Daily Updates 2001 – 2005

December 31, 2005


Kingsway Financial is updated to
start the new year due to its price appreciation and is rated Strong Buy at
$23.50. I expect it to report strong earnings for Q4 given that it reportedly
had only small losses due to the hurricanes (though it is a bit hard to
understand why its hurricane losses would be so small). It should report good
investment gains in Q4. I expect the property insurance market to report record
profits for 2004 and this may generate some added interest in this segment of
the market. Overall I see moderate to little long-term risk in this stock
although in the short term it could surprise with higher hurricane related


Final Performance figures for 2005 have been
updated. As we closed out the year the performance figures increased notably in
December. The progress since the beginning of 2005 was remarkably steady with
essentially no notable declines in the performance throughout the year. 2005
turned out to be a remarkably good year for our stock picks. There can be
absolutely no guarantees regarding the performance in future years, but we will
be applying the same methods and diligence that have worked out very well for
the past six straight years since the inception of this Site.


December 29, 2005


The TSX Group is updated and
downgraded to Weak Sell / Hold at $47. Key facts about this stock are that the
company operates as virtually an unregulated monopoly and is extremely
profitable. However, the stock has risen 75% in 2005 and its value ratios were
beginning to look quite high. On top of that a recent accounting change that may
not yet be fully reflected in the market has substantially lowered the equity
and profit and revenues. While I view the accounting change as being highly
inappropriate and while analysts may attempt to use cash flow to rate the stock,
the resulting very high P/E on GAAP earnings is likely to drag the stock down.
Based on the numbers I should perhaps rate it an outright sell. However, this is
a very strong company and does have pricing power (the ability to raise prices
almost at will, and it ahs announced a 7% price increase for 2006. I would be
quite interested in the stock if it falls back under about $35. However at the
$47 price, I sold my small position.


Meanwhile shares of Archipelago (AX) which is buying the New York Stock
Exchange (NYSE) moved lower today to $49.60. Seats on the NYSE traded hands
today at around $3.6 million, down from a recent price of $4 million. However,
tomorrow is the last day for these seats to trade before the AX (reverse)
take-over. Seat holders will receive the equivalent of $4.4 million (about $4.1
in AX shares and  0.3 in cash). Existing seat holders will not be able to
sell the AX shares for some three years. Therefore I believe that the recent
seat sales are likely from disgruntled seat holders who voted against the AX
deal and want no part of it. AX shares at $49.60 value the seats at $4.4 million
and I don’t believe that the $3.55 million seat sale of today is necessarily
very representative of what the seats should trade at.


Based on $4.4 million per seat the total value of the NYSE plus Archipelago
is about 8.5 billion. That does not strike me as at all excessive given that the
TSX is trading at a value of $3.2 billion. The NYSE and Archipelago do face
competition. However, I suspect that the NYSE has considerable pricing power.


I am holding AX shares as a speculative position and would consider buying
more at the $49.60 price. In the long term I would be surprised if this were a
bad investment and it could turn out to be quite a good investment even in the
short term. (Of course the AX shares could fall in the short-term… markets are
always risky). I have not analyzed the AX shares because with the reverse
takeover of NYSE it is essentially a new company and I don’t believe that the
historic earnings are necessarily at all representative.


I note that Western Financial Group
seems to be holding above $2.50 and had had trades at $2.65 before
retreating. I like this stock and if I held none I would buy but would probably
use a LIMIT order to avoid buying at a “mini-peak” such as buying at $2.65 only
to see it jump back to $2.55.


December 28, 2005


I sold my cognos shares today. If I had a lot I would have only reduced the
position but since I had a relatively small amount, I sold it all rather than
keeping some.


December 27, 2005


ING Canada is updated and
rated (higher) Buy at $51.10. This stock was updated because the price had
jumped a significant amount since our last update.


Cognos is updated and rated Weak
Sell / Hold at $40.78. It’s near-term earnings outlook weakened considerably
since my last review of it. Still a great long-term company. Maybe I am being
too harsh as it appears insiders are not selling, but I fear a fall in the
near-term but probably a recovery by year-end 2006. If its new product release
goes well it could do quite well in 2006 but they have already projected the
current quarter to be quite bad so I am taking a wait and see approach right
now. It is annoying that the company pays no dividend. In my view the lack of a
dividend is a sign of immaturity. (The company has however, been buying back
shares which is a positive signal).


December 26, 2005


IGM Financial is updated
and remains rated Buy at $45.65. This company has an exceptional record of
steady growth. It’s Q4 report should be good given the strong markets. This
should be a good long term investment.


Manulife Financial is updated and
now rated Speculative Buy at $68.11. This has continued to be a truly world
class Canadian company with growth that is tremendous, given its size. It should
be a good investment even at a more moderate growth level of 9 to 12%, leaving
up-side potential if it continues to achieve exceptional growth in Asia and
Strong growth in North America. Q4 should prove to se strong, given the strong
equity markets. I call it speculative due to the “black box” nature of its
accounting. Most analysts would likely consider it to be extremely safe. I would
not hesitate to Buy at this price and would consider it a longer term
investment. Possibly some risk of changes in accounting estimates that could
cause a short-term hit, but there has been no indication that this will happen.


December 21, 2005


Another good day for ING… I will have a number up updates by year-end but
nothing planned for the next few days.


December 20, 2005 (this comment failed to upload on Dec 20 and was
uploaded Dec 21)


I note the insurance stocks continuing to do well. I am enjoying the gains
and have no intention to sell any of these at this time. That’s my strategy. But
always remember there are never any guarantees in the market.


The one stock I have an order in for is Western Financial Group. Some people
got it today in the 2.40’s and it closed at $2.68. Already holding a fair amount
I tried for $2.41 but did not get it. With their announcement yesterday about
buying more insurance agencies, there is the possibility of a share issue which
tends to depress the price. But if so, it  won’t  bother me much I
would look at it as a buying opportunity. Any maybe they won’t need to issue


December 18, 2005


E-L Financial is updated as
Speculative (higher) Buy at $535. Las time I rated it was with that same rating
back on Aug 26 at $392. I hope some subscribers bought it. My rating at that
time was probably too conservative. I should have paid even more attention the
the price to book value ratio being below 1.0 at that time. I missed buying it
myself because the price did jump quickly above $400 and I cheaped out hoping it
would pull-back. One negative I would note is the thin trading. But with a $2
billion market cap, I am less concerned about trading liquidity than I would be
on a micro cap. On these property insurance companies I like to hold several to
spread the risk around.


December 17, 2005


Performance figures are updated and are at a
record for the year.


Telus has come out with its earnings estimates for 2006. The company expects
earnings per share growth of 23 to 33% . Since 2005 was depressed by the strike,
Telus indicates this is equivalent to 17 to 27% on a normalized basis. Using
2006 projected earnings of $2.50, Telus is trading at a forward P/E of about 18.
This is moderately attractive given the growth outlook. Telus has really
impressed me in the past few years. Unless severe price competition sets in,
Telus should continue to do well.


I am almost tempted to sell some Wendy’s shares and hope to buy back on a
pull-back below $50. But the last time I tried a similar trick Wendy’s fell a
bit and then rose and I never bought back what I sold. So, given that I expect
the stock to rise after it does the IPO on Tim Horton’s I will continue to hold.
Wendy’s is “a special situation” in that its earnings do not justify the stock
price but the market is expecting value to be realized through the IPO of Tim
Horton’s and other restructuring initiatives.


Several of the Strong Buy picks here continue to be in the property and
casualty sector. I continue to think that the outlook for the sector is very
good. I’m almost certain that 2005 will be another record profit year for the
industry and 2006 looks good as well. The way that short term interest rates
have risen while longer term rates have fallen for most of 2005 is very good for
insurance company investment returns. They will get higher yields on their short
term money and another year (in 2005) of capital gains on their long-term bonds.
They should also have done well on realized stock gains in Q4 2005. Meanwhile in
the auto insurance segments, claims remain low and the industry has benefited
from government actions to reduce certain pain and suffering type claims in some
provinces. Despite some price reductions, the industry appears to be highly
profitable at this time. Perhaps profits will decline in 2006. But the share
prices appear to be reflecting that expectation given P/E ratios well under 10
in most cases. While it never seems to be a popular sector in the market, I
continue to like the sector.


A new edition of the free newsletter is
available. It has not been emailed out yet due to a technical problem.


December 15, 2005


A good day for Kingsway and the other insurance picks… As noted in the
past, I hold some shares of Archipelago (AX) a company that will essentially
merge with the New York Stock Exchange, with Archipelago shareholders ending up
with 30% of the the company that will be renamed with the NYSE brand. I called
this a special situation in that I am not able to calculate the value of AX on a
P/E type basis. I calculated that at $52.30, AX shares are equivalent to paying
$4.3 million for a NYSE seat. That’s somewhat high because seats were recently
trading just under $4 million. But the market for seats is apparently extremely
illiquid. In any event I do hold AX shares as a speculative bet and I added to
my position in those shares today.


December 14, 2005


As of yesterday, I was at a definite new peak return for the year.  Gave
some back today… Today I sold the last of my Sino-Forest. See my previous
comments on the company. The numbers still look good on the stock. But I was just
no longer comfortable with the company  in terms of really understanding
what they and what the risks are. I placed an order to buy more Western
Financial if I can get it at $2.41.


December 13, 2005


A nice 7% move up for Wendy’s today  after a relatively large activist
investor pressured the company to sell all of Tim Horton’s (rather than the
planned 15 to 18% and to sell other non-performing or non-core assets.
Apparently this investor believes that if properly restructured Wendy’s could be
worth $90 per share. I agree it has potential upside. When it sells off 15% of
Tim Hortons and if those shares then rise rapidly, this would push Wendy’s up.
On the other hand this rise today could be short lived since Wendy’s is not
agreeing to do what the activist investor wants. I Hold Wendy’s and wish I held
more, but I am not that keen to buy at $55. Maybe if it falls to $50 or below.
(But in my last post about this stock I was waiting for it to fall to $44 before
buying more, but that did not happen). In any event all of this certainly
vindicates my keen interest in this stock back when it was in the 30’s not so
long ago.


I continue to comfortable with my heavy position in property and casualty
stocks. I am considering adding to my position in the insurance broker, Western
Financial Group, particularly if I can grab some at $2.35 or maybe $2.40.


December 11, 2005


My personal portfolio breakdown is updated. Most
analysts would consider my portfolio to be extremely overweighed in property and
casualty insurance stocks. I am comfortable with the high weight because I view
the sector as under-valued. However, I do recognize that I am taking a risk. In
particular I am at a high risk of short term negative volatility. (Possibly also
a longer term risk).


December 7, 2005


Reitman’s (women’s clothing store
chain) is updated and remains rated  Speculative (higher) Buy at $16.82.
The number look quite good. Possible negatives are the recent sale of shares by
family members and the inherent cyclical nature of retail. Overall it seems like
a good pick and the stock should do well early next year if its Christmas sales
are strong. I may buy some.


No big surprise that ING Canada gave back some money today…


December 6, 2005


Wow, another great day for ING up $1.99. Market sentiment seems strong. It is
looking like the year is set to finish strongly. Regarding ING, I definitely
still like it for the long term. Sure, it could give back some of this quick
gain, but I am not inclined to trim my position at this point.


December 5, 2005


A very nice day for ING Canada – up $1.37, Kingsway also up a bit but
Northbridge slipped a bit.


I note Loblaw down another 3% today. Since the downtrend could continue, that
is why it would be a good idea to average into this stock rather than take a
large position all at once. It’s hard to say where this stock will bottom out at
but I think ultimately when it does then a year or so after that it will be
clear that the bottom was a major buying opportunity. While the stock could fall
significantly from here, I believe that there is little chance that it will just
keep on dropping for a very long time. This is not some risky tech stock.


December 4, 2005


HUB International, which is an
international  insurance brokerage company is updated and rate Speculative
Buy at $U.S. $24.22. The analysis makes a very large adjustment to add back
certain stock based compensation that appears to be essentially like a deferred
addition to the purchase price for an acquisition. My own approach will be to
monitor this company further before possibly buying.


Loblaw is updated and rated Buy at $59.80. Loblaw is having a poor year
mostly due to supply chain disruptions caused by a major restructuring (includes
consolidating warehouses and moving 2000 head office staff to a new central
location). Q4 will also probably suffer the same problem and I understood from
listening to a web presentation that problems could continue for most of 2006.
Nevertheless it’s not clear if the share price will fall further. Given the
strong growth history of this company it seems likely that the stock will
ultimately recover strongly. My own strategy would be to average into this
stock. Although the stock could certainly fall further in the short term I
believe that this could be a great opportunity to get into this company at a
price that turn out to be quite attractive if earnings turn around. I also note
though that the company has stated that too much supermarket capacity is being
built. In that case we could see grocery prices becoming overly competitive
which would hurt Loblaw.


It’s interesting to note that the stock price is back to where it was in
early 2002. (and down considerably from a high of $76.50). But the company has a
lot more earnings and equity and assets than it had in 2002. This stock provides
a perfect illustration of why it is dangerous to pay a very high P/E for a stock
(and to therefore pay in advance for robust growth that may or may not occur).
Here is what I said about Loblaw in January 2001



From January 2001: At a share price of $50.50, the price to
book value ratio seems high at 4.7. The dividend yield is low at 0.5%. The
Interim price earnings ratio is high at 32.3 and 29.5 before amortization of
goodwill. The interim adjusted return on ending equity is quite good at 15.9%. I
calculate an intrinsic value per share of between $18.14 and $36.62. These
ratios indicate that the shares are somewhat over-valued at this time.



