strong enough to support the share price. It appears that the potential from its research effort is not really priced in to the stock because investors have tired of waiting so many years for the research to generate revenue. I built a position mostly at lower prices and have now been patiently holding.

Based on a previous order I picked up 1000 shares of the Melcor REIT today at $5.95. At that price the yield is 8.1% and I expect the distribution to increase within the next year or sooner. The REIT has a lot of good retail properties but also some tired old office buildings with vacancies. But overall, the quality of its portfolio is good and is improving.

On Tuesday, the S&P 500 was down 0.2% while Toronto was almost unchanged with a 0.05% gain.

Auto Canada was notable with a 5.2% gain.

After the close Toll Brothers reported its Q3. While profits were good they noted the slowdown in demand but also said that things had picked up again somewhat in August.  While contracts to build new homes have softened from recent record levels, their gross profit margins per house have improved significantly. The stock was down modestly in after hours trading. It may decline today especially if the market focuses on the more negative aspects of the report rather than the more positive aspects such as the margin improvement. 

On Tuesday the markets continued the recent pull back. The S&P 500 was down 2.1% and Toronto was down 0.7%.

Melcor wad down 4.3% on higher than normal volume. Perhaps a couple people throwing in the Towel. 

The Melcor REIT was also down 4.3% tp $6.03 and yields 8%. I continue to think this a good investment for yield. 

Canadian Western Bank was down 3.3%. They will report earnings on Friday. I expect a similar patter as recent which is growing business but expenses are somewhat elevated as they prepare for more growth. So earnings may not be impressive at all. But I also don’t expect andy big issues with loan losses given the strong economy. The shares seem under-valued. But the big banks do tend to have a higher ROE. I’d prefer to own some CWB but also some larger bank shares. I’m confident CWB will do well but the bank itself is suggesting that the higher profits will not emerge until next year.

The direction of stocks now will depend to a good extent on where interest rates are headed. The Canada five year bond yield is only 3.19% which would seem to suggest the market does not expect longer term rates to go up much even though the short term interest rates at the central banks are still going up an expected 1% or more by year-end.

Friday saw the S&P 500 down 1.3% and Toronto down 0.8%.

Almost all of the stocks on our list were down with the market.

This morning the futures market suggests that the S&P 500 will open down modestly. After a big rally since June we have now had a few negative days. It’s anyone’s guess whether we now give up some or all of those gains. As always, volatility is par for the course in equity markets.

I’m trying to hold more high quality stocks like Visa, Apple, Costco, CN Rail and others. Some of these tend to always look over valued. Then I have a big exposure to Melcor which always looks way under valued in terms of assets but has failed to perform in terms of profit and certainly the share price.

About a dozen of you have so far emailed me to join my list of disgruntled Melcor owners. I am keeping the pressure up and sent a lengthy email to CEO Tim Melton yesterday morning and one on Friday as well. I don’t know that can do much with my list but I was open with Mr. Melton and told him I am putting together such a list. Basically, Mr. Melton feels that Melcor is doing reasonably well. I disagree and will be keeping at him and the Board to let him know that I and others have lost patience. I have been making some specific suggestions but so far he claims they are already doing all those things. To join the list email me at Shawn@investorsfriend.com and indicate how many shares you own of Melcor Developments. You can add how many of the Melcor REIT units you own if you want but I am less concerned about the performance of the REIT. I will not share your names or email addresses.

The Boston Pizza Royalties Income units return to our list and are rated Buy at $16.70. They are a bit more attractive at $16.44 as I post this.

My last update on these units was early 2021 when the distribution was 6.5 cents having been suspended with the pandemic and then reinstated at that low rate. At that time I was cautious though I said the distribution might go to 8 cents by end of 2021 and none cents in 2022. In fact it went to 8.5 cents in fall 2021 and now ten cents. It’s been an extremely wild ride with the pandemic but barring another meteor hit like that these units should be a reasonable long term hold for the cash distribution and probably a modest capital gain over the next few years. Of course they will not be immune to general market declines if that happens.

The taxation of the units is a bit complicated. About 25% of the distribution is usually tax free return of capital but requires you to reduce your cost basis if held in a taxable account. The remainder is eligible for the dividend tax credit in Canada. (That’s unlike the case for REITS). You can avoid all tax complexity by holding these units in non-taxable accounts.

Markets eked out small gains today with the S&P 500 up 0.2% and Toronto up 0.4%. 

There were no individual moves of any note on the stocks I monitor.

I mentioned the Boston pizza units on August 9 when they were $15.25 to $15.50. I indicated they were a Buy and that I bought some. So far, so good, as they are now closer to $16.70. I’ll update the report tomorrow but I still see the units as a Buy for the 7.2% yield which will likely grow slowly over time. It’s been a very bumpy ride of course since the pandemic panic. Without government help many of those restaurants (they are a type of franchise) would never have survived. All that money that went out to people also allowed them to continue to order from restaurants.

Wednesday was a down day in the markets as the S&P 500 fell 0.7% and Toronto fell 0.4%.

Most stocks were down.  Nothing on my list was up by any noteworthy amount.

What about interest rates?

The five year Canada bond yield is sitting at 3.0% down from a June peak of 3.6%. This 3.0% level would seem to suggest that “the market” is not expecting inflation to stay high or longer term interest rates to go much if any higher. Meanwhile short term interest rates set by Central Banks are set to go higher. With the ten year U.S. treasury yield at 2.9% (and a coupon interest that will never grow over the ten years) while many stocks have dividend yields (that will likely increase) over 2.9%, it looks like the S&P 500 remains a better bet than a ten year U.S treasury bond for a ten year holding or comparison period.

Obviously, Melcor Developments has been a big disappointment as an investor. Yet it has potential. Its assets are solid and yet it trades at 38% of book value for the equity shares. I’ve been increasingly pressuring their investor relations, their CEO and their Board to improve profits. I’ve been watching housing starts rise and seeing the strength in the Alberta economy. Yet so far, Melco shares languish and their profits are too low. And what is perhaps most frustrating is that that management does not accept much if any blame. A few years ago they publicly blamed the NDP. Well now we have had the UCP government for over three years and oil prices are high. Maybe Melcor will come through in a big way later this year but so far there is really no sign of it.

Is it time that I assembled a list of disgruntled share owners to add even more pressure on management and the Board? 

I can’t promise to do much. But if you anyone holding shares wants to email me and let me know how many shares they own I can at list compile a list. I won’t send names or emails to Melcor but I can say for example that I have say 12 people on the list with a total of XXX shares.

If interested in joining such a list email me at shawn@investorsfriend.com

Markets are starting out lower this morning. Not surprising to get a dip given recent strong days. 

I notice that the Convertible debenture that I mentioned yesterday has closed sales on the TD site. That means the market agreed with me that it was a reasonable investment. Time will tell how good or how bad it turns out to be.

I will be much more active with updates to the reports in September and later August. Meanwhile most of the stocks I like and hold have been doing well certainly since late June.

Yesterday, CMHC released the housing starts data for July. Alberta including Calgary and Edmonton are holding their own with modest single family start increases versus last year. Attached home and multi family starts in Alberta had very strong increases. We are not at record home starts so not a boom but very strong. This should bode well for Melcor Developments if they play their cards right.

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

Canadian Tire was up 3.5%.

AutoCanada was up a hefty 7.4% to $29.86. It released the results of its “substantial issuer bid” reporting that it bought back 1.16 million shares at $28 for a total cost of $32.5 million dollars. They had offered to spend as much as $100 million. I don’t know if the market was excited by the fact they did not spend close to the $100 million. On August 2 the company had increased the maximum price it would pay from $25 to $28. So it appears to me that the reason that they did not spend anything close to the full $100 million is that not enough owners were willing to sell at $28. 

I commented when this offer was made that it was a sign of strength. AutoCanada is well managed and could have substantial upside. Currently it faces supply constraints but that also means probably far less pressure to compete on price. 

At this time it looks like my recent strategy of buying into the declining market has worked out.  But it leaves me vulnerable with very little cash. So, I will give thought to harvesting some recent gains especially in registered accounts. It would be prudent to do so. But emotionally it can be difficult to sell even a portion of my shares in a company that I expect to continue to do well. 

TD was out today with a 6.25% 5 year convertible debenture on North West Healthcare Properties REIT. Paying 6.25% and with the conversion price 22% higher than the current price. I have not looked at the financial statements but in general I think this sounds like a reasonable investment for those with extra cash that they would like to put into fixed income. These bonds can certainly trade lower but are I think very likely to mature at par in five years. And there is a chance of a capital gain on conversion.

Markets on Monday ended the day moderately higher with the S&P 500 up 0.4% and Toronto unchanged.

Dollarama and Visa were each up 2.4%.  lululemon was up 2.7%.

Oil is down to U.S. $87.85 – still a very profitable level.

On Friday, markets were strong again as with the S&P 500 up 1.7 percent and Toronto up 0.9 percent. Stantec was particulary strong with a 4.3 percent gain.

Markets are set to open lower today on reports that the Chinese economy is weaker than expected.

Thursday was another positive day in the markets with the S&P 500 up 0.6% and Toronto up 0.9%.

Linamar was a standout with a 9.2% gain after releasing earnings. It has been a very well managed and ambitious company and continues to have a  bright future.

Canadian Tire was down 2.8%. It is another very well managed company. It has its dips at times and a possible recession is a concern. But over time it continues to do well.