Back in early 2001, I valued the stock at $18.14  if it would only grow
at 7% and if the P/E would regress to 15 in five years. That was quite
conservative. I valued it at $36.62 if the earnings would grow at 12% and
assuming the P/E would regress to 20. In actual fact the earnings growth was
higher than 12% but nevertheless the P/E ratio did regress to about 17. It is
reasonable to assume that stocks with very high P/E ratios will suffer some
regression in the P/E over say a five year period.


It’s interesting to note too, that many analysts were recommending Loblaw
continuously over the past five years. Now that the stock has fallen
considerably I would expect that many analysts are no longer recommending it.


December  3, 2005


Alimentation Couch-Tard is
updated and remains a Speculative (lower) Buy at $22.41. The company does not
seem like a compelling Buy. However, if it continues to grow at anything near
its historic pace (on a per share basis), it would be a good investment.


Performance figures are updated for yet
another winning week.


December 1, 2005


I mentioned yesterday that the market sentiment seemed negative… and the
market promptly rose 175 points… Hopefully a sign of a strong December.


Cognos warned of a weak results today. I don’t have a large position and I
still like it for the long term so I am not sure if I will reduce my position. I
would definitely be interested if it falls toward the $35 range. My last report
basically indicated it has high multiples but that this seemed to be justified
by the growth. Certainly it seems more speculative at the moment.


Wendy’s filed material for its prospectus today. So far they have not filed
in Canada and it is not clear if they will be offering the shares in Canada. If
not we will have to wait and buy them on the market. I think they would be
making a big mistake not to offer it in Canada at the IPO. But maybe this is a
good thing. If they only offer in the U.S., the IPO price is likely to be lower
and then we can buy in the market.


November 30, 2005


A lot of stocks were down today. The market seems weak is spite of strong
earnings from the Banks and other strong earnings releases. Unless something
changes we seem to be in a bit of a down-turn. If the general market does
decline somewhat then I feel good being in stocks with lower P/E ratios like
most of the picks on this Site.


Northbridge has declined the past few days. Last week in announced a $15
million pre-tax loss due to Hurricane Wilma. It is unfortunate that it has this
U.S exposure. Only 16% of the revenues are from the U.S. but that is where the
trouble has been this year. With annual earnings that were recently over $200
million, a $15 million pre-tax loss is not that serious. I am very comfortable
in continuing to own Northbridge.


November 29, 2005


I was hoping to have an update for Boston Pizza completed today. However,
they have been forced to make some major accounting changes. (Nothing serious
just new accounting rules) The income stays the same. But the revenue and the
balance sheet change. I am no longer sure if the 2004 earnings per share are
reported in the same way as the Q3 2005 figures.  I will likely have to
wait for the 2005 annual report to get a better view of the impact of the new
accounting rules.


In any event Boston Pizza yields 7.7%, not that high for a Trust. But
is has been increasing the distribution slowly and same store sales are very
strong. New restaurants are opening but the Fund actually has to purchase the
expected revenue stream of the new restaurants which adds to the unit count and
adds very little if any  to earnings per unit. My sense is that Boston
Pizza remains a (lower) Buy at $15.84. I hold some and will probably hang on
although I would not mind selling it it rises above my very recent purchase


In other news the 10 year Canada Bond interest rate is once again down to
just under 4.0%. This generally bodes well for the market except that it could
be foretelling a recession ahead. It may be a good time to be in defensive
stocks that are somewhat recession proof. I think the property insurance stocks
are somewhat recession proof. Some strong Bank results out today which also
bodes well for the market to do well in the final month of this year.


I’m overdue to mention that credit should be given to ACE Aviation for some
good results lately. I have been no fan of this company. I still see some
dangers ahead in terms of seeing some very low priced seat sales (good for
customers but generally bad for airlines) But apparently some reports indicate
that overall their fares are remaining higher right now and they are perhaps
less aggressive in mounting sales wars against West Jet. Certainly the announced
spin-off of Jazz appears to be a good thing. I am still not at all interested in
this stock but given I have criticized it in the past it is fair that I
acknowledge better performance lately.


November 27, 2005


Canadian Tire is updated and now
rated Weak Buy / Hold at $67.43. In the past few years this company and stock
has tended to surprise on the upside. Certainly the graph of the earnings per
share and the sales per share growth looks very good. Still, it is not cheap at
this price…


Performance figures and my own portfolio are updated. Regarding the Income
Trusts that I bought as mentioned under November 24: The hoped for increase in
price after the open did not occur (the price increase occurred at the open also
on the Wednesday before the announcement of the tax ruling). Given that this
position which was meant as a short term trade did not work out, I sold half the
BAI.un (I attempted to sell the other half but priced it too high.) I really
should have sold the Boston Pizza as well but it would have been at a small loss
and I was unable to convince myself to accept that loss and move on. I still
hope these will rise tomorrow.


I notice that Canadian 10 year interest rates have declined again to close to
4%. This is a positive factor for the Trusts and for the market in general. News
that interest rates have risen refers mostly to very short-term rates. The
10-year rate has declined most of this year, ticked up from 3.8 to about 4.2
this Fall and now is back close to 4%.


November 26, 2005


Telus is updated and rated Moderately
Speculative (higher) Buy at $46.43. Earnings momentum is strong. Free cash flow
materially exceeds net income. Continues to sign up surprisingly large numbers
of new cell phone customers. While there is always the risk of competition,
right now the outlook and trend seems positive.


November 24, 2005


Well a strong day today with the Income Trust news. The Trusts mostly opened
very strong (up 5 to 10% or more) so it was really almost too late to take
advantage of the news because the price jumped at the open. Many of the Trusts
then came down a bit during the day. Hopefully tomorrow and Monday there will be
an increase as more people react to the positive tax news. Possibly when the
American traders are all back from their holiday on Monday there will be more
interest in the Trusts. I ended up taking about 10% of my portfolio that was in
cash and putting it into BAI.un which is a diversified closed end group of
Trusts and some into Boston Pizza. Normally I like to take my time and do more
analysis before investing but at this time I thought there might be an
opportunity for a quick gain.


I will have some company updates over this coming weekend.


November 20, 2005


An addition of the free newsletter has just been sent. If you did not receive
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November 18, 2005


Performance and the model portfolio is updated.


November 17, 2005


I notice CN is up to $91.39, a surprising 10.6% jump since I called it a Buy
on October 19. I am not inclined to Buy a this price but I definitely would not
sell it if I held it. It’s really been a great performing company since its IPO
10 years ago. The shares are up 900% in 10 years. (Update it is the share market
cap that is up 900%, the share price is up more like 400%). And yet as I have mentioned
before the “hot money” and the stock bullboards pretty much ignore it.


The market has certainly been good lately for the stocks that I hold. In some
ways that should make me cautious, but human nature being what it is, I am
feeling pretty good about how the market will do in the next 6 weeks. Given
lower oil prices, a lot of non-energy stocks should do well. And I think we may
be seeing dividend stocks increase as people move out of Income Trusts. That may
be creating a great opportunity in income Trusts and so I hope to analyze an
Income trust or two soon.


I noticed that TD Waterhouse has a new IPO for EGI Financial Holdings. This
is a rather small property insurance company that specializes in high risk
drivers. I have only skimmed parts of the prospectus but it looks like it has
been quite profitable and it looks like the price to book ratio will be around
1.5 to 1.8. Although I certainly have not done any close to a full analysis I
decided to take a chance and buy some shares at the IPO.


November 16, 2005


Wendy’s is updated for its Q3 earnings
report and remains rated Weak Buy / Hold at $48.36. Although it is a great
company with good profitability, the valuation appears rich. However, I am
holding it based on a potential price increase when it sells off 15% of Tim
Horton’s in Q1 2006. I believe that there will be a great demand for Tim Hortons
shares and it will get a strong valuation. Tim Hortons now represents almost 60%
of Wendy’s International’s total operating income despite having fewer than half
as many locations. The U>S. market may be unaware of the growth potential for
Tim Hortons. I hold shares. If the price happens to dip back to the $44 range
(which is quite possible) I will likely add to my position.


November 14, 2005


I sold 4/5ths of my Sino- Forest today. Again, the numbers would say buy
more, but there is something about the long-time lack of clear disclosure and
the changes in business plans that makes me uncomfortable. I also just made a
note on the model portfolio page that I will notionally sell half the position
at tomorrow’s opening price. I have sent an email to them and they have
responded partially and another person from Sino invited me to call to talk
further, so maybe I will change my mind but for now I am comfortable with a
smaller position in Sino-Forest.


Update – I have now spoken with the company by phone, perhaps I am needlessly
nervous. If everything is as they say it is these shares are a definite Buy.
But the company was unable to explain to my satisfaction why we do not see much
higher revenues from their own planted lands. I remain skeptical at this time.


Today, the property insurance stocks were up moderately, which is comforting.


November 13, 2005


Performance figures are updated. The picks
have now regained the moderate losses suffered in this Fall and are at the
highest levels of the year.


Home Capital is updated and remains
rated Weak Buy at $36.25. Earnings and ROE performance have been fantastic but
the stock still seems a bit expensive.


Sino-Forest is updated and rated
(highly) Speculative Buy at $3.45. Based on the value ratios this would seem to
be a very good buy that could easily soon double. However, I have some nagging
concerns. The company that has all its assets in China and it must be difficult
for auditors to confirm the existence of the stated amount of trees. Recently
the earnings have been driven by the purchase and re-sale of standing trees.
It’s hard to understand why that would be a high margin business. For quite a
few years now I have expected to see the company start to sell from its own
planted tree plantations. In Q3 only a tiny 391 hectares were sold from
plantations and these were at the low price of $1,217 per hectare. Several years
ago the company built a number of mills to process wood, there were were
start-up delays and then ultimately little seems to be said about those mills.
It seems like management has changed the business plan a few times. Overall,
this may be a wonderful investment but I am concerned about the risks and I plan
to reduce my holdings from 4.2% of my portfolio down to probably less than 1%.


November 11, 2005


Western Financial Group is updated and rated Speculative (lower) Strong Buy
at $2.45. Here we have a profitable company selling at about 17 to 20% over
diluted book value. There is a considerable amount of goodwill on the books, but
I think the goodwill has real value given the earnings and given that when small
insurance brokerages were purchased it is natural that much of the value would
be in goodwill- as the value of the established customer base is not on the
books. Book value may be understated given that the company has invested in the
start-up of a banking operation. Given the historic growth the P/E seems
reasonable at 15. I also like the fact that the highly regarded Jim Dinning is
chairman. On the one hand I don’t necessarily expect the stock to do much in the
next year. On the other hand it is cheap and growing and I don’t see much risk
that the stock would decline and not recover and so the term “no brainer” starts
to come to mind. As always there are risks though.


Convertible debentures (convertible at $2.50) maturing in February 2007 also
trade under symbol  WES.DB.A on Toronto. Buying the convertibles may be a
good investment. They recently traded at a premium of 10 to 15%. I understand
the book yield is 9% but my source did not indicate the market yield when bought
at 110 to 115. I may add to my position in the stock or I may take a position in
the debentures.


I am surprised to see Cognos drop under $40.
It ‘s always hard to buy on such dips due to the fear of a further drop but I
would think a strategy of averaging in by buying some at this price might work
out well. It is never clear in these cases if the market knows something or if
the price is dropping for no good reason…


ING Canada is updated and rated (lower)
Strong Buy at $45. ING Canada released a Strong Q3 earnings report. Earnings
were extremely high with an annualized ROE of 31%. However, this was driven in
good part by retroactive recognition of higher earnings from past years and by
strong realized capital gains. Sustainable earnings are lower but it is not
clear how much lower. Entering 2005, I had predicted very high earnings for
automobile insurers due to low claims rates and retroactive recognition that
rates were too high in 2003 and 2004.  This has definitely proven true so
far in 2005. Despite lower rates in 2005 and more competition, it still seems
likely that profits will remain quite attractive for the next year. ING Canada
has a high exposure to auto insurance and does not target the high-risk segment
and has no U.S. exposure. Its price to book multiple is higher than Kingsway and
Northbbridge and EL-Financial but it has the highest ROE and perhaps the best
potential for growth. This is a difficult segment to predict and can be somewhat
risky but overall, I like the risk reward trade-off and have added to my
position in ING.


November 9, 2005


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garbled and I was wondering how wide-spread the problem is). Link the the
free newsletters here.


A nice jump for Northbridge today and Kingsway up a bit as well… Tomorrow
ING Canda and Western Financial report earnings. I will update both of these
over the weekend. I bought more ING today, just to replace what I got stopped
out on. I guess stops are not for me… I also had a stop on Northbridge which I


November 7, 2005


A good day for most of the stock picks here… At least for the short term
the market sentiment appears strong…


November 6, 2005


Cryptologic is updated and remains at
Speculative (higher) Buy rated at U.S. $ 20.29, $CAN 24.20. I may add to my


November 5, 2005


The performance figures as well as the model portfolio and my own portfolio
composition are updated (see links) below stock table above. The Model Portfolio
and my own portfolio have returned to about their peak levels for the year and I
think this is impressive given the overall market decline in many sectors since
early September.


Generally, I have been cautious about the outlook for the past few months and
took defensive moves by selling some positions to raise cash. This led to a fair
amount of trading and in the end most of what was sold has not declined, but
still I think being a bit defensive was prudent. Last week the mood in the
market seemed more buoyant. Q3 earnings have generally been good. Still I think
a certain amount of caution is warranted at this time.


Clearly the market once again did not share my enthusiasm for Kingsway. TD
calls it only a hold. I am still committed to it as a Strong Buy but will remove
the (higher) qualifier in front of the rating. I bought more Kingsway on Friday.
As well I bought back some ING that had sold on a stop loss but still have a bit
more of that to try to buy back. I’m cheaping out trying to buy it a bit below
where it sold when really I should probably just use a market order…


November 3, 2005


I will notionally buy Kingsway in the model portfolio at tomorrow’s opening
price. However since I don’t want to write a blank cheque I will use a limit
order at $21.75 to do this.


A good day in the markets, for our picks, with Cryptologic in particular up
nicely on strong earnings. I have not yet updated my report on cryptologic.


Kingsway Financial is rated (higher)
Strong Buy after updating for Q3 results released after close of market today.
Kingsway had a strong earnings report. With a P/E ratio of just 7.4, the market
appears to believe that earnings will decline. Certainly the recent realized
gains on investments may not be repeated in 2006. But the company gives no
indication that profitability on the insurance itself will decline. And I expect
a release of reserves from 2004 that will further increase the insurance profits
in 2006. In addition the stock is trading at only 1.3 times book value. Although
there are always risks and although insurance companies are inherently
unpredictable, I have no hesitation calling this a Strong Buy. The market has
tended to ignore the earnings here but given this latest strong quarter I am
quite optimistic that the stock should rise to $25 in the short term (but there
are no guarantees of course). It is one of my larger holdings but I intend to
buy more shares tomorrow unless the price jumps too much at the open.


Sico Inc. is updated and rated Buy at $14.40.
This rating is lower than previous due to slightly lower earnings in Q3. SICO is
being hurt by higher prices for raw materials and higher trucking delivery costs
due to higher fuel costs. It looks like these challenges will continue for at
least the next six months which is a reason to downgrade the rating. At the same
time it trades at a relatively low multiple to book value and to earnings and
has a good history. Buying stocks like that usually works out in the long run.
Therefore I am not inclined to over-react to the recent stall in earnings. I
hold shares and intend to continue to hold but will not likely add to my


Canada Bread is updated and remains Buy
rated at $50.76.


November 2, 2005


A good day in the markets. I remain cautious on the market in general as
interest rates rise and because consumer spending is likely to be hit by the
high home heating costs this winter.


Aeroplan Income Fund is added as a new
entry to the stock table above and is rated Speculative Buy at $11.94. I
consider it speculative because it has a negative book equity. However it is
generating attractive cash flows. The accounting is conservative in that when
points are sold Aeroplan collects the cash but cannot book the earnings until
the points are redeemed. Given its growth and the economics of its business I
like it as a speculative pick. I own a few shares but have no plans to add to my
position at this time. Like all Income Trusts there is some uncertainty now
regarding income taxes.


November 1, 2005


Dalsa Corporation is updated for Q3 earnings
and is downgraded to Weak Sell at $12.26. I like the company long term due to
its extremely highly educated team. Also it has little debt and is cash flow
positive so should be able to ride out any dip in earnings. And the
insider buying signal is positive. But sales and have stalled in 2005 and
earnings have declined. And Q4 is expected to show another significant drop in
earnings (before accounting for a small restructuring charge). So, while it will
likely rebound in the long term, the near term does not look very good. I’ll
probably hold on to my shares and hope for things to turn around by the time it
reports Q1 2006.


In better news, all of the property insurance stocks that I rate were up
today. I have a big exposure in this area. About half of my ING Cnada stock got
sold when a stop loss order was hit at $44.50. It now appears I may regret that.
In general I don’t really like stop loss orders but with such a large exposure
to the sector I felt that the stop-loss was needed in order to protect me from a
large loss.


I’m looking forward to seeing the results from Kingsway and ING Canada.


I saw a TD Waterhouse report on Northbridge and as expected they essentially
ignore the earnings due to realized capital gains and they did not comment on
the fact that absent the hurricanes, Northbridge’s earnings would have been
truly exceptional. They also focus on comparisons to U.S. stocks. My philosophy
has always been that I will buy cheap stocks it does not matter much to me if
even cheaper ones are available in the U.S. since that introduces currency risk.
Most analysts would recommend buying the cheapest stock in a sector even if all
the stocks in that sector were very expensive. That is, they may focus on
relative bargains (compared to other stocks in the sector) whereas I try to
focus on a stock just being a bargain on its own.


October 29, 2005


The market reacted unenthusiastically to Northbridge’s earnings. It seems
that the property insurance companies, although seemingly quite cheap are going
to require some patience.


Shaw Communications is updated and rated
Speculative Buy at $23.83.  Based on accounting earnings it is
unattractive. My normal approach is to use accounting earnings and to look for
“bargains hiding in plain view”. In this case Shaw may be a bargain but it is
hidden by the accounting.


I view it as being similar to where Telus was a few years ago when Telus had
very low earnings and the potential of the huge cash flows from its cell
customers was not yet apparent.  Shaw is still growing its internet
customers rapidly and the advertising to do that is depressing earnings. Once
the high speed internet penetration reaches full potential in Canada that
advertising can probably be scaled well back. Also they are spending on
advertising and capital investments for digital phone and that can tend to depress
earnings and cash flows temporarily. On a free cash flow basis I calculate that
Shaw is trading at about 17 times free cash flow which I view as reasonably
attractive given that I expect strong growth in free cash flow after the heavy
spending on digital phone ends.


I also very much like the fact that insiders are buying heavily. Overall I am
willing to tag along with the insiders. I believe the stock has good potential
but it may not move much in the next 12 months as the spending on the digital
phone initiative temporarily lowers free cash flows.


The biggest danger I see is if it gets into a price war with Telus. Absent
that it should be a good long term investment (possibly very good).


October 27, 2005


Northbridge Financial is updated for
its Q3 earnings and remains a Strong Buy at $31.85. Earnings were strong
at $43.3 million and would have been spectacular at abut double that amount if
not for losses related to Hurricanes Katrina and Rita and an unusually intense
thunder  storm that hit Ontario in August. While insurance company earnings
are inherently unpredictable, all the indications seem very positive. Some
analysts will do no doubt point out that a good portion of the earnings came
from gains on investments which may be considered unusual. However, I would
counter that hurricane losses could also be considered unusual. Overall the
stock is cheap. The profitability of this company appears to be unfolding much
as I thought it would (absent the hurricane). The company indicated it had
positive development (retroactive profits) related to prior years. They did not
indicate the amount  but this positive development is what I had predicted
given that insurance rates in 2003 and 2004 were probably higher than they
needed to be and even with some rate cuts the industry appears to be highly
profitable in 2005.


Nevertheless the market may continue to place a low price earnings multiple
on Northbridge. I note also that its parent Fairfax had a bad quarter and I
don’t know if that might hurt Northbridge by association.


In other developments Home Capital came out with yet another great quarter. I
bought some shares on the news although I have not yet updated my analysis. The
stock dropped a bit today. I last called it a Weak Buy and I may have been
pre-mature in buying today but it has been a great performer and the recent
price drop makes it at least moderately attractive (but note I have not updated
my detailed) analysis)


I am not sure why Kingsway Financial continues to drop – perhaps the market
knows something. I am certainly hoping for a good (or great) earnings report
given that they indicated very little exposure to the hurricane losses.


October 26, 2005


Further to the results for the TSX Group. The company had an outstanding Q3
due to higher trading volumes, price increases and somewhat lower expenses.
Unfortunately they have been forced to make an accounting change. Listing fees
are now to be deferred and amortized into income over 10 years even though these
are non-refundable and received in cash. I do not agree that this is better
accounting, but they are forced to do it. Unfortunately it wipes out a big chunk
of their book equity value and it lowers earnings in the prior periods even
though it has no impact on cash or cash flows.


The TSX Group has not yet released all the restated financial numbers and so
I am unable to update my report. My sense is that I would likely rate the
company a Buy or (lower) Buy. My concern would be that they may have a period of
lower earnings if we enter a period of low trading activity. Still, in the
longer run they remain a well run and unregulated virtual monopoly so I think
they will do well.


If I did not already hold some I would consider buying a few shares now but
then waiting to see if it drops further due to the accounting change situation.
If it does drop substantially it would be a definite buy. Due to the accounting
change it is likely to have a P/E that looks quite high. This could cause the
price to fall. I do own a few shares and I will now wait and see the price
reaction as analysts grapple with the accounting change.


I saw a report yesterday about a “surprising” drop in consumer confidence. I
can’t see how anyone could be surprised. I think a lot of consumers were almost
shell-shocked at the big jump we saw in gasoline and the impacts of the
hurricane. I see a continued drop in confidence as a big risk to markets right
now. However I think in the last week or so confidence has probably come back
somewhat as gasoline and oil prices fell and as the shock of the earlier
hurricanes fades a bit.


October 25, 2005


TSX Group released (as expected) a strong Q3 earnings report. They also
announced that they will restate past revenues and profits downward due to an
accounting change. There past accounting was correct but the accounting rules
have changed. If by chance TSX Group falls tomorrow, I believe that would be a
buying opportunity. I think it is more likely to rise on this earnings report.
TSX may be hard to predict now because there is a lot of concern that new
listings will fall off due to the Income Trust uncertainty with Ottawa. I will
update my report in a day or so after seeing where the stock settles on this


I am surprised at how low Shaw Communications has fallen. I suspect it would
be a good investment at this price but we don’t know what its Q4 earnings (year
ended Aug 31) were like as those are, I believe, due out shortly.


October 24, 2005


Reitmans (Canada) Ltd. is added to the
stock table above as Speculative (higher) Buy at $16.06. Based on its last 12 months
earnings, it looks to be under-valued. I call it Speculative because retail
companies can face volatile sales and so profits may not be very predictable and
also the fact that the Reitmans had sold a large block of shares recently causes
me to think there could be some uncertainty ahead.


Another interesting day in the markets today. Just when it seemed like the
market sentiment was quite negative we were delivered of quite a positive day.


October 23, 2005


Last night an edition of the free newsletter was sent out. If you did not
receive a email regarding this, then it may be that your email address is not on
the list for the free newsletter. In that case go to the home page of this site
and sign up for the free newsletter. The system will let you know if your email
address is already on the list and it will take you to the free newsletter page.


Regarding my comment on the trading price for Sportscene from Friday as shown
on YAHOO, the YAHOO graph shows everything at $10.50, but the day’s range does
show $10 to $10.50.


October 22


With the current market decline I am keeping a close eye on performance. So
far the stock picks on average are holding up very well in this market decline.
Performance figures are updated, see links just below the stock table above.


As announced in advance, I sold half my Sportscene stocks yesterday just to
raise cash. The price I got was $10.00 One fact of interest is that YAHOO shows
that all trades yesterday were at $10.50. I may look into this, possibly a
“market maker” got the other 50 cents. I have no complaint since my sell order
was at $10.00 but I am curios what happened. This stock is thinly traded and
therefore the price tends to jump around and while I still like it, it does
subject a portfolio to bigger swings in value at times.



October 21


Regarding Sportscene Restaurants in the model portfolio, none traded yet and
I am changing my order to a notional sell at $10 for half the position. I did
the same in my actual portfolio. Maybe a mistake as they should do well with the
end of the NHL strike but they also lose some “Income Trust” premium they may
have had… I sold the IGM in one of my accounts this morning but kept it in
another account. Where my account goes in the next few weeks is heavily
dependent on the property insurance stocks to which I have a very large
percentage exposure. I may or or may not lighten up on this just because of the
heavy weighting I have. Northbridge in particular could well fall on Q3 earnings
since it has already announced some hurricane and other losses that totaled I
believe 90 million pre-tax (in theory the stock already has adjusted for that).
We also don’t know which insurance company is bearing the loss for the CN oil
spill at lake Wabemun in Alberta. Again, I still think Canadian insurance stocks
seem cheap and are making record profits on auto insurance. But the market
always treats them as risky and may focus on the fact that rates are getting
more competitive and earnings will likely fall in 2006 from the record levels.


Update – I have now placed a stop loss on half my ING Canada at 44.50 and
about half my Northbridge at 30.50, just to protect from downside risk. Will
note similar in Model portfolio.


October 20, 2005


The property insurance stocks generally did well today, particularly ING
Canada and this saved my portfolio today…


In an effort to raise cash I sold my Couche-Tard today. I like the company
but it was not one of my higher rated stocks… I also put in an order to sell
my IMG Financial but the order was not filled as I tried to get a bit higher
than the bid price. IMG is a great company but I figure its assets under
management have to fall with this market correction and that will hurt earnings
temporarily. Also this funds management industry will eventually face lower
management fees.


I am notionally selling some stocks in the

model portfolio as well.


Obviously I am cautious on the market right now, but I am not about to panic
and sell too much. In the past I have done well by riding out dips in the type
of stocks that I own.


In that regard, so far I am not bothered by the drop in the price of Western
Financial. This stock now trades only 10% over book value (at $2.25 today) and I believe
ultimately will be quite a good investment. But certainly there is a lack of
buying interest and it could certainly go lower. (I put a small order below
market and it filled at $2.26 today and then the stock closed at $2.35.)


If the market keeps dropping there will obviously be some good bargains. The
trick will be to have some cash available and to step in and buy at the right


One of the reasons for caution is that the 10-year Canada bond yield is
finally starting to go up a bit as the market begins to take inflation threats
more seriously.