Melcor Developments reported results after the close. Lot sales were down versus Q2 of 2021. They were down in number and also in price given that last year they had more estate lot sales in Kelowna. The average lot price in Q2 was $196,000. But overall the report was reasonably good although not great. The dividend was increased by 7%. Their retail properties are doing well. The office properties continue to be a drag on the results. Their residential lot inventory is quite low at this time but they plan to add a total of 1195 new lots to inventory through development by year end. The gross margin on lot sales in Q2 was 40% which I view as too low and I have been pressuring management and the Board on that point. The Book Values is $34.78. The share price at $13.09 is just 38% of book value which certainly leaves room for gains. The company needs to increase its return on equity. The dividend yield is reasonably attractive at  4.6%. And management would not have increased it unless they were confident is can be sustained. 

Unfortunately its not clear at all that there will be a catalyst for the share price to increase anytime soon. I continue to hold based on the huge discount to book value and the potential for better results with the strong Alberta economy.  West Texas Oil at U.S. $94.50 continues to be very profitable and a driver for the Alberta economy. Government income tax and royalty revenue is very strong and could lead to more government infrastructure spending. Home prices are under some pressure but the driver for Melcor will likely be more related to housing starts.

Wednesday was another strong day in the markets with the S&P 500 up a hefty 2.1% and Toronto up 1.6%.

Some will argue this shows the benefit of staying invested while others will claim it’s a dead cat bounce. For most people a balanced approach is probably best. Stay invested but include cash and fixed income to cushion possible equity losses and provide funds for bargains and rebalancing.

Many stocks were up 2 to 3% or so and Shopify bounced up 9.7%.

This morning Canadian Tire reported earnings. The headline is lower earnings than last year. Normalized earnings were down 22% blamed on higher expenses including higher foreign exchange costs. But same-store sales excluding petroleum were up 5%. This demonstrates strength though it was likely down a little in volume considering inflation. There was also higher credit card write-off and that is something to watch. As of now the stock appears set to open down at $166 from $171. As an owner, I will not be selling and in fact would consider adding (if cash available) if it happens to dip below $160. I think it remains a good long term hold. We shall see what the analysts say today. Will they focus on the positive or the negative?

Metro Inc. also reported higher sales this week. But given inflation it appears their volumes were down. I suspect Costco and probably Walmart are picking up volume. Metro said people are switching to its discount brands versus its traditional stores.

AutoCanada has reported record second quarter results.

Stantec also just reported higher-than expected earnings.

Linamar reported lower earnings.

So lots of news to move individual stocks today. 

Melcor Developments reports after the close. It is frustrating that this has not been a higher profit business. Everywhere I look (traveling in the Maritimes currently) I see lots of development and one would think that someone made a lot of money on those developments. But it is a cyclical business and land development ties up money for years such that a big gain on sale is needed to create a double digit ROE over the entire period from land purchase through development and sale.

On Tuesday, markets were modestly lower as the S&P 500 fell 0.4% and Toronto fell 0.5%.

lululemon was down 3.1%. 

Canadian Tire was down 2.3% and will release earnings on Thursday morning. I suspect it had quite a strong Q2 but the focus may be on the outlook. I think it is still doing well as people are out shopping but there has been some indication from other retailers that people are cutting back on the bigger ticket items.

Shopify bounced down 7.5%.

After the close, West Fraser Timber announced cutting back production in B.C.  but blamed it on lack of timber and transportation as opposed to weaker markets.

RioCan released a good earnings report this morning and was up 2.0%. It seems set to continue to do well.

Upon further checking I am even more certain that the Boston Pizza Royalties units are a Buy at the current price ($15.46 at the moment). Note that the distributions do not qualify for the dividend tax credit in Canada and so are best suited to the RRSP or TFSA or the RESP.

I was wondering how many restaurants closed during the pandemic. They currently have 383 restaurants. That’s down a few from 396 in June 2020 but is not many lost considering the pandemic. Federal COVID relief kept many restaurants from going broke I am sure.

The key valuations parameters are the yield and the same restaurant sales growth. They just reported same restaurant sales in Q2 were up a lot versus last year but they were also up 4.6% versus Q2 of 2019. So that means a FULL recovery from the pandemic! In July same restaurant sales were up 8.3% versus July 2019 – again this indicates a full recovery from the pandemic.

I’ll update the report soon but it will be a Buy rating. Again this is not an investment that is going to soars but we can expect to receive a yield of 7.7% plus probable modest capital gains over time. Of course as we all know that could change if the pandemic or something similar were to rage. There is also a looming recession but that would likely merely slow growth as oppose to snuff it out. And higher menu prices due to inflation lead to higher distributable cash.

As restaurant sales have roared back I have been surprised that the Boston Pizza Royalty units have not risen more than they have.

I have to admit I sold those units in the pandemic panic of Spring 2020 when it looked like many BP restaurants might have to close. And many would have closed without the massive government assistance to businesses and people during the pandemic. But now that apparently relatively few restaurants ended up closing (I will check into the number soon) and people are back in restaurants in big numbers AND menu prices are rising the BP units once again look safe.

They happened to be down about 4% Monday morning. And upon checking I saw that the distribution had just been increased to 10 cents per month or $1.20 per year. At yesterday’s closing price of $15.28, that’s a yield of 8.4%. 

These units will never make us rich with a huge capital gain. But 8.4% is a good yield and it seems reasonable to assume that the price can potentially rise back to the $18 or $20 level. Obviously, there are no guarantees but this looks like a reasonable investment that could have a place in a portfolio.

I bought some yesterday. I have not looked into the details yet but based on what I know so far I think these units are a Buy.

I will be looking into their recent Q2 report in more detail and plan to add it back to the list on the Subscriber Home page.

On Monday, markets were little changed as the S&P 500 was down 0.1% and Toronto was up 0.25%. 

There were no big moves in the stocks on my list except the Boston Pizza Royalty units were down 2.7% and had been down about 4% earlier in the day. (See comment above)

On Thursday Restaurant Brands was up about 7% as people flocked to Tim Hortons, Burger King and Popeyes.

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

West Texas Oil is down to U.S. $88.50 but that’s still a highly profitable level.

TFI International was up 3.1%. It is such a well managed company.

Tesla bounced down 6.6% giving back some of its recent gains.

The Canadian jobs report on Friday was considered to be moderately weak with a loss of about 30,000 jobs across the country. But I have said many times that this jobs number is not a count but is a statistical estimate. Monthly volatility is to be expected but overall the Canadian jobs market is very strong.

The U.S jobs report came in very strong. Overall the economy remains strong.

Markets were strong on Wednesday.

One headline attributed this to Nancy Pelosi leaving Taiwan without incident. Obviously if China does act to take Taiwan at some point that would be ugly for markets. Starbucks has a huge operation in China and it could be a target becasue of being an iconic America brand. That is China could force Starbucks out however that seems very unlikely. There are always untold risks in the market but most of them never materialize. Diversification is wise as a strategy to deal with random risks especially those that affect only some investments.

On Wednesday, the S&P 500 was up 1.6% and Toronto was up just 0.2% as oil was down after OPEC agreed to a small production increase.

Shopify was up 11%.

Starbucks was up 4.25% after releasing earnings late Tuesday.

Amazon was up 4.0%.

This morning Restaurant Brands released earnings with big same-store sales growth. No surprise to me. It’s certainly my observation that people are out spending this Summer. I’ve been in Nova Scotia for over two weeks and tourists are out in force. The roads are busy etc. 

Costco released another relatively strong same-store sales report after the close yesterday. July sales growth was relatively strong. Much of that may be inflation but I suspect they are also gaining market share.

And markets are set to open slightly higher this morning.

Tuesday saw the S&P 500 down 0.7% and Toronto down 0.95%.

AutoCanada was up 3.9% and then after the close announced the acquisition of a dealership in Manitoba. This shows that management has confidence in the business. Recall that top management owns significant shares.

Toll Brothers was down 5.3%.

Starbucks reported after the close. They beat earnings expectations but same store sales growth was lower than expected due to lockdowns in China. I had mentioned the China lockdowns in my last update on Starbucks and I think that is a temporary situation. I’m happy to own some shares in Starbucks.

Melcor Developments was down 7.75% but that’s likely just their normal volatility associated with the low volume. They report Q2 earnings next week on Thursday.

Friday’s market capped a strong week and a strong July.

The debate now is weather July was just a bear market rally bounce or the start of a market recovery or at least plateau.

I don’t know which. Markets are always subject to a possible big decline and so we should always be prepared for that. Either maintain a significant allocation to fixed income or cash or be prepared to accept big volatility. I don’t think the idea of anticipating declines and getting out is feasible. As far as stocks we should mostly own stocks that we are happy to own for the very long term. Getting in a position where we sell in a panic is not a good plan.

Canadian stock markets were closed on Monday  while the U.S. market was down 0.3% and I did not see any big moves on the U.S. stocks that I follow.

Markets are set to open lower this morning.

Markets rose on Thursday with the S&P 500 up 1.2% and Toronto up 1.05%.

TFI International was strong with a 4.2% gain. It then released earnings after the close. Adjusted net earnings per share were up a massive 81%. I’m not sure what the expectation was but by any standard this loks very good.

Almost all the stocks I watch were up today.

Apple and Amazon reported good results and so it appears taht markets will push higher again tomorrow. (But things can change over night)

Markets were fairly sharply higher Wednesday after the FED raised interest rates 0.75% rather than the feared 1.0%. Long term bond yields declined somewhat. Longer term bond investors do not appear to think that interest rates will go up much more if any when it comes to 5, 10 and 30 year rates. They do appear to believe that inflation will stay high. The 10 year treasury bond yield is 2.8% and that’s down from a recent high of 3.5% on June 14 but up from 1.6% at the start of the year.

The S&P 500 was up 2.6% and Toronto was up 1.5%.

Shopify was up 11% regaining a good portion of yesterday’s decline.

Amazon was up 5.4%.

CN Rail was up 4.2% based on its earnings and the general bullish day in the markets.

lulu lemon was up 4.3%. 

Tesla was up 6.2%.

With a day like this it feels like the outlook for investors is pretty good.

After the close, West Fraser Timber released earnings that were good although lower than last year. It appears there was little reaction after-hours trading.

Tuesday featured some market declines with the S&P 500 down 1.15% and Toronto down 0.7%.

Some retailer including Canadian Tire (down 5.7%) got pulled down by Walmart announcing a lower profit outlook. But Canadian Tire is a far different thing than Walmart and so I am not sure the decline at Walmart will translate to Canadian Tire. I would guess not.

Shopify was down 13.6% on a lower growth outlook as it has admitted that the switch to online shopping during he pandemic was partly temporary. It was against my better judgement that I bought this year after it came down a lot as it was still very expensive. But it has a super strong balance sheet and will certainly continue to do well as a business but not sure about the stock price. That may have a ways to go down yet before it looks attractive on a P/E basis.

Well, if online is suffering then bricks and mortar retail will be doing better. I like the chances for RioCan and also the Melcor REIT to recover somewhat. The Canadian Tire REIT is also likely a good bet, though I have not run the numbers on that one.

Oh yes, and CN came out after the close with what looked like great results. Big growth versus 2022. 

And I see the Melcor REIT is out with results that can probably be described as disappointing and they also point out that higher interest rates will be hurting borrowing costs. (And I think could cause the market value of their buildings to decrease.) BUT they continue to earn more than enough cash to fund the distribution. They show an 80% payout ratio. No sign of an increase to the distribution. Unfortunately the waiting continues. But with the strong economy in Alberta their cash flows I think will almost surely rise over time and occupancy will improve slowly. The office component of their portfolio continues to be a drag on results. 

Monday was a moderately positive day in the markets with the S&P 500 ending the day up 0.1% and Toronto up 0.6%.

Most stocks I follow were up but Toll Brothers was down 3.3%.

After the close, Walmart revised its profit outlook down for it next report citing lower sales of bigger ticket items. 

Possibly Canadian Tire could suffer for similar reasons but so far there is no sign of trouble there. 

I did buy just 10 Tesla shares today. A speculative pick for sure.

I’ve been looking further at these two rate reset pref shares that i have mentioned recently and which look like good potential for a capital gain. BPO.PR.A at $16.50 paying $1.177 to yield 7.1% and will rest in about 2.5 years at Canada bond plus 3.15%. 

I’m not suggesting this is the best investment around or even the best rate reset pref. It’s one I own and looks good to me. We get a good dividend and a good potential for a capital gain. But you have to put up with the possibility for a price decline and even some risk it stays down or the thing even goes bust (very unlikely in my view).

I spoke to their investor relations person in New York. These shares are issued by Brookfield Office Properties. The equity of that company no longer trades and it does not issue public financial statements.  It it is owned by Brookfield Office Partners  whose equity also no longer trades but which does issue financial statements. I suspect Office Partners sort of guarantees these pref shares but I am not clear on that. Office Partners in turn is owned by Brookfield Asset Management.

All very complicated. But it appears that the pref shares are backed by the cash flows from a very attractive portfolio of office buildings. Those office buildings have a somewhat low occupancy pf 86%. But that will likely improve with “back to the office” as the pandemic ebbs (we hope).

Overall, I saw nothing to fear here and I am comfortable owning these shares.

But they are thinly traded and in any market panic they can certainly decline.

The investor relations person thinks the market is confused by the complexity.

Markets are quiet this morning…

We are just getting into the Q2 earnings reports for Canadian companies. This could move markets this week. I expect most have done well. Main stream grocers like Sobeys and Metro may have lost ground to Costco and had a hard time keeping up to cost increases. I think Canadian Tire and Canadian National will have good reports but we shall see. 

I’m going to run  few numbers on Tesla. It will certainly not look like a bargain. The forward P/E is 71 and the trailing is 111.  I’m interested partly because I took delivery on a Tesla Model Y on June 1.  I might buy just a few shares and then keep an eye on it. 

Friday’s session saw the S&P 500 down 0.9% and Toronto down 0.4%.

Shopify bounced down 7.3%.

Penny stock Ceapro was up 8.5% but has yet to make progress on monetizing most of the R&D it has been doing for years. On the other hand as noted in my report,  that R&D value is essentially not priced into the stock price.

So, Friday was a bit weak but overall markets had  a good week.

I notice that the Brookfield Office Properties preferred share that I mentioned recently  and purchased. (BPO.PR.A) has declined a bit more since I mentioned it. I own that one and also BPO.PR.G. 

BPO.PR.A is at $16.20 nd pays $1.177 per year for a yield on that price of 7.3%. It does dot reset until 2025 and then will be at the five year Canada plus 3.15% on the $25 price. This is very thinly traded so be cautious in that regard.

Apparently the credit rating is low at BBB minus. The credit rating I see is over a year old and if there is an upgrade these shares should rise in price.

Looking into the financials, I could not see a clear picture. I can’t find financial statements  for BrookField Office Properties on SEDAR or on the company web site. This company is a subsidiary of Brookfield Office Partners L.P which also has a low credit rating.

The bottom line is these share look attractive for yield but they are in the Office segment which has been hard hit. I cn’t be sure but I certainty suspect that the dividend will continue to be be paid.

Here is  a link to a credit report from last year. If there is a newer one I did not find it. In general I don’t have much access to credit reports.

An email to their investor relations has not been responded to. That combined with a web site very thin on information is not a great sign. In general though the Brookfield companies have been great.  I wish I had looked at the their equity shares a long time ago. 

West Fraser Timber is updated and rated Speculative Buy at U.S. $102 or Canadian $132. The analysis is in U.S. dollars becasue it now reports in U.S. dollars. The price is already down a bit since my analysis price as the recent bump from a (probably false) takeover rumor get removed. It’s been extremely profitable in the past year but earnings should be down considerably when Q2 is reported but still very profitable. My strategy here would be to have an initial investment and buy more on dips. Possibly it will dip on the Q2 earnings report which will ne next week, Thursday. 

Markets continued higher on Thursday with the S&P 500 up 0.7% and Toronto up 0.1%.

Toll Brothers was up 4.1%.

Shopify was up 4.6%.

I looked closely at West Fraser Timbers results and it would be a definite buy based on past results. Although lumber prices are down it probably will continue to be quite profitable although profits will be lower than last year. I think it is still a Buy but understand it tends to volatile with home builder outlook and lumber prices. There is some talk of a takeover offer but I don’t factor that into the analysis.

Markets were modestly higher on Wednesday with the S&P 500 up 0.6% and Toronto up 0.4%.

Shopify bounced up 12.3%.  Amazon was up 3.9% and Constellation Software was up 3.4%.

West Fraser Timber was up 5.5% to about $131 despite the fact that the company basically said there is no take-over offer on the table or in the works. But West Fraser has been extremely profitable in the last two years and so might easily be worth $131. On the other hand lumber prices have fallen and home building is softening. Overall the stock is probably quite okay to hang onto but realize it is volatile and commodity dependent. I sold most of mine on the recent gain as mentioned. I will update the report on this company in the next day or so.

While markets have been soft and could continue down, I don’t think we are in for the sort of panic selling we got in March 2020 – which in any case turned out to be a huge buying opportunity. I suppose in this markets one might want to “walk softly and carry a big stash” of cash if possible.  Then deploy the cash gradually. I deployed most of mine probably too early. Such is life in the markets. You pays your money and you takes your chances.

Markets staged a big bounce on Tuesday. The S&P 500 was up 2.8% and Toronto was up 1.8%.

West Fraser Timber (discussed in last post) ended the day up 15% even after saying it was not in any active talks to be taken over. 

TFI International was up 5.3%.

Almost all stocks were up on the day.

It certainly remains to be seem if this means markets have already hit a bottom or is this just a temporary bounce?

In any case my strategy has been t deploy cash over time when things seem cheap.

West Fraser Timber is up about 20% this morning on rumors it has received a take over offer or is about to. I decided to sell  75% of the  shares I own. That gave me a 55% gain in an RRSP account and allows me to build back some cash. I suppose if there is a takeover offer it could easily be at a higher price. But I also recall this is a family founded business and they may not want sell. My notes indicate that the family owns about 13% and Jimmy Pattison owns 13%. They probably have enough control to block a sale if they want to but I suppose they would sell if the price is high enough. 

It seems to me that there continues to be  quite a few takeovers in the market and they are usually at quite substantial premiums to the share prices. This seems like a positive indicator for stock prices.

In other news most stocks are higher today with the S&P 500 up 2.1% at the moment.

U.S markets today were earlier up but then ended the day with the S&P 500 down 0.8%. But Toronto was up 1.1% as oil prices were higher.

Oil flows to the U.S. were interrupted today by a power outage on the existing Keystone pipeline (not to be confused with the canceled Keystone XL pipeline). 

Posting today and for the next month from Nova Scotia and the Atlantic provinces and time zone.