As a point of interest I note that Clearwater Income fund plunged after
suspending its cash distribution. This was not exactly a surprise to me. I
looked at in March 2003 and was not impressed with its cash flow generation.
Here is what I said about Clearwater at that time:



RATING: Clearly the yield is attractive. Appears to be an attractive industry
structure due to the barriers to entry. But does quite poorly on Buffett’s
tenets in my opinion (see below). This is a cyclic business that has significant
debt and that is attempting to distribute a fairly large proportion of its
distributable earnings. The unit values are heavily dependent on the ability to
continue to meet large cash flow needs. It’s hard for me to understand how a
company that historically consumed huge capital spending will now be capable of
throwing off steady cash flows of the required magnitude. For tax purposes the
distributions for 2003 are expected to be 57% return of capital, 8% dividend and
35% other income, so this is a relatively tax efficient investment. However, my
overall rating is Weak Sell / Hold at this point.




October 19, 2005


CNR is updated and rated Buy at $82.85 after
another great earnings report. CN is generally acknowledged as the best run
Railroad in North America (despite some recent high profile accidents).  I
have long commented on how individual investors tend to ignore large cap stocks
like this ($23 billion). It is sure not the “loud and hot” money that has been
invested here, instead I believe it has been the quiet rich smart money. Based
on exceptional past performance and the P/E I should rate it a higher buy but
there are some risks ahead including unhedged fuel prices in 2006, higher
pension costs and a general slowdown in the economy.  I would like to Buy
but at the moment I am more inclined to raise my cash position rather than buy
more equities. I definitely like it as a long term pick.


Apparently analysts were surprised that GM lost $1.5 billion or so last
quarter. I wonder how they could be surprised when it was well known that they
were offering huge employee pricing incentives and that they were losing money
even before those incentives. I suspect GM will not make money until it
eventually shifts its production to China. Sorry if that would be bad for the
economy and their workers but that is what it will likely take to see profits on
GM. (Short term they may make a big profit by selling off their profitable
finance arm but selling off limbs is not exactly a sustainable move).


October 18, 2005


Ouch a big hit for oil stocks today. I don’t cover oil stocks at all but I
notice that the XEG Index Traded Fund has been coming down in price, in the last
several weeks it has bounced up several times but each bounce weaker than the
last and the downward bounces going lower. But I can’t say if that means it will
now trend down…


Meanwhile my picks did well today on insurance stocks.


I notice a West Jet founding vice president left the company today “for
personal reasons”. That was announced after close of market. I no longer rate
Westjet but I rated it a Sell at the start of this year. I don’t think this
latest news can be good.


CNR came out with very strong earnings with per share earnings up 24%. For
whatever reason the market knocked it down 2.3% on this news. I will update my
report very soon. This strong earnings report came in spite of the huge Wabamun
lake diesel spill (loss of $28 million) and in spite of high fuel costs.
Apparently they were helped by some one-time tax savings. The phrase that always
comes to my mind every time this company reports yet another strong quarter is
“Winners Win” These people really do know how to run a railroad.


October 17, 2005


Certainly some mixed signals, Northbridge and ING Canada doing well while
Kingsway fell to low it has not seen in some months. I am hoping that the Q3
earnings for these insurance stocks will be quite good (except we know
Northbridge had a material hurricane hit) however, these insurance stocks are
subject to actuarial assumptions and losses and gains on investments that make
the earnings quite unpredictable (not to mention unpredictable insurance
claims). Western Financial fell to $2.40 which I consider a buying opportunity.
However note it opened at only $2.32 on 2000 shares traded at the open which
illustrates probably a smart buyer and not-so-smart seller. But I think the low
open also indicates the lack of ready buyers for the stock which is a danger in
a relatively thinly traded small cap like this. For the market in general, my
sentiment right now is more cautious and not particularly optimistic for the
short-term. (But given the difficulty of market timing I will largely be staying
in the market although I will look for opportunities to sell some holdings to
raise some cash)


October 16, 2005


Sleeman Breweries is updated and rated
Sell at $13.75. The first two quarters of 2005 were weak. They announced a
cost-cutting effort which may be good long-term but which will cause a $2.1
million charge in Q3. Any Income Trust premium in the stock has recently been
reduced and I am not certain that they have the cashflow to go that route. Some
insiders were selling. My strategy would be to sell at this time if I owned it
in a tax sheltered account. I probably could have rated this a hold but given
its situation and a market that seems to be going down in general, I believe a
sell rating is warranted.


October 15, 2005


Performance figures were updated as of Wednesday’s trading figures. The
market was down on Thursday. As an update, as of today,  the market
portfolio is still up 22.8% and my own portfolio is up 21.3%. There has only
been a moderate hit due to the recent market correction.


With continued interest rate hikes, and the much higher gasoline and heating
costs I am very cautious on the overall market direction. I would certainly not
be surprised if the overall market falls materially in the weeks ahead. I would
prefer to move somewhat more into cash. However it is always difficult to know
what to sell. I will be looking to sell some of my holdings but probably only a
small portion. In most cases I would rather wait and seethe Q3 earnings reports
before taking any action. I continue to have faith in the Strong Buys and Buys
on this Site. But I recognize that even stocks that will do well long-term can
certainly suffer setbacks. It is up to each investor to decide whether they are
willing to ride things out or would prefer to sell some holdings now.


I am giving mixed signals here but that is because stocks are inherently hard
to predict and because even good stocks are usually pulled down by overall
market declines. But the danger of selling on short-term nervousness is that we
then miss out if these stronger stocks do not in fact fall.


In regards to oil stocks, I always consider these to be very hard to predict.
There are mixed signals. Certainly the argument that demand is exceeding
dwindling supply seems logical. hen again that argument has been around since
early 70’s and still oil has mostly been a lot cheaper. Yesterday I heard that
oil storage facilities were “full” suggesting there is no immediate shortage. So
I am really unsure if the recent pull-back is a buying opportunity in the oil
area.. or the beginning of a further correction. (I have a small amount of the
Energy Exchange Traded Fund XEG in the model portfolio but I will not be
covering any individual energy stocks)


October 14, 2005


While the recent decline in the market is painful, I don’t think we can claim
to be surprised. I had mentioned my worries about the consumer being hit by high
energy costs and higher interest rates. I had increased my cash position as
well. But it’s never clear if market declines will continue and that as well as
trading costs and tax considerations make it somewhat impossible to escape these
type of declines.


As of Wednesday’s figures I had not been hit too hard and I believe a strategy
of holding lower P/E stocks will turn out well in a market decline situation.


I am hopeful that the Q3 earnings reports will turn out pretty well. However,
it does appear that the earnings outlook for Q4 and beyond will be weak at best.
The insurance stocks continue to suffer from the fallout of the hurricanes.
Northbridge had announced a material hit there. ING Canada as well as
EL-Financial should be unaffected and Kingsway indicated a very minor hit.
Therefore I am hopeful of very strong earnings reports in Q3 from these last
three. Wendy’s is expected to have a poor Q3 so could fall more before they get
back on track…


Q3 earnings reports should begin arriving in the next week…



October 12, 2005


Performance figures as well as the model portfolio and my own portfolio
breakout have been updated, see links just below the stock table above.


I ended up buying a small amount of Aeropan Income Fund units at $12.50
today.  Also today a buy order that had been below the market triggered and
I therefore bought more Northbridge shares.


October 11, 2005


I am working on a report for Aeroplan Income Fund as a new investment on this
Site. The information is incomplete since the Fund only came into being on June
30 and certain prior period financial information was not released and in any
event is not comparable. The yield is low at 5.4% However, I believe that the
yield should grow. There are a lot of things I like about the business. It sells
points for cash now and only has to pay for a reward when the reward is claimed
an average of 30 months later. And they estimate 17% of points will never be
redeemed. They have a very strong market position in Canada and I think they can
grow. The current uncertainty over the Federal Government’s position on income
taxes is a risk. My current indication is that the value ratios will not look
compelling but nevertheless I think the long term characteristics of the
business may make this a reasonably good bet. I may buy some units but my rating
is not yet complete. I would definitely be interested if it fell back to the $11


In the past I doubted the worth of Aeroplan since I knew that most of the
money it made selling points over the years would not have been set aside and
instead would have been sucked up by Air Canada. That is true however, it turns
out Air Canada and not Aeroplan will pay for seats purchased with points
accumulated in 2001 and prior.  Aeroplan still has a big negative net worth
on its books but at least the $551 million owed in rewards earned in 2001 and
prior is not the responsibility of Aeroplan (although it will be if Air Canada
fails to cove these).



October 10, 2005


FirstService Corporation is updated
to (lower) Buy at U.S. $22.34.  I have always liked the business model of
the company since I first looked at it in 2002. Investors were burned when the
share price fell over 50% in 2003 but in reality the  company never
faltered, it only grew less fast… Very rapid growth has now resumed and the
share price has recovered to new highs before a recent small decline. Note that
Canadian investors face currency risk if our dollar continues to rise. Although
the value does not seem compelling, this is a very well managed company and is
probably a good long term pick.


October 6, 2005


The impact of the hurricanes on insurance stocks is far from over.
Northbridge estimates it will pay out $40 million , therefore an after-tax
impact of roughly $30 million which I expect they would show in Q3. Since
Northbridge earned $39 million in Q3 2004, this will be a big hit to Q3
earnings. But it is arguably a one-time impact and is not a very big hit to the
book value equity which is $800 million. So I see no need for the stock price to
drop on this news but it may do temporarily. Recall Kingsway had indicated most
of its exposure was reinsured and so it was expecting only a $2 million hit on
Katrina. ING Canada would presumably have no hurricane costs. Also EL-Financial
would have no impact.


Energy stocks have never been an area I know much about… However, I see
little reason to expect oil to continue to drop much more (then again
commodities are notoriously hard to predict)  I expect the pull-back in oil
at some point represents a buying opportunity but I am not sure if the decline
is over yet…


My own portfolio took a hit today but not a very big hit compared to the
market decline…


Currently I am looking at the financials of Aeroplan Income Fund and intend
to add it to the Site soon. I am not sure yet if it will be a buy rated stock
although I like the business model.


October 5, 2005


A bit of a pull-back in the markets and I suspect that this could continue
tomorrow… I note Kingsway is down but ING and Northbridge have been doing
well. Insurance losses from Katrina are starting to be announced and hurting
some U.S. insurers. Kingsway is perhaps being affected by this.


Today I saw that Wendy’s released poor same-store sales for Q3 but its price
after initially dropping rose, then settled back… I had recently bought a few
additional shares at $43.90, adding 20% to my position


While I like the stock long term I decided to take some profit at $47.79 In
order to avoid excessive trading costs I sold  about 40% of what I held. I hope
to be able to buy it back cheaper after the Q3 earnings are announced…. I
hedged my bets and did not sell all of it because I do like it long term and
maybe there will be no price dip…


October 3, 2005


I am tempted to buy more Western
Financial on its recent minor pull-back to and below $2.50.


Wendy’s has rebounded well from it recent dip below $44. The recent pattern
has been that around $44 is a good opportunity. But I worry about how bad Q3
was for Wendy’s (Tim Hortons I don’t worry about). Also our ever rising dollar
hurts us on U.S. stocks (although that should be partially hedged by the
earnings from Canada). It seem this stock may continue to be “volatile”.


October 2, 2005


September is over which means that the third quarter is over and companies
will be busy preparing their next earnings reports. Most of the earnings reports
will be issued in the next three to five weeks. I am generally expecting strong
earnings reports. Exceptions would be companies that face costs in Canada but
get most of their revenue in the U.S. since our dollar’s rise would hurt these
companies. (Oil and gas companies are an “exception-to-the-exception” since it
does not matter much if the dollar hurts you by 10% when your product’s price
rises close to 100%! Possibly we will see some earnings warnings in the next
week or two by companies that not making their expected numbers.


Sept 29, 2005


An edition of the free newsletter was just sent. If you did not receive this
let me know. In any event it can be accessed at the link just below the stock
table above.


Yesterday I bought back the remainder of the ING Canada shares that I had
sold on fears these insurance stocks would drop due to the Hurricane.


Today I added to my position in Wendy’s at $43.90. Our higher dollar means
that I have suffered a currency lost on what I held but at least new purchasers
are less expensive in Canadian dollars. This stock could drop more before
probably rebounding nicely when it finally sells off a portion of Tim Hortons.
However recently it seems to have “support” at $44.


Sept 27, 2005


I bought back most of the insurance stocks I had sold due to concern about
the hurricane impacts. Today I bought back the Northbridge, the Kingsway and a
portion of the ING Canada. Therefore my trades are now aligned with the Strong
Buy ratings on these stocks. I had sold a portion of my holdings out of fear of
a price drop due to the hurricanes. The price drop was moderate and now seems to
have stabilized and so it made sense for me to buy these back. ING Canada seems
to be the most stable of the three and although more expensive on a Price to
book basis I may buy more of it even though it would over weight me in that


Western Financial dipped in the
past few days to about $2.52 which I suspect would be a buying opportunity.
However this is a volatile stock and at any time it might decide to issue shares
at a somewhat lower price and that would drag it down – probably temporarily.


Alarmforce is updated to Speculative
Weak Buy at $3.86. I like the cash generation features of this company. Until
recently it seemed too pricy. It recently released Q3 earnings which were up
16%. However, at the same time it announced a retroactive accounting change that
will cut earnings in half retroactively (ugh!). This was not a total shock to me
since I had discussed the fact that it was deferring marketing expenses rather
than expensing them. I think the strong cash flows and lack of debt are
indicative of the fact that deferring those expenses did match economic reality.
however GAAP accounting is becoming more conservative…  On a very tiny
scale this company reminds me of Telus. Recall that a few years ago Telus’
earnings were very low due to expensed marketing costs to acquire cell phone
customers. But the operating cash flows were strong. I believe a similar thing
could happen with Alarmforce where the earnings eventually catch up to the
operating cash flows to a degree. However, given the low GAAP earnings I am
hesitant to rush in. I rate it speculative Weak Buy at $3.86 but consider it a a
speculative Buy if it should fall to $3.60 or lower. Maybe it will fall when the
Q4 earnings are released because the new accounting will be in place at that
time. Or maybe the recovery in price that it started to make today will continue
if investors focus on the operating cash flow.