Markets are set to open higher this morning.

CMHC released the June  housing starts data this morning and they remain strong. Single family starts in Alberta are up 26% versus June  last year. Calgary was flat but Edmonton was up a whopping 58% in single Family starts. But monthly data can be volatile.  Year to date, Calgary is up 12% and Edmonton 13%. That’s positive but not fantastic given the price of oil. Total housing starts of all types are up 20% year to date in Alberta. All of this data is positive for Melcor Developments and most businesses in Alberta including also the Melcor REIT and Canadian Western Bank. It remains to be seen if higher interest rates will put the brakes on housing starts. Clearly higher rates are a negative factor but population growth and a strong economy (particularly in Alberta) are positive factors.

Home prices in Toronto and Vancouver and many areas have of course already declined with higher interest rates. 

Housing starts in Canada are trending at 258,000 per year. On a per capita basis, Canada has been building far more houses than the U.S. and this has been the case since at least 2008. It may be due to higher immigration rates in Canada especially most recently.  U.S housing starts are about 1.7 million per year. They would need to be far higher at about 2.6 million per year to equal Canada on a per capita basis. I have never seen this explained or even discussed in the financial press. 

Meanwhile it is interesting how the big banks in Canada increase their prime rates by exactly the same 1.00%  in complete and total lockstep with the Bank of Canada. I know the Bank of Canada has a huge impact on their costs but is it really such a complete lockstep or do the big banks use it as an opportunity to quietly avoid competing by having different prime rates?  I am not a conspiracist at all. All big industry players like to avoid price competition if they can. Well functioning competitive markets drive companies to compete on price.  The big banks do compete on new mortgages but they seem not to in their headline prime rates which affect a lot of business. There is probably far less competition when it comes to renewing mortgages since customers are less likely to shop around on renewals.

Markets staged a little rally on Friday with the S&P 500 up 1.9% and Toronto up 0.4%.

Starbucks was up 1.8% and has been doing fairly well for the past two months. Recall founder Howard Schultz is back as temporary CEO. It’s possible people will cut back as budgets are tight but on the other hand people are traveling and out and about in big numbers so they will likely do well as least for the next few months. Their operations in China should be resuming more normal operations.

Visa Inc. was up 2.0% and despite some ups and downs has fared quite well compared to most stocks. They are benefiting from inflation and the added travel and the added appetite of people to be out and about including going to restaurants. They are likely to continue to outperform most stocks.

West Texas Oil is at U.S. $97.57. That’s lower than recent highs but still very positive for Alberta. 

Markets finished lower on Thursday although not as low as they had been earlier in the day.

The S&P 500 was down just 0.3% but Toronto was down 1.5%.

Bank stocks were down. Royal Bank was down 5.6% and Canadian Western Bank was down 4.9%.

I’ve always said that banks can be risky due to their very thin equity layers. But the Canadian banks have been very well managed and regulated and have not suffered major loan losses in at lest 30 years. To me Canadian Western Bank looks extremely cheap at $24.18 with a trailing P/E of 6.5 and a price to book value ratio of 0.72. And a dividend yield of 5.1%. According to Yahoo Finance the forward P/E ratio is 6.4. In most circumstances investors would salivate over such numbers. But now the market is very worried about inflation and recession and how long those will last. It’s likely that in a year or so we will look back and see where the bottom was and that buying at today’s prices was wise even if it it ultimately goes lower for a time. The bank don’t report earnings again until late August. Meanwhile I could not resist grabbing some more CWB shares today. 

Aecon group was down 5.05%. to $11.47. This is almost as low as it was during the pandemic panic of March 2022. It will report earnings two weeks from today. At last report they were not too concerned about cost inflation but that may have changed.

Those with ample cash and who are brave enough can certainly find bargains in this market. 

Costco was a notable winner rising 4.0% on an analyst upgrade . It’s always expensive with a forward P/E over 30 but is undoubtedly gaining market share and growing profits.

On Wednesday the S&P 500 was down 0.45% as U.S. inflation came in higher-than-expected at 9.1% year-over-year in June.

In Canada the Bank of Canada increased is target overnight lending rate by 1.0% which was 0.35% higher than the expected 0.75% increase. The Canadian dollar rose modestly on the news. The Toronto stock index was down 0.3%.

Longer term interest rates such as the yield of the 5 year government of Canada bonds had very little reaction and rose 0.024 on the news. This could indicate that 5 year mortgage rates will not rise on this news. But variable rate mortgages will rise probably the full 1.0%.

Most or all of the big Canadian Banks already announced today that their Prime rates are going up a full 1.0% from 3.70% to 4.70%.

The high inflation is being blamed partly or largely on “excess demand”. With increases in mortgage interest, gasoline, natural gas, electricity and groceries it is surprising that consumer demand can continue to be excess. I will be watching the retail sales reports for signs that consumers are cutting back in some areas.

Looking at individual stocks today: TFI International was down 3.1%. And FedEx was also down 3.1%. While we have excess demand at the moment it seems the market fears that higher interest rates and inflation could trigger a recession. Ibn fact it’s hard to imagine how the higher interest rates would tame inflation without causing a recession. The idea is that people and businesses will reduce their borrowing and therefore reduce demand. Reduced demand is basically the definition of a recession. If people buy less, then companies will produce less. GDP will decline or at lest grow more slowly.

With stocks getting cheaper I added a little to my Canadian Western Bank position and as well to my Melcor REIT position. 

On Tuesday, the S&P 500 was down 0.9% and Toronto was down 0.7%.

West Texas Oil is down to $94.28. That pushed the Canadian energy ETF XEG down 3.3% to $13.42. 

Tomorrow, the Bank of Canada is expected increase interest rates by 0.75%. Nevertheless the Canada 5 year bond is about 3.1% and has declined from a recent peak around 3.5%.

The big news maker tomorrow may be the June inflation rate in the U.S. if it comes in much different than expected. 

Penny stock company Ceapro announced it has hired a new executive with the title of Chief Revenue Officer.  Possibly we will finally see some of Ceapro’s research efforts monetized in some way.

Monday’s action saw the S&P 500 end the day down 1.15% and Toronto was very similar down 1.1%.

Almost all the stocks I follow closely were down on the day.

Shopify was notable with an 8.9% decline.

Aecon Group ( a construction company) was down 5.4%. It was already struggling to be reasonable profitable and it may be that it is getting hard hit by inflation. At least it’s Bermuda Airport business should be doing better.

Visa was up 0.3%. It benefits from inflation.

I bought some of the BPO.PR.A shares that I mentioned yesterday. I paid $17.05. To fund this I sold another rate reset preferred share CWB.PR.D It was trading at about $25.80. I “prefer” the discounted  rate reset preferred (if the company is solid) since they have more chance of a capital gain.

On Friday, the S&P 500 was down 0.1% and Toronto was down 0.2%.

In Canada, the big event this week will be the Bank of Canada rate hike on Wednesday. It’s expected to be a hike of 0.75% or possibly 1.0%.  

It’s hard to know if all of the expected rate hikes to come have been “priced in”. 

I continue to like some of the beaten down rate reset preferred shares. I own a Brookfield one BO.PR.A (correction, it’s BPO.PR.A) . It’s trading at $17.02 and currently pays $1.17725 per year. At it’s original price of $25 this would be 4.9%. But at $17.02 it’s a fairly hefty 6.9%. It will reset in 2.5 years at which time it will pay 3.15% plus the 5 year Canada yield (currently about 3.2% ) . So, if the Canada bond yield is still at 3.2% in 30 months then this would pay 6.35% of $25 or $1.5625per year.. That would be 9.2% of its current price.

It seems to me that if we expect interest rates and inflation to stay high then these shares would be expected to reset to about this 9% of today’s price. But meanwhile we get  6.9% for the next 30 months.  That all seems attractive.

And if we expect interest rates to fall back at least we get the 6.9% for the next 30 months. 

All in all, these shares look quite attractive to me at $17.02. I think rate reset shares have become unpopular and unloved becasue they have indeed burned investors over the years. But at certain points when they are depressed like this $17.02  share they become good investments. 

Last week Costco reported yet another strong month of same-store sales growth for June. The year over year same store sales growth was 13.2% in the U.S. after adjusting for higher gasoline prices and was an incredible 21.5% including he higher gasoline prices. It seems pretty clear they are gaining market share.  In Canada the growth was 13.7% excluding higher gasoline prices and currency change. It was a14.2% before that adjustment. Costco is always an expensive stock but is also a juggernaut. It seems the recent decline to as low as $425 in May was a buying opportunity. I’d be hesitant to buy now at $502 although in the long run it will likely rise over time. 

The report on Ceapro is updated and rated Speculative Buy at $0.56. This has been a volatile and disappointing stock over the years. But now its earnings have improved. It’s worth the $0.56 just based on its existing products and if its research and development efforts pay off then it is worth a lot more than $0.56. It’s worth considering for a relatively small speculative investment. I’d be more excited about it if it had not disappointed me so many times in the past. But the earnings certainly look better at this time.

Thursday was an up day in the markets. The S&P 500 was up 1,4% and Toronto was up 1.8%.

Shopify was notable bouncing up 6.2%.

Linamar was up 5.7%. I believe that was prior to them releasing a comment on their markets after the close. It was not really clear to me if the comment they released was positive, negative or same as expected. Looked like same as previous expectations but we will see how the market reacts. Always annoying to see a stock move ahead of news like that. Leak?

AutoCanada was up 5.25%.

Couche-Tard was up 4.5%.