In terms of Trading I did pretty well on this since I sold 2/3rds of the
Alarmforce in the Model portfolio at $5.50 (for a 55% profit) and therefore
missed most of the ride back down to about $3.50 that happened in the last few


Sept 23, 2005


I notice the big increase in Telus ( to
$49.87) when much of the rest of the market is not doing well. I last rated
Telus a speculative Buy at $45.65 . Back in December I was rating it higher Buy
at about $29. Recently it was revealed that CEO Darren Entwistle owns 323,000
shares. He has been buying shares with options and then selling only enough to
cover the taxes and has kept the rest. He has also invested in Telus shares from
his savings and through a bi-weekly share purchase program. In my view this is
unusual and is a huge vote of confidence. While I have not updated my analysis,
my sense is that Telus and its shares will continue to do well. One caveat would
be that we don’t know what earnings hit if any Telus might have due to the
ongoing strike. Also we may find that its new customer sign-ups have faltered
due to the strike – but maybe not. It might be safer to wait for the Q3 report
before buying at this point. Or a person could buy some now but be prepared for
a possible price drop if the Q3 report is not good.


Cognos is updated for its Q2 earnings released
this week and remains Buy rated now at $44.07. My sense is that this company is
better than its earnings suggest because of the fact that it expenses so much
research and development.  I am adding to my small position in this stock.
I would note that the stock has fallen a bit on the earnings release. I also
note that the stock price has had strong support at about $40, so hopefully that
is the most likely downside risk (although lower is always possible of course)
although I have no reason to think it would fall and my analysis indicates it
should rise.


As hurricane Rita looms, and as I think about the pressure on consumers due
to higher energy prices I am surprised that markets are holding up as well as
they have been. I continue to review my portfolio for stocks to sell.
Fortunately most of my stocks have lower P/E ratios and do not seem to be the
type of stocks that will be hard hit in a consumer spending recession. I sold
100 of the 300 shares in archipelago that I owned to lock in a small gain there.
(I do not rate Archipelago but have mentioned it as a special situation since it
is to take over the New York stock exchange – although the New York seat holders
will end up owning most of Archipelago. But that deal is by no means certain to


Sept 21, 2005


Thomson corporation  is updated and remains
rated Speculative (lower) Buy at U.S. $38.08 or $CAN $44.50. This company does
not look cheap. On the other hand I believe it is in a good business area and it
appears that earnings are under-stated.


Some reports have indicated that at least some planed Trust conversions will
not be affected by the governments announcement that it will no longer provide
advance tax rulings.



Sept 20, 2005


I was surprised by the $5.00 drop in TSX due to the government announcement
of no more advance tax rulings for potential income Trusts. As I mentioned under
Sept 6, TSX group is probably having an excellent Q3. But it looks like the
stock had a “potential Trust” premium built into it. Another reason for the drop
is that there will be fewer Trust IPOs coming onto to the TSX.


It looks like any company that was trading higher on speculation it would
become a Trust took a hit today. I think these particular companies could easily
slide further as it looks like Trust conversions may be on hold for a while.


Wendy’s took another hit and it looks like it could get worse before it gets


My insurance stocks were down today. AIG and Berkshire announced loss
estimates after market close today. While they were large I don’t think they
were larger than one might have expected. I still think the Canadian insurance
stocks could fall a bit yet in sympathy to the situation in the U.S. However, I
also think these are definitely bargain priced and will do well in the next 6
months. I will be looking for an opportune time to buy back some of what I sold
in this sector. And I continue to hold a big exposure to these stocks.


Sept 19, 2005


Wendy’s chief operating officer “resigned” today. This may be good long term
as the CEO takes over more direct control and tries to get back to basics. But
short term I would think it signals a poor Q3. The question is whether the stock
will respond more to the poor Q3 or continue to be driven by the hoped for
spin-off of Tim Hortons. I am committed to my position in Wendy’s and would look
to add to it on significant further weakness.


Insurable losses from Katrina are now estimated at up to $60 billion. It’s
reassuring that Canadian property and casualty stocks have not slipped any
further on that news. Even Allstate in the U.S. has really not dropped much. I
expect U.S. insurance companies to drop when the results by company are released
and I expect the $60 billion loss figure to rise. But I am not sure that this
will have any effect on the Canadian insurance companies that I rate (though
Northbridge had some direct exposure and Kingsway had possible exposure if
reinsurance companies fail). I still have a good exposure to the sector and I
may buy back some of what I sold but perhaps I will wait until more Katrina
figures are released.


Sept 17, 2005


Canadian Western Bank is
updated and down-rated to Weak Buy / Hold at $39.55. I had started 2005 calling
this a weak buy at $26.58 (see Dec 31, below). I then raised it to Buy on Mar 9
at $27.30 and to (higher) Buy on June 3 at $27.50 (in response to a strong Q2
report). It has now shot up 44% since I rated it (higher) Buy on June 3. I
believe I have consistently said it was a good long-term pick. Right now though,
if I held it, I would certainly take some profit. It’s a great company and I
would not want to bet against it. But it could certainly suffer a pullback to
the mid 30’s quite easily and I would be interested in buying at the mid 30’s or


I have updated my personal portfolio to reflect the increase in cash as I
took profit on certain stocks as discussed below. Very recently I have taken
profits on Melcor Developments and on some insurance stock holdings. My cash
position at 23.4% is the highest cash position ever for me. I  wanted to
get my cash position up partly because of uncertainty about the market direction
and to hedge my bets.


Sept 15, 2005


See my earlier note on Melcor in the model portfolio page (see link above
these dated comments) dated Aug 23 and Sept 10. I let most of my Melcor
Development shares get sold on a stop loss today They sold at $90 as the price
dipped to $89 before recovering to $92.75… Not sure this was a wise move but I
wanted to protect the downside… While I may have left money on the table, I
was up about 130% on my Melcor stocks.


I hope to update several stocks over the coming weekend.


Sept 14, 2005


Hub International is added as a new company
but is only rated Weak Buy at $22.76. It may seem like a waste of time to add a
new company that is only a weak buy. However, if I decided to only add companies
that were Buys and Strong Buys then I might be tempted to over-rate new
additions. Some subscribers had expressed an interest in this company. Also I
believe it does have potential and is worth watching. Hub is an insurance broker
business. This is a completely different (although related) business compared to
actual insurance companies that take the insurance risk. Hub is essentially a
sales and service company. I like this type of business because customers tend
to be “sticky”. It seems to be the type of business that can be slow to build up
but which eventually becomes a strong cash generation machine with little
capital investment required.


As far as the property and casualty insurance stocks go, I am still uncertain
if we are going to see any further down-side from Katrina. The Canadian market
has certainly shown good strength and not just in energy stocks…


Sept 9, 2005


Forzani Group is updated and remains a Sell
at $12.08.


Performance figures are updated. I note that
the model portfolio as well as my own portfolio and the average Buy moved ahead
this past week. The Strong Buys fell back a bit mostly due to hits on the
insurance stocks from Katrina.


My personal portfolio is updated for my trades last week. My exposure to
property insurance stocks was very high and so I used stop losses and a sell
order to reduce my position.  I also sold a portion of my Melcor
development shares to take profit on the huge run-up there. I am glad to have
the cash but I certainly have mixed feelings about letting go of these shares
(insurance and Melcor).


I was surprised that Kingsway Financial (which operates mostly in the U.S.)
announced that due to catastrophe reinsurance its hurricane Katrina losses would
be limited to $2 million. That is very good news and I now wonder if I did the
right thing to reduce my Kingsway holdings. I am almost tempted to buy it back
but will probably resist any temptation to see if its price drops as other
insurance companies get hit. I still have a stop loss that would sell more of my
Kingsway and I may take that out. There is also some danger that reinsurance
companies would fail (and losses would flow back to Kingsway) but I have no way
of knowing how realistic that danger is.


I’ll continue to watch the insurance stocks closely. Again they are very
cheap on trailing earnings and these Canadian insurers are still on track for
record (arguably obscene) earnings this year… But this is tempered by negative
influences on share prices if American property insurance companies get hit


I notice EL-Financial has risen
since my recent rating. I am tempted to buy some of it particularly if I can get
it at $400 or lower. If there is a flight to lower risk insurance companies in
Canada, I would think EL-Financial is perhaps the most conservative and lowest


Sept 8, 2005


Somewhat to my surprise, given the recent uncertainty, my portfolio has
continued to gain in the last few days…


My Northbridge stop loss was triggered today at $31 to sell 36% of my
holding. I’m not sure if I will sell anymore of this since I definitely like it
and suspect any swoon would be short-lived. But I reserve the right to change my
mind and sell a bit more…  Subscribers should consider the insurance
picks to all be speculative as far as movements in the next few weeks… Even
ING Canada with no exposure to the U.S. could be pulled down. At the same time,
these stocks are all very cheap on a trailing earnings basis and so I am
comfortable with an exposure to them. In my own case I had a very heavy exposure
to the sector and that is why I was more concerned to move some money out of the
sector as I await the the katrina impact on these stocks.


Northbridge has announced estimated Hurricane Katrina costs of $20 to $30
million pre-tax. I did not think they were exposed, although my report does
indicate 16% of revenues from the U.S.


Northbridge fell a $1.00 on the estimate ( update, by end of day it was down
$1.75). This makes me more worried about Kingsway which has 71% operations in
the U.S. However, they have only 12% from property coverage, but still they may
have substantial vehicle claims. I still tend to think all insurance companies
will fall temporarily when the estimates of losses by individual companies come
out. I decided to sell some Kingsway (about 32% of holding) rather  than wait
for the stop to possibly activate. Also I placed a stop on an additional
approximate 30% of my recent kingsway holding. (update, I believe Kingsway could
offset much or all katrina losses by releasing “reserves” but they might be
reluctant to do that as they would be accused of massaging earnings)


Melcor a thinly traded company that I no longer cover but was a pick at $51
at the start of this year, jumped to a new high of $98.50 today on thin volume.
I raised my stop loss price to $92 on a portion of this holding. Also placed an
order to sell some at $99.50. I’m up about 150% and thought I should look for
partial profit especially as I no longer rate it.



September 7, 2005


I was pleasantly surprised at the gains today. ING Canada still jumping up.
I’m not sure why it should go up so much now, the last earnings report was great
but why the sudden move up now? It hit another new record high at $45.89, closed
at $45.26 I had a stop on 30% of my position here and now moved the stop up to
$44 from $41.50.   Given I recently rated it a Strong Buy, I expected
ING to go up, but given the hurricane and given a report today that insurance
losses in Ontario due to an August 19 storm will be $400 million it seems odd
for ING to go up this particular week. Wendy’s up nicely today, I had been afraid the slow drift down
would continue. Western Financial up as well.


On Aug 30, I noticed Cognos had declined to
$41.29 and indicated I thought it was a good entry point. Today it closed at
$48.80. It the past year or dips toward $40 occurred about 3 times and were good
entry points. It’s a great company and I am not sure it dip again to the $42
range but if so that tends to be a good price. Normally I don’t bother much with
trying to play dips, I just buy what seems a bargain at a given point in time…
In the case of Cognos I had last rated it Buy at $43.50 so both the fundamental
signal and the price fluctuation history both suggested that the dip under $42
was a good entry point. I would still consider it at $49 but maybe on an
averaging in basis hoping for a dip. Cognos will release earnings on Sept 21.


September 6, 2005


So far the market is certainly not suffering due to any worries about the
hurricane’s effect on the economy. I even checked AllState, an American insurance
company and it had fallen only a small amount last week.


I notice the TSX Group released market trading statistics for August and it
looks they had a very big month. Value traded was an astounding 88% higher than
August 2004, volume was up 38% year on year. August was also much stronger than
July. Although the stock is not cheap it is probably still a reasonable
long-term investment. I had sold half my position at $38.50 and it subsequently
dipped to $36, but based on these statistics it should rise as it it must be
having an excellent Q3.


September 5, 2005


Late yesterday, September 4, I sent out an edition of the free newsletter. If
you did not receive the email then you can check if your email address is on
that list by attempting to add it again in the sign-up area for the free
newsletter on the home page of this Site. If your email
is already in the list it will tell you that and take you to the free
newsletter. If your email address is not on the list, it will be added and you
will be taken to the free newsletter page.


Please let me know if you did not receive the email about the free newsletter
despite your email address being on the list for it. The free newsletter goes
out “from” shawn@investorsfriend.com but with the “To:” address not visible. For
that reason some systems might block it as bulk email. If that is happening I
may need to address that. Thanks for your help with this.


September 3, 2005


In the aftermath of the hurricane and after such a strong run in the markets,
I am feeling nervous about where the market is headed. I’m taking some time this
morning to think about my own portfolio. I’ve updated my personal portfolio


Obviously the insurance pay-outs on the Gulf coast will be huge (although
much of the flood damage many not have been insurable). This should not directly
affect Northbridge, ING Canada or EL-Financial. But Kingsway may have some
exposure. I used to cover Fairfax Financial and I saw an estimate of a bit over
$100 million for them. I also saw a comment that Manulife has some property damage
exposure and this would be in addition to any life insurance pay-outs. The first
estimate I heard of total Gulf coast insurable losses (across all insurance
companies) was $15 to $25 billion. That figure was maintained even when the City
flooded. It’s hard to have a feel for such large numbers but I said, once I saw
the City flooded, my guess would be more like $100 billion. Now given the slow
response and the looting (although I think riots are usually not covered) and
the fires, I would guess it will be well over $100 billion. As far as the total
economic loss, that will probably be impossible to estimate and impossible to
measure. Perversely, there will be some economic benefits in the rebuilding. I
think the response has been shamefully inadequate.