Could it be that markets have bottomed? That is always hard to say. But I like the idea of nibbling on bargains.

Penny stock Ceapro was up 7% and apparently has gotten attention from at least one analyst. I will make it my next update.

The report on Visa Inc. is updated and rated Buy at $202. It’s not a screaming buy but I don’t think we would go too far wrong owning this company. After all it’s “everywhere you want to be”. It’s also likely “in your wallet”. It fits the advice of Peter Lynch from way back (One Up On Wall Street) wo said look around and see where people are spending their money. What product’s and service they are using. Buy those companies. So Visa fits that but also after running the numbers is expensive but not exorbitantly so in relations to its earnings and growth outlook. Right now they are automatically benefiting from higher gasoline prices and inflation without incurring much if any extra costs themselves. Cross border tourism is back to probably record levels. Visa should report strong earnings gains for at least the next two quarters and then more modest gains thereafter.

On Wednesday, the S&P 500 was up 0.4% while Toronto declined 0.55% as oil prices weakened somewhat.

West Fraser Group was up 4.4%. Perhaps the market believes home building and construction will carry on relatively well. 

I notice Heineken was up 4.4%. They will benefit as travel and tourism and the restaurant sector has picked up. Beer I suppose is relatively recession resistant.

It’s very difficult to say how low markets will go. But I am starting to wonder if it is not a time when brave souls could even consider using margin to invest. That’s always risky and anyone doing that had better be prepared to hold on if what they buy declines and better choose their investments wisely.

I added some more Canadian Western Bank today. They release earnings next on August 28. They have said the expect earnings to decline a little in this fiscal year before ultimately growing based on their investments and initiatives. I think the pull-back in this stock is way over-done unless they are going to report large loan losses which I don’t expect. 

I also bought a little of the Energy ETF XEG. I may be late to this party but wanted to at least have a little. Actually I have a little that I have held for a long time but wanted to add a bit more on the recent dip. This will not likely be an investment for the faint of heart.

On Tuesday, the S&P 500 was down as much as 2.1% earlier in the day but recovered to end the day up 0.2%.

Toronto ended the day down 1.0% as oil was down about 9%.

Shopify bounced up 9.9%. Toll Brothers was relatively strong with a 2.3% gain.

Central banks are certainly set to continue raising their rates which are extremely short term over night rates. Meanwhile long term bond yields are down someone int he past week or two. Could the bond market be correct that long-term rates (including longer term mortgage rates)  are not going to go higher despite the central bank moves? Only time will tell. 

Canadian Western Bank was down 3.2% to $25.34. It has a book value of $33.70. It has no history of running into significant loan loss trouble. Banks are highly leveraged and therefore not without risk. But I can’t see the logic of people selling these shares at 75 cents on the dollar of book value or anything like that. 

At some point markets will have bottomed out and quality companies will rebound. Maybe we are not there yet given a probable recession ahead. But I remain much more inclined to buy than to sell.

My next update will be for Visa Inc. Its last four quarters have been very strong and it is likely set to report more strong quarters given the strong return to travel and the recovery in the restaurant business. Visa is not cheap but this may be a reasonable time to buy some.

U.S. markets were closed for the holiday today.

Toronto, left to its own devises rose 0.9% as oil prices rose.

DesRosiers reported today that June light vehicle sales in Canada were weak. 144,000 units sold versus 163,000 last year and 200,000 in 2018.  So that looks like bad news for AutoCanada. But then I think about the fact that vehicles typically sold at discounts to suggested retail prices. Dealers competed with each other on price. But this year they can take orders and sell at full retail price. It seems possible that selling 14 vehicles at full price might be more profitable than selling 20 at discounted prices. We shall see. AutoCanada has also greatly increased its presence in used car sales. They are a well managed company and I would not count them out at all.

WSP Global returns to our list rated (lower) Buy at $144. It is a high quality company with strong recent earnings growth has been strong.  And the company projects and aspires to continued growth. Since last Summer the price has come down and earnings have risen which is a good combination. It’s still not cheap and therefore I would certainly not be backing up the truck here. But it’s worth considering. I made a purchase today and would be interested in adding to that on dips.

My next update will be for WSP Global. It will be rated somewhere in the Buy range. What a difference nearly a year makes. My last update on WSP called it a a (lower) Buy at $162.67 last August.  I concluded that it was a strong company that was more than fully valued despite that its near-term outlook for earnings was quite strong.  In fact since then earnings have been up very strongly but the price is down to $145.54. Now the P/E ratio is much more reasonable – although not cheap – at 27. Cash permitting, I am interested in buying some WSP Global shares.

Another company I want to mention is Berkshire . It’s at $277.50. My last update called it a Weak Buy / Hold at $352 only three months ago on April 3. I think the pull-back here is likely a buying opportunity. 

I would not get in a powerful hurry to buy anything but I think the recent market declines are likely an opportunity to at least nibble on many quality investments.

Canadian markets were closed for the holiday on Friday.

Meanwhile the S&P 500 was up 1.1%.

Toll Brothers was strong with a 5.5% gain. Starbucks was also strong rising 3.7%.

U.S. markets will be closed tomorrow July 4th and Toronto will have to find its own way.

The report on Stantec is updated and rated (lower) Buy. It’s been a long term winner and continues to grow. The company is forecasting earnings per share growth of about 22% this year. The value looks reasonable. Given the probable recession and the interest rate increases there is likely no hurry to buy. I have not owned it lately but would like to buy some and then possibly more on dips – cash permitting.

Thursday was the last day of the second quarter of the year and the markets lost a bit more ground.

The S&P 500 was down 0.9% and Toronto was down a similar 1.1%.

Shopify slipped another 5.6%.

Couche-Tard was down 4.6%.

Air Canada was in the news announcing it will curtail flights and capacity significantly this Summer. This will likely lead to higher ticket prices and might be a buying opportunity.

Canadian Western Bank had been down to about $25.30 earlier today and I added some shares at that price.

I was not able to make my usual little comment about Tuesday’s market due to a technical issue.

On Tuesday, U.S. markets had started out okay but fell through the day with the S&P 500 ending the day down 2.0% while Toronto edged down 0.2% Shopify was down 6.2%, Amazon was down 5.1%. Couche-Tard was down 3.5% ahead of an earnings release.

Then today, Wednesday, the S&P 500 was down 0.1% while Toronto was down 0.75%.

Couche-Tard was down a further 1.4% after announcing earnings after the close on Tuesday. They are taking a $56 million write-off in Russia which is not great but is not a very serious blow. Their gasoline margins remain abnormally high. If those ever normalise down to the old levels that could be a serious hit to the share price.

Shopify was down another 5.6%.

Markets were relatively calm on Monday. The S&P 500 was down 0.3% while Toronto was up 1.0%. 

Shopify bounced down 3.3%.

Maybe this will be a dull week in the markets. If so, it will be the first dull one in a very long time.

Russia technically “defaulted” on its bond interest payments as of Sunday. But as much as Russia is a horrible country, this default is not directly their fault. (Yes, it is indirectly their fault, but not directly) They have the money and want to pay the interest on the bonds as it is due but are prevented from doing so by various sanctions. It may even be illegal for American companies holding these bonds to receive the interest. So it is a strange situation.  It is also a weird sort of thing to punish a country by refusing to let it pay its bills. This will apparently cause certain bond default insurance to pay off. That is, Credit Default Swaps will pay off. That will cause serious losses for the issuers of those Credit Default Swaps. Hopefully this will not lead to “contagion” but this is the sort of thing that snowballed in the financial credit crisis of circa 2008.

Markets were strong on Friday as the S&P 500 rebounded 3.1% and Toronto was up 1.85%.

FedEx was up 7.2% after it announced higher earnings expectations.

Almost every stock that I follow was up on the day.

As of Sunday evening, futures markets suggest that the S&P 500 will open slightly lower.

The report for wine maker and seller Andrew Peller is updated and rated Sell at $6.o3.

I probably should have thrown in the towel at my last update where they had posted poor results in the first half of its fiscal year ended March 31. The back half of that year was extremely poor.

Growing grapes and selling wine in Canada suffers from the fact that other areas of the world are cheaper to grow grapes and produce wine and on top of that governments may be subsidising the industry in other parts of the worlds. Selling wine suffers from that fact that there are many competitors and people tend to mostly shop for the lowest price. Sure, there is lots of expensive wine where people shop by brand and perceived or actual quality. But the bulk of wine sales in Canada is at the lowest end of the price scale and is made from imported grapes or imported bulk wine. So, it is inherently a tough industry in Canada.

On top of that restaurant sales remained low in Canada in the past year although that is now returning to normal. 

But now Andrew Peller reports it is facing higher costs for imported wine, for in-bound transportation for bottles and packaging and out bound transportation. (And this is interesting becasue many other companies may be affected by this input inflation as well and we may hear more about that as they report Q2 earnings). 

Due to competition, the company did not raise prices until subsequent to March 31 this year.

On top of lower sales to restaurants and higher input costs, Andrew Peller has increased it administration and marketing costs in anticipation of more normal sales returning. And indeed sales should increase going forward as the restaurant industry recovers.

While there will likely be some earnings recovery, the company seemed to be projecting that profits would remain lower well into this fiscal year.

On Thursday, the S&P 500 was up 0.95% but Toronto was down 1.5%.

Shopify was strong, rising 7.6%.

Toll Brothers was up 4.8% and Costco was up 3.3%.