If U.S. property insurance stocks start to fall due these costs I think the
Canadian companies might fall in sympathy. Any fall in Canada might be
short-lived as I still think these companies are well on track for an absolute
record profit year in 2005.


I rarely use stop-losses but I am going to be disciplined here and place some
stop losses under these Canadian insurance stocks to try and protect my gains
and my capital and move my cash allocation up beyond my current 5% cash level.
The danger is that these stocks will dip down, I will be sold, and then the
stocks will rise. Therefore I am only going to stop-loss 30% to at most 50% of
my holdings in each stock. And not that I have a very large percentage exposure
to these stocks, I might not be thinking about stop losses if I had only say 10%
of my capital in this sector.


I have now placed these stop loss orders


Northbridge to sell 36% of my stock if the price drops to $31 but sell no
lower than $29


ING to sell 30% of my stock if the price drops to $41.50 but sell no lower
than $40


Kingsway to sell 32% of my stock if the price drops to $20.50 but sell no
lower than $19.00


It’s hard to make these decisions, what percentage to sell?, what price to
set the stop at – how far below the last trade price?, what to set the lower
limit of the sale price at? Lots of opportunities to set it wrong.
Psychologically it might be easier to do nothing and just hold the stocks for
the long run and ride it out and blame any dip on unforeseeable events. But in
this case I wanted to be proactive and move to protect part of what I have
against losses. Hopefully the stocks will stay up and these stop loss orders
will expire in about 30 days unfilled.


Also as I think about selling a portion of these stocks, I don’t have to
worry about tax consequences since I hold these almost entirely in RRSP
accounts. In a taxable account I would be more inclined to ride out an expected
short-term dip in these stocks.


And of course maybe there will be no dip. Maybe one of the effects of the
hurricane will be that people all over North America decide to make sure that
their insurance is topped up to match the real estate gains, that would
obviously increase revenues for the industry.


September 2, 2005


Performance figures are updated. I am
pleasantly surprised to see that the performance has improved since last week.
Given the events of this week, and with no exposure to energy in the Buy  /
Strong Buy picks, it is quite gratifying to see the performance continue to be
so strong. The consistency of the picks is evident in the 2005 chart on the
performance page, where you see that fully 16 out of 21 stocks moved in the
predicted direction – and of the 5 that moved the wrong way, only 3 did so by
noticeable amounts.


September 1, 2005


I have to think that the impact of the Hurricane combined with high gasoline
prices and high oil and natural gas prices will have a negative impact on many
stocks. Gasoline prices in Alberta jumped about 15 cents per liter today. Given
the jump in gasoline and the chaos in the New Orleans’ area, I was expecting the
market to fall today. However things held up well with the DOW down a little and
the TSX up due, I understand, to oil stocks. If this were to spill over and be a
catalyst to stop the rise in real estate prices then clearly things could get a
bit ugly.


It’s always very difficult to judge the direction of the overall market and
certainly surprise events can happen. My goal on this Site is to rate individual
stocks. I don’t think I can give much guidance about trying to time the market
since it depends so much on individual circumstances.


I find myself wishing I could have a larger cash component to take advantage
of buying opportunities . But at the same time as I analyze stocks I see stocks
I like, so it’s hard to be in cash.


If the market does turn down due to higher gasoline prices and a loss of
consumer confidence, then logically consumer discretionary stocks would be among
the hardest hit. Almost all stocks would feel a negative affect. But it seems to
me that the property insurance stocks would likely hold up well since this is
not a discretionary purchase.


I sold my Manulife shares this morning. It’s not that I don’t like the stock
but it’s more that psychologically it was one I was willing to let go of to
raise some cash. So I sold this not to take profits but just to get some cash in
the portfolio.


In terms of taking profit, my usual approach is to not take profit if I still
think the stock is a Strong Buy or (higher) Buy. If it’s a Buy but I have a
large position, I might trim it. For Weak Buy / Holds, I consider selling if
there is somewhere else I want to put the money. Obviously I tend not to hold a
stock I rate as Sell. Unfortunately taking profits is an exercise in psychology
as well as analysis. When thinking about selling a stock I have to consider how
it will feel if I sell and the stock keeps going up. I also have to consider how
I will feel if I fail to sell and then the stock drops materially. The fact is
that the psychological factors do come into play whether I like or not. I think
that these psychological factors are different for each investor. Tax impacts
also have to be considered.


Overall, while a certain stock might be rated Buy each investor has to also
consider a host of individual factors to determine if he or she should be a
Buyer or a seller. That is one of the reasons that I describe my ratings as


If the above seems a bit confusing, that’s because the decision to sell or
take profits is a very difficult one, often more difficult than the decision to
Buy. Some subscribers asked me to address the topic and so I have attempted to
do that here.


August 31, 2005


Loblaw Companies Ltd. is updated and upgraded to Buy at $69.38. I had not
looked at it since Q3 2004. Since then it reported a very strong Q4. But in Q1 2005
had a fairly large restructuring charge which disappointed the market. This
has done extremely well over the past number of years., The stock
meanwhile has only done moderately well. This was because the P/E had gotten up
towards 30 and has now regressed to a more sustainable level of about 19.3. The
result is that the stock is now reasonably valued. Management has a great track
record and seem to be focused on earnings per share growth. While the price was
recently still slipping, I believe the current price represents a good entry
point to Buy. This is not a stock that I would expect a huge gain on but I would
not expect a large loss. It should add stability to a portfolio.


I find it interesting that with a market cap of $19 billion, it must surely
have a number of wealthy share owners in addition to the wealthy controlling
Weston family. However, this is the type of stock that active traders (such as
many on Stockhouse.ca) tend to ignore. I tend to think that the wealthy people
who own this might be a better group to emulate than your average day trader.


August 30, 2005


I notice Cognos down  $2.06 today to
$41.79. I believe that would likely be a good entry point to Buy the stock.
Wendy’s continues to sag after the big
run-up. I thought it might sag because the wait for the spin-off of a part of
Tim Hortons is long. The Hurricane in the U.S. will also hurt August sales,
although I believe last August also suffered so maybe it will be okay by
comparison. I am tempted to add to my Wendy’s especially if it drops another $2
to the $45 range, but  in any event this stock is likely to require
patience in the next six months.


August 29, 2005


Well it seems my decision to sell half the energy index in the model
portfolio was not such a wise a move. I think if I had had a 30% weighting in
energy it might have been a good idea, but I only had about 12% in XEG so
probably I should have hung on.


Possibly my property insurance picks will come under some pressure due to the
Hurricane. But the only one with any possible exposure is Kingsway and even
there I think it would be a very small exposure.


August 26, 2005


E-L Financial is updated and upgraded to Speculative (higher) Buy at $392.
This stock is a bit thinly traded at an average of 275 shares per day, that does
represent about $11,000 per day. Also given a market cap of $1.6 billion, thin
trading may not be as much of a concern as with tiny companies. I would expect
institutional players to step in if they saw the stock move too far simply due
to thin trading.


I had considered removing this stock from list due to thin trading and
relatively poor disclosure. But disclosure seems to be improving. The bottom
line for me is that this is a profitable company with a strong history and is
trading at 83% of book value (after adding back a deferred realized gain). At
some point maybe the family will decide to sell off some or all of the company
to others and that would likely be at a good gain. It might be a good stock to
hold if the market turns down because it will tend to move with insurance
profits and not with the general market. I would be comfortable holding this
stock. It does have a volatile history, but probably a good bet for the


An annoying problem that was causing subscribers to receive duplicate emails
from me when a payment was made through PayPal, has now been resolved.


I noticed yesterday an announcement that the Shaw family had purchased an
additional 1 million shares of Shaw
Communications and intend to continue such purchases. That is roughly $25
million injected by the family and or entities they control. That adds about
4.5% to their holdings. The family controls the company through multiple voting
shares.  This seems like a very positive signal. The family seems to think
the shares are a good investment. The usual pattern would be for the family of a
company like this to be selling some shares (for diversification, estate
planning) and not buying. Possibly they want to get their ownership higher in
case they eventually are pressured to get rid of the multiple voting shares.
While my report notes some concerns about the company, the insider buying is
certainly very impressive and I take it as a very positive signal.


August 24, 2005


Couche-Tard is updated and remains a
Speculative (lower) Buy at $21.58. It has a very strong history. Right now it
does not seem cheap. Gasoline margins may become more competitive with the
recent focus on higher gasoline prices. Nevertheless it is a strong company and
I would not bet against it.


I added to my position in Cryptologic today.


August 23, 2005


Performance figures are updated.


My property and casualty insurance stocks certainly did well today. This was
nice to see particularly on a day when the markets were down.


I took some profit on IGM today mostly to raise cash to possibly move into
stronger picks. I still like IGM but just wanted to raise some cash.


Cryptologic is updated and upgraded to
Speculative (higher) Buy at $U.S. $18.01 or $ CAN $21.65. The stock has fallen
45% since I last rated it which was (highly) speculative Buy at $32.76 (use
Control-F to search for previous comments  on Cryptologic below). Some would
ask, why upgrade a stock that has fallen so much. I would counter that the fall
in price is the reason that drives the upgrade because the bad news that caused
the price drop seems to have caused an over-reaction. One of it customers (and it
only has about a dozen customers) is planning to stop using Cryptologic software
and develop its own as early as early 2006. This would be a concern but not a
huge concern unless other customers did the same. Meanwhile we still apparently
have a highly profitable company with fairly fast growth and now available at a
P/E of 16. Further it has no debt so there appears to be no danger of a
near-term collapse.


To me it looks like a good bet at  this price. I had indicated earlier
that this was a speculative stock and that I would not be comfortable with a
large position. I think that was a good strategy as I can now add more at this
price and still not be overly exposed to it. I call it speculative and given the
price trend I guess that is appropriate. But really at this price it does not
seem overly speculative to me. One strategy might be to wait for the price to
stabilize or jump 10% before buying. I usually ignore price trends in favor of
fundamental analysis but nevertheless buying into a downtrend is usually
considered dangerous.


I note Melcor (which I no longer cover) has continued its big run-up.
Long-term I have little concern about holding it but psychologically it would be
a real downer to see the price drop and to have failed to take more profit at
this price. Today as of 2 pm Eastern, it had been down $1.24 on 75,000 shares. I
find it encouraging that 75,000 shares could be sold on this thin-trader without
much of a price drop, and Now I notice the price is actually back up. I decided
to enter a stop-loss order on my account with a price of $86. I also put a stop
limit price of $85, which means if the the price declines to $86 my order
becomes a sell but if the price goes below $85 I will not sell. Perhaps I should
use a wider spread on the two numbers but this is what I did for now. I will treat the
model portfolio the same. That way I can continue to hold this but be protected
on the downside. I set the stop a reasonable distance below the current price to
protect from getting stopped out on minor volatility.


August 21, 2005


The Model portfolio (see link just above) has been updated with a number of
changes to better align it with the current stock ratings.


August 18, 2005


Home Capital is updated and upgraded
to Weak Buy at $38.08. This is a company that I first covered as a Buy at $7.43
in April, 2002. I may good money on it buying on the way up but eventually
taking profits and finally selling all the shares I had. I was concerned the
valuation was too high. But given the continued strong performance and a recent
minor pull-back in price I now rate it Weak Buy. It’s a great company and
although it is not cheap I would be comfortable holding some at this price.
However, given a lack of cash position in my portfolio, I have no immediate
plans to Buy.


An interesting news item today was that Google will raise about $4 billion by
selling additional shares. In my view this is a very smart move. Given it’s
profitability and growth, Google may or may not be over-valued. But it’s share
price has clearly gone up a lot. By selling the shares, Google raises a large
amount of cash and further insures it’s future will be long, no matter what its
stock price ever does. The move could dampen the share price but that is small
price to pay to get their hands on $4 billion. Contrast this with Nortel which
did not sell many shares when it’s share price was flying high. Had Nortel done
so, it would have easily emerged from the tech wreck with no debt and lots of
cash in the bank. Instead it ended up having to cut it’s dividend. What Nortel
did in those high-flying years was trade it’s stock for ownership in other
companies at inflated prices. It mostly wanted the intellectual Knowledge of
those companies, but ultimately fired a lot of those staff (who presumably had
much of the knowledge in their heads)  when money ran short.
In summary Google makes another smart move and reminds me of how incompetent
some other company managers are in comparison.


Another interesting move in the market today was long-term interest rates
heading down again. It’s hard to believe they can stay down with short-term
interest rates being raised so much… but it is good for stocks.


August 17, 2005


Sino-Forest is updated and remains a
(highly) Speculative Strong Buy at $2.56. It has fallen since I rated it the
same at $3.03 in May but if the market was always correct then we could all
stick to index funds and exchanged traded funds…


Given the strong run-up in the price of oil and now seeing a pull-back, I
will notionally sell half of the “XEG” (energy index) in the model portfolio at
tomorrow’s opening price. This will lock in a gain there. I don’t have any
rating on oil or the XEG index, but I just feel more comfortable locking in part
of the gain at this point.  I am also making a number of other notional
trades in the Model portfolio to reflect recent ratings changes and insure I am
holding all the strong Buys in there (as well as some Buys). I will update the
model portfolio for these trades in a few days.