Melcor Developments got hammered down 9.9% (ouch). There were 47,000 shares traded which is over four times its usual small daily volume of 11,000 shares. Possibly someone wanted to unload  about 30,000 shares or more and this pushed to price down. Let’s see that puts the price to book value down to 0.36 or 36 cents on the dollar. And the yield at today’s closing price is 4.7%.  It seems the negative sentiment towards real estate is causing people to bail.  Checking insider trading the company is buying back its little maximum of 1281 shares per day. Andrew Melton bought 4,000 more shares last week. Despite the history here I keep the faith and bought 1000 shares today.  Alberta is once again gaining significant in-migration. In fact the net 16,510 people moving to Alberta in Q1 is the most in a quarter since 2014. That has to be positive for new home starts.

It seems likely to continue to be a rough ride in the markets. Those with cash should probably nibble but not get in to much of a hurry.

Those perhaps too heavy in equities may wish to “lie back and think of the dividends”.

On Wednesday, the S&P 500 was down 0.1% and Toronto was down 1.3% as oil prices have declined somewhat.

Andrew Peller was down another 3.1%.

Canadian Western Bank was down 2.55% to $26.41. I continue to certainly see that as over-valued. They don’t report again until the end of August. Checking insider trading for CWB there has been some buying this month. The CEO bought 1900 shares last week at $26.50. A senior officer bought 860 earlier in June at $30.37. Another officer bought 5000 on June 16th (same day as the CEO) at $26.48. Another bought 3,584 at $27.90 on June 15. Another who top executive bought 340 on June 14 at $28.46. A director bought 1025 on June 9 at $29.16. This would seem to be a pretty strong insider buying signal. Insiders appear to be showing confidence and voting with their wallets.

Of course the big news today was another high inflation report for Canada. The Bank of Canada will continue to increase interest rates. The question is whether all of the increases are now “priced in”. Assuming anything is already priced into the market is always a dangerous assumption.

On Tuesday, the S&P 500 was up 2.45% and Toronto was up 0.4%.

Apple Inc. was up 3.3%. Costco was up 3.7%.

Given my comment about AutoCanada this morning, I bough a few more shares in that company today. 

Wine maker Andrew Peller was down 4.3% to $5.96. This has been an extremely poor investment since it peaked around $18 in 2018. The shares now cost less than half the price of a typical bottle of wine. I hope to take a detailed look at it before long to see if there is any reason for hope. It has a number of wineries and those should be doing better with the improved tourist traffic this Summer. Last year I wrote to them and complained that their financial reports could be improved.  I also asked their marketing department why they sell their name brand Peller wine so cheaply. (The Peller Family brand can sometimes be found in Alberta at about $7.00 on sale!)  I understand they wan to segment the market and have some cheap wine as well as their more expensive brands but it’s beyond me why they cheapen their family brand name with the cheapest product. The marketing department got back to me after a couple of prods (they basically defended their position)  but I never did hear from the CFO/ accounting department. Sadly it seems to be a company which is simply not on its game. Just not sharply managed.

This is a family controlled business. In Canada we have plenty of those. Some are professionally managed and have been fantastic investments. But some seem to be sleepy and lazy. Speaking of which, I did an analysis of Melcor’s return on equity by division today. I tried to get management to do it but they basically said it was too hard to do. I am trying to get their CFO interested in the analysis but if not, I will send it to the Board to see if any of them are interested. I keep trying to put the wood to Melcor company to do better. At very least, I want them to do some analysis to better understand why their return on equity remained too low even in 2021 when they sold a record number of home building lots.

As the futures suggested, U.S. markets are rebounding somewhat this morning. 

Canadian retail sales for April were reported this morning. I had expected a volume decline versus March and particularly versus April of the prior year. Instead the volume was up 0.9% in April versus March and 2.0% versus April of the prior year. Apparently prices were up an average 7.2% and consumers absorbed that plus bought an extra 2.0% in volume for a total spending increase of 7.2%.

Statistics Canada provides a very nice summary table showing the percent change in sales both month over month and year over year across a wide variety of categories. There are some strange looking numbers in there including notably that they show clothing sales up 73% in April versus April of the prior year.

https://www150.statcan.gc.ca/n1/daily-quotidien/220621/t002a-eng.htm

Overall looking at the numbers, I would say it is good news for both Costco and Canadian Tire.

Motor vehicle sales were down modestly. But I suspect that AutoCanada may be having a very profitable Spring. It may be far better to sell two cars ate full list price tan to sell 3 at a discount. And certainly selling 9 cars at full list is better than 10 at a discount. I don’t know if they are getting full list but there seems to be anecdotal stores of people having to go on a waiting list to get a vehicle. 

U.S markets were closed on Monday for the  “Juneteenth” holiday which celebrates the date that slavery officially ended in Texas in 1865 and is a general celebration of the end of slavery. 

Toronto was up 1.3%.

Futures markets suggest that U.S. markets will rebound somewhat on Tuesday.

In Canada the April Retail sales report will be out Tuesday morning. While retail sales will definitely be up given the higher gasoline and grocery prices I suspect that overall retail volumes will be down somewhat. Perhaps they will not be down much in volume given the low unemployment rate. But I don’t see how people on average can continue to buy the same volumes when prices are up close to 10% year-over-year and wages are up an average of more like 3%. 

Friday ended a very negative week in the markets as the the markets belatedly sit up and take notice of the fact of higher interest rates. But markets did stabilise on Friday and most stocks were up on the day.

On Friday, the S%P 500 managed again of 0.2% while Toronto was down 0.4%.

It is a fact that higher interest rates are a strong gravitational force on stock prices. Earnings growth is a buoyancy force. Gravity has gotten stronger while the buoyancy force is weaker. But I don’t think we are in for a market panic like we saw with the pandemic in March of 2020. Those with cash would probably be wise to deploy it over time but not get in a hurry.

I do think that the U.S and Canadian economies are in or will go into a recession. The only way that higher interest rates can push inflation down (as desired) is to help cause a reduction in demand for goods and services. Already, inflation is causing some reduction in the volume of demand. With more of the household budget going to gasoline and groceries there has to be a reduction someplace. Higher mortgage payments for many consumers will add to the pressure to cut back on any discretionary spending. A reduction in consumption volumes even if the dollars still rise a bit will constitute a recession given that GDP is measured on a volume basis holding prices constant.

Stock markets will likely turn higher sometime before the recession ends although they may go lower before then. The recession has not yet been called and therefore is certainly far from over.

The April report for Canadian Retail Trade will be out on Tuesday. I expect that it will certainty be up year over year in dollars but down somewhat in Volume. And that will be all the more the case for May and June I suspect.

The report on Constellation Software is updated and returned to our list. It always looks expensive but its past record suggests it will likely be a good investment. The recent market declines are an opportunity to buy. A reasonable approach would be to take a part position and hope to add to it on dips. Management of this company is absolutely first rate. The founder and CEO, Mark Leonard is the closest thing Canada has to a Warren Buffett. 

I had sold my shares to raise cash during the pandemic panic in March 2020. That was a mistake. Luckily I did deploy the cash to grab some bargains in April or May of 2020 after the U.S. government rescued the economy.

Thursday was another down day in the markets.

Higher interest rates are a strong gravitational force on stock prices and the market is taking more and more notice of that after mostly ignoring it earlier int he year.

The S&P 500 was down 3.25% and Toronto was down 3.1%

Canadian Western Bank was down 4.4%. It certainly looks very cheap at this price.

Toll Brothers was down 6.3% and also looks very cheap. But it is a cyclic company and investors appear to think that its home sales will be very significantly reduced due to higher interest rates. 

Wine maker Andrew Peller was down 9.2%.

Shopify was down 6.1%.

My view is that many stocks are bargains now. But that does not mean they can’t decline more before ultimately recovering. Strong companies that make profits will do well in the long term.

Things like BitCoin however could go down much more given the lack of intrinsic value.

I certainly don’t think it is a time to sell in a panic. Earlier this year I talked about building cash. Obviously I wish I had done even more of that and then been slower to deploy it. Such is life as an investor,  the timing can never be ideal.  

The rate reset preferred shares fell as well today as some investors do sell in a panic. These shares are best purchased at prices under $20 or so and the declines are buying opportunities in my opinion.

On Wednesday the FED  raised interest rates by 0.75%. Since this had been expected after last Friday’s fat inflation number, the markets reacted calmly, even positively.

The S&P 500 ended the day up 1.5% and Toronto rose 0.3% as oil was down modestly.

Amazon was up 5.2%. 

Shopify bounced up 6.9% but of course has mostly been bouncing downwards lately.

The Melcor REIT announced its distribution will be unchanged this month. I was hoping for an increase.

CMHC released housing start data today and Alberta was up modestly in single family detached starts while the national number was down 7%. Multi-family and other starts were up strongly in Alberta in May but that tends to be volatile.

Higher interest rates are a definite drag on housing starts. But the strong Alberta economy will offset some of that.

Markets were calmer on Tuesday but the S&P 500 still slipped 0.4% and Toronto as down 1.0%.

AutoCanada was down 4.8% to $23.59 which is likely an attractive price.

FedEx was up a hefty 14% after it agreed to put three activist investors on its board and raised its dividend by a very hefty 53%.

I noticed that Ross Healy on BNN rated Canadian Western Bank a top pick noting that its value ratios are the cheapest it has been in the 26 years of data he has on it with the exception it got even cheaper briefly in the 2020 pandemic panic moment. He said here’s a really cheap bank and it is based in Alberta where the economy is strong die to high energy prices. I could not agree more.