August 16, 2005


Canada Bread is added as a new
listing rated Buy at $50.10. I have not been able to add very many new listing
lately and although performance has not suffered for it, I have taken steps to
address this. I now have another CFA charter holder who will work on reports
using my templates and methods. I will review and finalize each report he works
on. Canada Bread is the first of these new reports. MapleLeaf Foods owns 90% of
Canada Bread. Some years ago I covered MapleLeaf Foods and was looking forward
to a turn-around.  I got tired of waiting although subsequently Mapleleaf
also started to finally perform.


Western Financial Group is
updated and remains a Speculative Strong Buy at $2.47. While the stock has
proven volatile, the company itself has been progressing steadily. Over a the
next few years I believe that there s a substantial up-side potential here and
relatively little down-side risk (although there are never any guarantees that
any  particular company will survive if something very unexpected happens).


I have been asking myself if this is “a no-brainer”.  A “no-brainer”
stock usually occurs when a profitable growing company is available at or near
book value and with a low P/E. This stock is just a bit above book value and the
P/E is not that low. It still has to prove its potential, and it has some risk
so I would say it is NOT a clear no-brainer but it does seem like a good value
oriented pick to me.


Another way to play this stock is to buy its convertible debentures that
trade on Toronto as WES.DB.A. These pay a 9% coupon and, I understand, are
convertible at $2.50 They are due to pay out at par in about 18 months. The last
trade was at 105 which means you would effectively have paid $2.625 plus the
impact of commissions for the shares if you buy and convert. A reasonable
strategy might be to buy the debentures 105 and then convert in about 18 months.
Hopefully the shares are then higher than the conversion price. You get a yield
while you hold the bond and you are protected against a drop in the share price
although you do take the risk of not getting your money back if the company for
some reason collapses. (At maturity they are allowed to pay you out in stock
based on a 5% discount in your favor rather than cash but you should be able to
sell the stock to get the principal back). Overall, compared to the stock I
think the convertible is a good strategy at maybe 105 to 110. I don’t think I
would want to pay more than about a 10% premium (110) for the convertible.
(Although even 10% may be low for what is effectively an 18 month option) The
105 price may have occurred when the stock was lower in price. The debentures
appear to be exceedingly thinly traded so that may be a problem. Check the facts
(especially the conversion price) on the debentures independently or with your
broker, since convertibles tend to be complex. I understand the company cannot
force conversion on these until the maturity in Feb 2007 or unless the stock
price exceeds a $3.10 average for 20 days. I got a bit gun shy about convertible
debentures since the TELUS convertibles I bought ended up being converted much
earlier than I though was allowed due to what I think was incomplete information
in the TELUS annual report – so be careful with these.


August 15, 2005


Western Financial Group announced strong growth today although on a per share
basis the growth was modest. The market did not show any reaction to the news. I
think the report bodes well for the stock. The company is trying to grow very
fast and unfortunately has had to issue shares to do so. I believe that the
earnings are probably a bit under-stated by the expenses of being in start-up
mode. I like the stock and will be looking to buy more. Still, it is speculative
due the small size and aggressive growth. I will update my report in the next
day or so.


IGM Financial is updated and Rated
Buy at $41.30. IGM Financial was formerly know as Investors Group before it
acquired McKenzie Financial. It is a large mutual fund manger and sales
organization. The earnings per share graph is a thing of beauty. It is
surprising how steadily the earnings have grown since in theory it should have
been badly hurt as assets under management fell with the stock crash of the
early 2000s. But they manage through it using a combination of sales and cost
management. This company is controlled by the Desmarais family who also control
Great West life. They also control Power Financial and Power Corporation which
are largely holding companies. These companies all have a strong history on
steadily increasing earnings and dividends. IGM is not a screaming buy and faces
some risks as noted in the report. Still, it is reasonably priced and hitching
on to the Desmarais family’s  coat tails has a history of working out well.


August 13, 2005


Long-time subscribers may recall that I removed Melcor Developments from the
companies covered here because it seems to be too thinly traded.  Early
this year I had it rated (higher) Buy. I am very leery to rate highly a thinly
traded stock and put it on this Site. The reason is with thinly traded stocks
just a few investors could drive the price up. I am trying to predict which
stocks should go up, I am not at all in the business of trying to drive stocks
up. The stock has continued to rise very strongly after I removed it from my
list, but on mostly very thin volume and with just 2 days of significant volume
(Over 20,000 shares just twice in the last 3 months, usually well under 1000
shares per day).


However, I thought I should provide some kind of update for those subscribers
who may hold it. Basically what has happened is a valuation “multiple
expansion”. It used to trade at almost ridiculously low multiples to book values
and to earnings. Now it trades at 1.7 times book and 12.5 times earnings. Those
are still not expensive multiples. The bottom line for me is that I am going to
continue to hold this stock and not take any more profits (I did unfortunately
take some profits a while back as I would have noted on this Site. And perhaps
if I had not taken some profits earlier I would now). Still, given the price
increase on low volume there is some danger it could easily slip back to say
$70. But there is also a good chance the price will be keep moving higher. So I
am going to sit tight. There is always a chance they will do something like
split the stock, or turn into an income Trust. Also with a market cap of $266
million, Melcor may be benefiting from the fact that it is now large enough to
attract some institutional buyers like small mutual funds.


Performance figures are updated.
2005 detailed performance figures are
available only to subscribers.


August 12, 2005


ING Canada is updated and rated Strong
Buy at $40. I sold some Kingsway and bough more ING this morning at $39.34. I
had much more Kingsway than I did ING and I simply wanted to get that into
better balance. ING looks like a bargain to me. However, the difficulty is in
predicting how fast auto insurance rates will drop and when drivers will resume
a normal level of claims. Most Canadians were a little shell-shocked at the high
premiums and various horror stories and most are very reluctant to make a claim.


Comparing ING to Kingsway, ING is less risky since it insures standard auto
and commercial. Kingsway is into higher risk drivers and commercial trucks. ING
is also operating only in Canada. ING has the best exposure to the auto market.
On a risk scale I would place Northbridge between the two. ING appears to be the
cream of the crop, perhaps the best managed. It shows the highest profitability
but also trades at a higher multiple to book value. I like holding all three.


ING only came available to trade last December 2004, I did not immediately
place it on my Site, although I announced I was buying at the IPO. I hesitated
to add it to the Site because I already had so many insurance companies. But I
am glad I did add it in June.


So far, ING is the property insurance company that is best doing what I had
predicted for this year, (reaping large profits due to what are frankly still
excessive insurance rates as the market over shot the mark with all its
increases and due to low claims for accidents and some restrictions on pain and
suffering type awards and due to booking gains from 2004 and 2003 as they now
realize the rates were too high then.) Most of the reason that ING is best doing
what I expected is that it has the biggest percentage exposure to Canadian auto
insurance. Also I believe that Kingsway is simply trying to delay recognizing
some of its profits by keepings its future claims estimates higher than they
need to be. So going forward it may be Kingsway that will do best. As I say, I
like to hold all three. (Kingsway, Northbridge and ING). Given the higher risk
of Kingsway, if I had to pick only two, I think I would drop the Kingsway first,
but it would be a tough decision.


August 11, 2005


ING Financial came out with stellar results
today. Obscene profits really, although they say it won’t last but they seem to
indicate the next 12 months should still be good. I have not yet updated my
report but I am confident the rating will remain a Strong Buy or (higher )
Strong Buy. This was my highest rated stock of late. I am considering possibly
shifting some of my Kingsway or Northbridge into this stock. This company is
fairly new as a traded stock. But it is the largest property and casualty
insurance company in Canada. It really appears to be the best one. For example,
not as risky as Kingsway. If I had not already owned so much Kingsway and
Northbridge I would have had more in this stock. I had already shifted some of
the Kingsway into this one some months ago. Even though it seemed to be the best
of the insurance companies I still was a bit reluctant to sell my Northbridge or
Kingsway to move into this one since I like those two a lot as well.


Having expressed caution yesterday about the impact of energy prices, today I
had a good gain on my portfolio even as oil rose again. I’ll just keep updating
my reports and trying to make sure I am not in things that seem over-valued.


I no longer rate Melcor although it is in the model portfolio and I still own
some. It has really jumped. I have not updated my analysis even for my own use
but I may sell some of what I have. So far, I had already taken profit many
months ago and I was just letting the rest ride. But I think it might be prudent
to trim some. But also I am wondering if the market is signaling some kind of
announcement so again I have just let it ride. I just wanted to let any
subscribers who hold it know what my thoughts are. I worry that with it being
thinly traded it could also drop quickly…


August 10, 2005


Telus is updated and rated Moderately
Speculative Buy at $45.65. I was certainly on the right track when I
re-introduced Telus to the Site as a Speculative Buy last October 6 at $28. Now
the price is well up but so are the earnings. I still expect earnings to grow
fairly quickly as the cash from the cell-phones rolls in. As indicated in the
report Telus is still signing up pretty staggeringly large numbers of cell
customers. Once the advertising costs and commissions of sign up are paid for
those are definitely high profit customers. I hold some of the non-voting. I
don’t think I will buy more right now but I regret now that I sold some earlier
when the strike spooked me a few months back. The market certainly seemed to be
shrugging off the strike for now. I had to call about my internet line on
Monday night and the I got through easily.. so maybe the strike is not impacting
it that much although managers cannot work the long hours forever…


Looking at the overall market, I am seeing some contradictory things. The
U.S. Fed funds over-night interest rate was raised again to 3.25%. Yet the 10
year Canadian bond is barely off its recent 40-year lows and is around 4.05%.
Oil is around $65 per barrel and yet the economy shows no signs of slowing. I
just wonder when a combination of moderately higher long-term interest rates and
the high energy prices are finally going to start to slow the economy. In
anticipation of that I would consider selling some stocks. In particular the
stocks that are trading on yield such as perhaps utility stocks and some banks
and slower growth Income Trusts could get hurt first. When I look at my
stock list though I don’t think the Strong Buys and Buys there would be among
the first hurt. So I am just saying I am getting more cautious but I have not
yet decided which stocks if any to sell or take partial profits on.


August 9, 2005


Regarding Kingsway Financial, clearly the
market does not share my enthusiasm. But sometimes one has to be patient. While
losing some ground on Kingsway I have recently been making huge ground on Melcor
Developments. This was in the model portfolio and rated (higher) Buy at the
start of this year. Unfortunately is is very thinly traded and when it was
jumping a lot earlier this year I no longer felt comfortable rating it as I felt
my rating and my subscribers might be driving the price up. Perhaps I was
over-cautious as it has certainly continued its ascent, after I stopped rating
it, and is  now up over 60% this year. However when I first covered it as a
Strong Buy in late 2002, it did not really do too much for two years and had
some dips before finally starting to rocket up in 2005. The point is that with
value -priced stocks patience is usually required and sometimes (but not always)
well rewarded.


Regarding Wendy’s it seems to be grinding
down now as we settle into a long wait for it sell off a portion of Tim Hortons
in an IPO early in 2006. Hard to say where the stock will go in the meantime. It
will depend on their same-store sales each month and earnings reports. I don’t
have any plans to take profit but I would not argue against a strategy of taking
some profit. If I owned none, I would consider nibbling at this price
recognizing that it could fall and provide a better buying opportunity ahead.
Clearly patience is required to hold here.


I notice DALSA had an announcement after
market close today of a partnership with Xerox on some work. I would definitely
consider buying or adding to this stock.


Comment on Air Canada... As someone who has been no fan of either the
old Air Canada or the new Ace Aviation, it is only fair that I give them some
credit for the earnings posted in Q2. I mentioned under July 8, I was expecting
a profit from them largely because of a one-time gain in selling off a
portion of AeroPlan. Sure enough they had a net income of $168 million. More
impressively even after deduction $190 million gain on AeroPlan and deducting
the tax on that and adding back a large foreign exchange item it indicated and
adjusted net earnings of $116 million or about $1.00 per diluted share. So
that’s maybe not too bad for Q2. Q3 is peak season and should be better. It
appears too that Air Canada has some good financial advisors and they are
figuring out ways to make money by selling off certain parts of the company.


Still.. I saw on Saturday a big advertisement for a Seat Sale for flights all
the way to December and with prices as low as $209 plus taxes and fees one-way
from, for example Edmonton to Orlando. With a stop in Toronto that’s just $105
per “stage length” and I’m almost certain that would be below the average seat
cost. Now maybe there won’t be that many of the cheap seats. But I really wonder
why they found it necessary to offer a seat sale. Seat sales are what bankrupted
Air Canada so recently. In my opinion seat sales like that cheapen the product
and setup unrealistic expectations and result in over-crowded planes. They might
be better off to leave those seats empty rather than sell them at low prices and
annoy the people who paid a more normal price.


Overall I have to admit that ACE Aviation will probably do okay for the next
while, but I still worry about irrational pricing tendencies in this industry. I
have no rating on ACE shares and no plans to analyze it at least not until its
gets a few more profitable quarters under its wings.


Comment on CN – I live not too far from a huge recreational lake in
Alberta where CN dumped some 750,00 liters of oil into the water. This is
looking very bad for CN, they are coming across as quite slow and unprepared for
the clean up. Things were already bad enough when after 5 days CN announced that
one of the cars may have carried a far more toxic and water soluble substance
and the Health Authority ordered people not to even water their grass with this
water pending investigation. CN came off as not knowing what is on its train.
The cottage owners affected include many rich and powerful people. This is going
to cost CN (and /or its insurance companies) plenty. I could imagine the figure
exceeding $100 million. But that may not be a huge big deal to CN which made $1
billion in 2004. I imagine too that CN may be forced to adopt better controls
over what it is carrying and this could add to expenses and even slow their
operation. I generally like CN but I am a little cautious on it right now. (Also
making matters worse was a second spill into a river in B.C. two days after the
lake incident.)