I am working on an update for Constellation Software. This has been a fantastic winner over the long term But it is expensive and its accounting is complex and it requires adjustments to the earnings to arrive at a fair number. The GAAP earnings understate its “true” earnings. The rating will likely be something like Speculative Buy or Speculative (lower) Buy. I had sold my shares in a bid to raise cash during the pandemic panic and immediately came to regret it. I’d like to buy back in with at least a few shares. – cash permitting.

Unless you have been disconnected from all news today until now, you already know that markets took a tumble on Monday due to fears of higher interest rates.

The S&P 500 fell a fat 3.9%. I suspect that’s the largest drop by far since the pandemic panic of early 2020.  Apparently only 4 of the 500 stocks rose – according to what I heard on BNN. I do notice McDonald’s was up 0.5%.

The S&P 500 is also now considered to be in a bear market as it down 20% from its high. I’ve always wondered why it would not be better to describe this as “in retrospect we now know that the S&P 00 has been in a bear market since it peaked on such and such a date”. What is the great value of announcing it is a bear now, AFTER, a 20% drop?

Toronto was down 2.6%.

Almost every stock that I monitor was down. Constellation Software was an exception and rose 0.8%. I have not mentioned in quite some time. It will be my next update as I return it to the list of rated stocks.

Another exception, Dollarama was up 0.5%

Toll Brothers was down 6.7%.

Shopify was down 9.4%.

The rate reset preferred shares also slipped today even though interest rates are up which means their reset dividends can be expected to be higher. 

I certainly think there are some potential bargains. But there is probably no reason to rush in. Stocks could certainly continue to fall. Moving slowly seems wise. I nibbled on a few more Canadian Western Bank shares today. 

A possible scenario is that we would get a market rally on Wednesday if the Fed increases rates by “only” 0.5% rather than the now-feared 0.75%.

The U.S. ten-year bond yield is back to levels last seen in 2011.

Friday was a negative day on the markets as investors take more and more notice of higher interest rates. 

Higher interest rates are undeniably a gravitational force on the value of all financial assets including stocks.

Some analysts had said that the higher rates were already “priced-in”. That’s always a dangerous assumption. 

On Friday the S&P 500 was down a hefty 2.9% and Toronto was down 1.4%. 

Almost everything on my list was down. Among the bigger declines: Shopify was down 5.6%. Amazon was down 5.6%.  Time will reveal whether this is a good time to buy. But in general buying good companies at good prices tends to work out well. No need to rush though.

Speaking of interest rates:

The ten year U.S. treasury is yielding 3.15%. It started this year at 1.63%. At the height of the pandemic panic it had a needle low of 0.54%

Looking at the five year Canada bond, it’s at 3.38% yield. The last time it was this high was 14 years ago at the start of 2008. This rate was 9.0% at the start of 1994. It then fell to reach a low around 0.40% in 2020. Along the way there were numerous times when it looked like interest rates had finally hit a bottom and would head back up. Excluding this time each and every increase fizzled out with new lows reached. But this time it looks like rates are up to stay and will almost certainly not be hitting a new low anytime soon although they could certainly dip a little from here at any time. 

With these higher rates the rate reset preferred shares that I monitor either rose or held their on on Friday. Holding still in a downdraft is not too bad.

Markets are down again this morning due to U.S. inflation for May coming in higher than expected at 8.6% year over year.

It’s a fearful time for stock investors. But it can also be an opportunity for those who have new cash to invest or who have cash in their investment accounts to shop for bargains. I believe I’ve said all this year to nibble on bargains but that it’s wise to keep some cash as well. It’s possible, perhaps very likely that the market can go down considerably more as interest rates rise.

I continue to nibble and bought a bit more Canadian Western Bank this morning. I’m prepared for it to go down more before ultimately recovering. It’s trading at 85% of book value and has a 4.3% yield. 

The May jobs report is out for Canada and was very strong. The numbers for Alberta were extremely strong. But keep in mind that this is a statistical sample. It is absolutely subject to statistical and sample selection errors. But undeniably the jobs market is strong and getting better.

Markets were down on Thursday as the S&P 500 fell 2.4% and Toronto was was down 1.1%.

Canadian Wester Bank was down 2.3% to $29.06. I added a little to my position. I believe I mentioned that I think it is good value but at the same time its going to require patience since its earnings are expected to decline modestly this fiscal year before resuming growth as their investments in staff and technology begin to pay off better next year. 

Apple was down 3.6%. Amazon was down 4.15%.

It appears the market continues to take increased notice of higher interest rates. 

An interesting news item today was that the government of Canada canceled a planned additional issuance of ultra long term bonds. Apparently tax revenue has increased and there is less need for borrowing. The long-term bond yields mentioned being 3.1% o 30 year and 42 year bonds might be an indication that the market does not believe that interest rates are going to rise much or that the current high inflation will persist very long. 

On Wednesday, markers were down modestly as the S&P 500 fell 1.1% and Toronto fell 0.65%.

Dollarama was strong with a 5.3% gain as it announced a new $5.00 price point and released a strong earnings report. It’s been a fantastically well managed company and likely to continue to do well.

West Texas Oil is up now to $122 which certainly bodes well for Alberta.

On Tuesday the S&P 500 was up 0.95% and Toronto was up 0.95% and Toronto was up 0.5%.

Shopify was up 5.3% and continues to bounce around.

Constellation Software was down 1.1% to $1914 and I suspect is quite worth considering at this price.

Monday’s session ended with the S&P 500 up 0.3% and Toronto up 0.1%.

Today, I updated my popular reference article that explains graphically the contribution of the various sectors to Canada’s GDP. It also shows the relative size of the various categories of goods and services exports and imports and shows the relative size of Canada’s trading partner countries. 

There is a lot of data and I like to think it is uniquely presented in a readable way.

The graphs show how massive the energy industry is in terms of being by FAR Canada’s largest export at this time. The recent price increases have driven the value of this export up massively.

When you look at net exports (exports minus imports) for each category, then energy is even more impressive. In contrast the motor vehicle and parts industry while a very important contributor to jobs and GDP is by far a net import for Canada. That is Canada imports more vehicles and parts than it exports.  

It can be said that any country that imports things needs to export something to pay for those imports in the long run. In that sense exports are very important and it is energy right now that is truly bring home the bacon for Canada. 

On Friday, the S&P 500 bounced down 1.6% and Toronto similarly was down 1.15%.

Most stocks were down on the day.

The rate reset preferred shares that I follow were up modestly.

West Texas Oil is at $120 this evening which bodes well for that sector. I don’t think it is quite understood just how massive the oil and energy exports are at these prices. Tomorrow, I’ll have an updated article that looks at contributions of various sectors to GDP and exports. Energy truly is bringing in a LOT of money to Canada. WAY more than in 2020 or even 2019. The auto sector now pales in importance as an export category for Canada.

On Thursday, markets were strong as the S&P 500 rose 1.8% and Toronto rose 1.5%.

lululemon was up 4.35%

Shopify was up 9.6%

Starbucks was up 4.1%

Costco was up 6.7%. And that was before it reported after hours that U.S. same-store sales were up 10.7% and in Canada same-store sales were up 19.5% after normalizing for higher gasoline prices and for currency fluctuations.

That is an incredible gain Canada. They don’t reveal how much was due to price increases and how much due to volume. Certainly it appears that a good chunk was due to higher volume. Add that raises the question as to who Costco is taking market share away from.

On Wednesday the Bank of Canada hiked its interest rate 0.50% to 1.50% and the big banks immediately raised their prime rates by the same amount to 3.7%.

The S&P 500 was down 0.75% while Toronto was only down 0.1%

WSP Global was up 5.0% on news it was making a large acquisition.

In their latest quarter ended April 30, the big banks reported a huge surge in corporate borrowing. Possibly the rate hikes will curb that enthusiasm.

Tuesday was a modestly down day o the markets as the S&P 500 fell 0.6% and Toronto was down 0.9%.

Amazon was notable with a 4.4% gain.

Tomorrow, Wednesday, the Bank of Canada is expected to increases its interest rate 0.5%. From 1.0% tp 1.5%.

It also pays this interest to commercial banks on their balances held at the central bank. It could stop that practice given that traditionally it did not pay interest on commercial bank balances as I understand it. But at this time it would rather that commercial banks keep deposits at the central bank rather than lend out more money. It wants to reduce lending in order to cool the economy.

On Monday the U.S. markets were closed for the Memorial Day holiday.

Toronto was up 0.8% and West Texas Oil is at U.S. $117.

Melcor Developments was up 7.3% but this was on low volume and so does not mean much.

Canadian Tire was up 1.6% to $73. Just last Tuesday it traded under $62.

Markets continued to rebound on Friday. The S&P 500 was up a very hefty 2.5% and Toronto was up 1.05%.

Most stocks were up. That includes RioCan, up 3.1% to $22.75. I mentioned it as attractive on May 9 and 10 and I bought some on May 10 at $20.91. That’s nice gain on what appeared to be a safe investment.

I did however get rather hammered on my Canadian Western Bank position yesterday. After releasing disappointing results the stock was down 9.6%. I’ve been attracted to it for its low price to book value. Mathematically if I can buy companies that are earning 10% more in return on equity, and where that is expected to continue, and I pay book value or less then I am likely to make that 10% or more over the long term.

I have mentioned, including on April 30 that Canadian Western Bank is not as profitable in ROE terms as the big Canadian banks. It may well be that the big banks will continue to be the better investment.

Nevertheless I like my chances to do well on CWB going forward. It is however likely to continue to require patience. It may be another year before they start to report strong earnings per share growth based on a number of initiatives that meanwhile are pushing earnings now due to higher costs.

CWB is generally risk averse in its lending and has a history of quite low loan losses.

At the same time, it would be reasonable for me to hold shares in at least one of the larger banks as well and I may do that over time. Royal Bank was last rated (higher) Buy on our list.

On Friday, I did add a little to my CWB position. I have confidence in this bank and if the shares are materially higher in a year’s time then this dip will not have hurt me. In fact, I hope to benefit from having bought CWB at what appeared to be attractive prices this year.

Thursday was a strong day in the markets as the S&P 500 was up 2.0% and Toronto was up o.7% 

West Texas Oil is at $114 U.S. dollars. That’s $146 Canadian dollars. Even with Western Canadian Select (a heavy oil) at $96 U.S. dollars (yes it’s discounted for more reasons than lack of pipelines) or $123 Canadian dollars, the money flowing into the Alberta treasury is massive. And the money flowing to  company bank accounts is even more massive.

Among the gainers today:

lululemon jumped 10.3%.

Toll Brothers was up 4.0%.

Costco was up 5.65% but then was down modestly after-hours after it reported earnings. Its earnings topped estimates but its gross margins were down 1.0% due to inflation. 

Canada reported March retail sales. What I took note of was that volumes were down 1% versus the prior month, seasonally adjusted,  and certain discretionary categories were down. 

Electronics and appliance stores were down 10.7%

Building material and garden equipment and supplies dealers were down 7.7%.

Convenience stores were down 9.2%.

Sporting goods, hobby, book and music stores were down 6.9%.

One month does not make a trend but it seems to me that if food and energy prices are way up then consumers have to cut back someplace. These declines did not seem to make the news today and so we see how it develops over the next few months. I would think that in this current month of May many consumers have no choice but to cut back to offset the higher cost of gasoline. 

Markets bounced up moderately on Wednesday as the S&P 500 rose 0.95% and Toronto rsoe 0.5%.

Toll Brothers was up 8.0% after its earnings report yesterday.

AutoCanada was up 6.3%.

West Fraser Timer was up 3.6%.

Tomorrow, after the close, Costco will report earnings. It will be interesting to see what they say about cost inflation. Typically, they do not break out their sales increase to volume versus price increases so we may not learn much.

Bank of Nova Scotia and Bank of Montreal reported today. Big profits as usual. Bank of Nova Scotia saw Canadian business loans rise 19% versus one year ago. And the growth was 6% in the latest quarter alone. That is fairly stunning loan growth. It would seem to indicate that businesses are mostly investing and growing. This should bode well for Canadian Western Bank which is a commercial lender. I would have thought that a lot of Canadian businesses would be paying down loans in part based on high profits. 

On Tuesday, U.S. markets retreated from Monday’s gains and the S&P 500 ended the day down 0.8% – it had been down quite a bit more earlier in the day.

Toronto managed a 0.4% gain. 

Shopify was down 11%.

Canadian Tire did okay with a 1.0% gain and I did buy shares today. If I had more cash I would have bought more. But then again, I never like to get in too much of a hurry buying stocks. 

Canadian Western Bank was up 2.8%. 

Toll Brothers was down 4.7%. But then after the close it had a strong earnings report. They do acknowledge that the new-home market has cooled somewhat in the last month. But in general they still seem quite confident. They said they “limited sales” in about half of their communities. In other words they had more buyers than they even wanted. A nice problem to have.

The Canadian stock market is closed for the Victoria Day holiday. The U.S. markets are open and the S&P 500 is currently up 1.75%

Canadian Tire was down 3.1% to $161.80 on Friday. This looks like an excellent buying opportunity. I am definitely planning to buy Canadian Tire shares tomorrow even if the price is up several dollars. In part it’s price has been pushed down by weak results from some U.S. retailers. Canadian Tire may well face some slowdown and higher supply chain costs but the price decline here seems overdone. I was actually hoping for a weak day in the U.S. markets today because of my plan to buy shares tomorrow.

It’s been a good strategy to build cash earlier this year. But at some point at least some cash has to be put into the market to take advantage of bargains. There is no hurry but holding too much cash for the very long term is not the best strategy.

If the U.S. markets continue to have a strong day, then the Canadian market will likely play catch-up at the opening tomorrow.

Canadian Tire is updated and rated (higher) Strong Buy at $162. Its earnings have been very strong and its valuation metrics are at the low end of its historic ranges. It has been exceptionally well managed. There are always risks including bad debt on its credit card operation and a potential consumer recession. Consumers do have to cut back someplace with the higher gasoline and food prices. But overall this looks like a good buying opportunity. 

Couche-Tard is updated and rated (lower) Buy at $55.69 (a price from yesterday). Based on its recent earnings and growth it could be rated a definite Buy. But there are some risks. It is has been enjoying exceptionally high profit margins on gasoline for over two years. That could return to historic levels especially given that governments everywhere are very concerned about gasoline prices at this time. And there is the long-term threat of electric vehicles – the market could turn its attention to this risk given the increasing availability of electric vehicles. Those will often be charged at home or at charging stations at various non gas station locations. Higher interest rates could also be a headwind. Couche-Tard is currently rumored to be considering a very large acquisition in the U.K. The market reaction to that is uncertain. So there are some uncertainties. But Couche-Tard has been exceptionally well managed and it may not be wise to bet against them or count them out. The prudent approach might be to trim larger positions in this stock if you are over exposed. I hedged my bets and sold some shares today but held onto some. It is not one of my larger positions.

Wednesday was a rough day in the markets as Tuesday’s little bounce was short lived.

The S&P 500 was down a fat 4.0% and Toronto was down 1.9%.

I was surprised to see Costco down 12.5% to $429. It has peaked just last month at $612. I have said for years really that the P/E was too high for my taste most times. But then I did buy back some as it fell including some today. P/E is still 35 which is high. But Costco is such a powerhouse that it may not go much lower. 

Target and Walmart recently reported lower earnings mostly due to higher costs. Their sales were actually up but it appears volume was down. Costco has great cost control and has been gaining market share. This dip may be over-done. 

TFI International was down 8.45%. Great company and worthy of a nibble.  Transport companies including the rails tend to have fuel cost surcharges. But those are lagged so may see some an ugly quarter from the transport stocks. So far, my understanding is that the transports are very busy. 

Penny stock Ceapro reported a record quarter and the stock rose 28%. But that was only a 13 cents gain to 60 cents. It’s sort of like an almost free lottery ticket since the base business is worth the 60 cents and their various patents and research could pay off fairly big at some point. Though the wait has been seemingly eternal.

lululemon was down 10.8%. It’s another high P/E stock and the fear may be that people will give on on small luxuries like $100 plus yoga pants. But it’s proven to be a winning company and so is worthy of consideration.

U.S. inflation came in at 6.8%. This was only slightly higher than the expected 6.7% but it was that inflation number that spooked the market today. I have said many times that higher interest rates are a gravitational force on stocks (Higher earnings are a buoyancy force).

I was tempted to buy a little something more today. But I don’t want to use up my cash too fast. A good idea might be to enter some “stink bids” a nice chunk below the current price on stocks you like.

The Melcor REIT followed by Melcor Developments have their annual meeting tomorrow morning. Virtual meeting only of course. I sent in my questions in advance. It will be interesting to see if they answer them all. On the REIT I mostly just asked things to help me understand the business. On Melcor Developments I am taking them to task for the low return on equity and the low share price. I wonder if they will answer those questions. If nothing else I have got their attention. 

Markets had a bounce upwards on Tuesday as the S&P 500 was up 2.0% and Toronto was up 1.4%.

Notable gainers included FedEx, up 5.6%.

Toll Brothers was up 3.4%. This stock has been pushed down by fears of what higher interest rates will do to their home sales. Meanwhile they continue to announce new multi-family projects. They will release earnings next week and then we will learn something about the impact of higher borrowing rates on their sales. Inflation could also be a significant concern.

With Costco down 0.8% to $490, I bought a few shares. I am buying back some of what I sold at higher prices a few months ago. Costco remains very expensive in relation to earnings. I’ll add a bit more if it happens to come down to $450.

Melcor Developments is updated and rated buy at $13.68. Admittedly this has been a poor investment over the years. But it trades at about 41 cents on the dollar of book value and with high oil prices and the improving Alberta economy it should do well this year. It fell in recent weeks along with the market and fell harder than the market partly because it is thinly traded. Their annual meeting is on Thursday morning and I have prepared some questions asking about the low earnings and trying to light a fire under management. 

On Monday, the S&P 500 was down 0.4% while Toronto was up 0.5%. Oil is at $115 U.S. dollars. Even with the discount on Canadian heavy oil, money is gushing into the Alberta government treasury via royalties. The Feds are benefiting from income tax and so is the province to some degree. The Oil companies are the biggest winners of course.

Shopify was down 11.0%.

The new home starts for April were released by CMHC today. For Canada as a whole, single family starts were down 11% versus April of last year while multi family starts were up 4%. In Alberta the single family starts were up 4%. Not exactly a boom but better than the other provinces. In Alberta, multi-family starts were up 43%.

In Q4 2021, Alberta gained 12,940 people through immigration (3,451 from other provinces and the rest from other countries). I strongly suspect that trend has accelerated in 2022.