August 7, 2005


I felt a bit a of a chill in the market on Friday, lot’s of red figures.
Possibly the strong run we had based on the Q2 earnings is now about to end /
reverse. Certainly I don’t think we are in for a big drop in the market but
still I will be looking for opportunities to take some money off the table.
Possibly I would even trim holdings in some stocks that I like just to get some
cash position.


Manulife is updated and upgraded to
Speculative (lower) Strong Buy at $62.62. This means I think it is a Strong Buy,
but just barely a strong buy, I could have called it a (higher) Buy. There a re
always lots of a factors to consider in pinning down a rating for a company.
That is why it is wise for subscribers to look at the value ratios I give and
look at my rationalization for the rating to see if you agree. Also investors
have to consider how each stock fits into their existing portfolio. For example
an investor with a lot of other life insurance stocks might not want to add
Manulife, but someone with nothing in that sector might want to add it.


In the past I have pointed out that Manulife is Canada’s most valuable
company by stock market value. In fact I said it is a World Class Company and
maybe just about the only example of a World Class (and world size) company that
we have. Despite its size it has managed to grow rapidly. WE may see periods
where its price fall back but over time it will probably continue to be a good


Last quarter I expressed a lot of concern about the actuarial estimates of
the company. Strangely enough this came up for a lot of discussion in th=is
quarters conference call. And I was reasonably satisfied with Management’s
answers. They seemed more sure of themselves and they seemed confident. On that
basis I feeling better about their accounting. But the company remains
essentially a black box and therefore I few it as speculative since a change in
actuarial assumptions could cause a big hit to earnings at any time.


Sico is updated and continued as (lower)
Strong Buy at $15.00.


I also updated two cells of the Kingsway report to update its geographic and
end-user market segmentation. Also under  quality of assets I noted that
the company does not “discount” its liabilities although it is entitled to do
so. I estimate roughly that this understates book value by perhaps 5%.


August 6, 2005


Stantec is updated and remains rated (lower) Buy at $36.78. This stock has
really jumped lately based on a pending large acquisition, the fact that it just
got listed on the New York Stock Exchange on Friday and the based on an
extremely good Q2 earnings report. One concern is that the Q2 net revenues were
only up 7.5% while earnings jumped 60% (in fact 103% before adjusting for a
one-time gain on bad debt). The gross revenues were up and administrative
expenses as a ratio were down. There did not seem to be a good explanation and
so to some degree the earnings in Q2 may not be entirely sustainable. Still, the
quarter was undeniably great and hopefully they can keep the margins up towards
this level. And, this is a great company with a great track record. Probably a
good long-term investment although it is getting more expensive on a price
earnings basis.


I first rated Stantec a Strong Buy at $5.00 in
late 1999 ($10.00 prior to the stock split, $5.00 adjusted for the split). Sadly
I sold in the low $20s but I tell myself I put the money in a good place. I’m
trying not to let the fact that I sold it early influence my thinking now,
however, I seem to have been underestimating the company in the past few years.
Due to possible volatility, I would average in and hope to take advantage of any
dips. I don’t have plans to buy it personally.


Kingsway Financial is updated and
continues to be rated Strong Buy now at $21.39. The stock fell yesterday despite
a pretty good earnings release.  On the surface this certainly looks like a
bargain with a P/E of 8.1 and a Price to book of 1.36 combined with a 12 month
ROE of 16.8% and ROE in 2005 of close to 20%. Naysayers would point to risk and
point out that earnings are cyclical and subject to estimates. But as I study
the report and listen to the conference call, I have every indication that
earnings are conservatively stated at this time. 2005 is expected to be a record
earnings year. Yes, earnings could decline in 2006 with lower insurance prices
but they may be able to offset that with positive reserve releases from 2004.
Also investment yields on their short term bonds may be higher with higher
interest rates. Most of the time large established businesses with apparent
strong profits are not available at such a small premium to book value. And if
you look at the earnings per share graph it is very strong. It does seem that
patience will be required as the market seems skeptical. However, I believe that
patience will be rewarded. There are never any guarantees but it seems to me
that this stock has a reasonable chance to double kin a three year period, and I
don’t see much reason to think it will decline significantly. I have large
exposure to it and continue to hold that. Given my total exposure to the
insurance segment I probably will not add to my position.


August 4, 2005


A good earnings report from Kingsway, after the market close today. I
understand it beat expectations but I was hoping it would be better. It should
go up maybe a little tomorrow but I don’t expect a big jump. I continue to
suspect that they are using their discretionary judgment to keep their
“reserves” higher (they have pretty much said this) which essentially hides
earnings for release on a rainy day.


Manulife and Cryptologic released earnings during the trading day.


I will review the earnings releases and update my reports on these three in
the next few days.


August 3, 2005


Tomorrow, Kingsway will report earnings as will Cryptologic. Hopefully these
will continue the trend to good earnings reports that most companies have had
with the Q2 reports.


As subscribers know, I don’t cover any oil and gas stocks and seldom comment
on that sector, although I did include an exposure to it in the model portfolio.
Lots of commentators are suggesting the sector will stay red hot. On the other
hand some analysts are pointing out that oil has had a huge price run and that
this in spite of the fact that new supply is coming on and there appears to be
no real shortage of oil. Under this view it would be wise to take profits in the
sector. I am toying with the idea of notionally taking profits in the energy
component of the model portfolio by selling 50% of the XEG holding in the model.
I think that would be prudent. Even if it turns out to be a bad moves that does
not change the fact that is probably best not to get over-exposed to energy
unless one has good reasons to be very confident that the sector will keep



July 31, 2005


Wendy’s is updated and is rated Weak Buy /
Hold at $51.70. Wendy’s is now being valued as a “special situation” since it
plans to sell off 15 to 18% of Tim Horton’s as a separate stock. The market now
appears to realize that Tim Horton’s is worth a lot more on its own than hidden
inside of Wendy’s. It might still be reasonable to Buy Wendy’s at $52 and hope
for a run to $60 by the time of the IPO. The other reason to buy the Wendy’s is
that you would likely with a few years receive some Tim Horton shares when
Wendy’s spins out the remainder. I’m not sure I will want to buy the Tim Hortons
at the IPO because it may be pretty highly priced.


Some of the American analysts clearly still don’t “get it”. One of them
questioned whether there would be enough appetite in Canada for the Tim Horton
shares given that institutions here already own a lot of Wendy’s. This is
absurd, there will be a huge demand for the Tim Horton shares and I think pretty
much every Canadian would agree with that.


The one down-side is we have up to a 9 month wait for the IPO of Tim Hortons
and during that time the Wendy’s shares could drop back. But I am certainly
willing to ride that out. If anything I would use a price drop, if it occurs, to
buy more Wendy’s. Remember too, that as Canadians we face currency risk on this
stock should our dollar keep rising.


Forzani Group is updated and rated Sell
at $12.77 (I would Sell if I owned it but I am not indicating that I would Short
Sell it, a short sell is very different than a Sell). The Forzani group is
Canada’s largest retailer of sporting goods, operating stores from coast to
coast including Sport Chek, Coast Mountain Sports, Sport Mart, National sports,
and Nevada Bob’s . Also a franchiser under the banners Sports Experts,
Intersport, RnR, Atmosphere and Econosports. The numbers indicate the stock is
over-valued. There is always the chance that they will turn it around and the
earnings will grow rapidly, but as of now that does not appear to be happening.
If I owned it I would sell and move on. (In fact I did own it and sold my shares
a few years ago at $16.95 as indicated on this Site at that time).


July 30, 2005


Dalsa is updated and remains rated
Speculative (higher) Buy at its new price of $12.50. It was definitely
disappointing to see this fall about 25% on Friday. This stock has a lot of
analyst coverage and my sense is that the analysts were caught off guard by the
the fact that the sales outlook is lower and the profit outlook is quite a bit
lower. I have to wonder if this drop is not an over reaction, but in any event
this is the new price.


I continue to think that this is a great little company. But it seems it will
be volatile and it seems it may take some patience. Overall, although I am
disappointed with the lower sales and lower profits and particularly the sharp
price drop, I still think the outlook is good. I’m comfortable holding a small
position in it. I may add to my position or I may wait for another quarter or
two to see if things start to turn around.


Performance is updated for an excellent week.


July 29, 2005


I was expecting to have a good day in the markets today. And I did, but for
unexpected reasons. The market once again yawned at Northbridge Financial’s
great results. But Wendy’s had an announcement that sent it up 14%. Melcor which
I hold but no longer cover due to thin trading liquidity also had a great day.
Despite a big fall in Dalsa, I still had a really good day to cap off an
excellent week. Performance figures will be updated tomorrow.



July 28, 2005


Northbridge is updated and continues
at a Strong Buy now at $31.00 Earnings were released after the close of market
and were, once again, very good. The price should jump a few dollars tomorrow
although in the past the market has refused to move much, despite the strong


Here we have a company trading at a trailing price earnings ratio of 7.5 ,
earning 24% ROE and selling at 1.62 times book value (or 1.38 time book value
adjusted for unrealized investment gains). On the face of it this is incredibly
cheap, a real “no brainer”. I am then forced to think of why it can’t be as good
as it looks and yes there are some reasons that it is not as good as it
looks. Insurance prices are declining. Some of the profits are from realized
gains on investments and these are volatile and generally not considered
repeatable (even though they had positive gains in 7 of the last 8 quarters).
Insurance stock analysts tend to focus on these provisos and so are conservative
in the outlook for this stock. My view is that it is a great investment. I don’t
think there is much chance it would triple in the next four years, but I think a
double is possible. And given the book value ratio  I very much doubt it
would be a loser if held for at least four years. And I expect it to do well in
the next two quarters and therefore a quick 30% gain here, is very possible. As
always there are no guarantees, but this is my largest holding and I am tempted
to add a bit more at or near this $31 price.


Dalsa also reported earnings after the market close. Earnings are down
although sales are up. I will update the report after I see where the price goes
tomorrow. Overall I still think this a great investment in the medium to longer
term but it does not look too likely to go up much in the next six months due to
lower earnings. Hopefully this result is already reflected in the stock price
which has fallen lately…


July 27, 2005


Almost everything was up today it seems… The market cannot stay this strong
long term but hopefully at lest the next few weeks are strong as the market
adjusts to the strong Q2 earnings reports.


TSX Group is updated to Weak Buy / Hold at
$38.39. It’s Q2 earnings were fantastic and so far Q3 must be running strong as
well. My only concern is the stock price has gone up so much and eventually this
should be a cyclic stock when we get into a quieter time in the market. However,
right now the profitability is fantastic with a 40% ROE. I sold half my small
holding but will hang onto the rest for now. The company has given guidance for
10 to 12% long-term earnings growth. This is less tha useful considering they
have grown at more like 35% but in a slow market would likely see earnings
shrink. The stock seems to be pricing in at least 10% growth going forward and
that may be ambitious if we are at a cyclic peak of stock market activity right


Wendy’s seems more likely to continue to fall somewhat short-term than rise.
It will report earnings soon but had preannounced that they would be lower than
originally expected. The catalyst for the run up to $48 had been rumors of a Tim
Horton spin off. I am holding the stock for the potential in Tim Hortons (spin
off or expand in U.S.)  and  think this will be good long term


July 26, 2005


The TSX Group released very strong earnings results and an increased
dividend. This release was after the close of trading and so the price impact
will be seen tomorrow. At a price of $37.90, the TSX has a P/E ratio of 23. This
is not a bargain but may be reasonable given the virtual unregulated monopoly
nature of the business. Offsetting that is the fact that earnings may be a a
cyclic peak as the Stock market is currently booming but will eventually
encounter slower periods. The TSX also mentioned that some prices will be cut by
a small amount. I would think the stock price would rise moderately tomorrow
unless the market focuses on the minor price cuts. I’ll update my report in the
next day or so to reflect where the price moves in response to these earnings.
At the current price of $37.90, I would rate this a Weak Buy / Hold to possibly
a (lower) Buy.


July 24, 2005


Alarmforce is updated and downgraded
to Weak Sell/ Hold at $5.37. This is a strong little company that will likely do
well, but the share price seems to have risen too rapidly. Based on the numbers
I could call it a Sell. But I am reluctant to come out too strongly against this
proven performer.  For purposes of the Model Portfolio I am notionally
sellling two-thirds of the Alarmforce position at the opening price tomorrow.


Performance is updated. My own portfolio as
well as the Model Portfolio registered further gains this week, while the Strong
Buys (from January 1) slipped just a bit.


I’m looking forward to the earnings reports on the insurance stocks due out
in the next week or so.


The overall market seems positive to me. Perhaps the biggest concern is that
as gasoline goes over a $1.00 per liter the consumer will be hit. For that
reason and given strong gains this year I continue to look for opportunities to
move some funds into cash.


July 22, 2005


Several subscribers have expressed concern about the fall in the price of
DALSA. Firstly we have to be aware that small
companies do tend to fluctuate in price. I have just now reviewed the annual
report and the Q1 report. I remain convinced that this is a great little company
with a bright future. Possibly a real gem of an investment. Earnings fell in Q1
as it began expensing start-up costs for a new digital camera rental operation
in Hollywood. Also the semi conductor fabrication operation suffered from some
over capacity and/or excess inventory in the industry. I like the company and
think it will do well long term. At Q1 it had no debt but has taken on moderate
debt for an acquisition in Q2. The low debt level and positive cash flow should
mean that there is no danger that the company will run into financial
difficulties. Quite possibly Q2 will be affected by similar issues and this may
be why the stock is falling. But I think this is more of an opportunity than
anything. I would be tempted to buy a few shares ahead of the earnings, however,
given that the earnings will probably not look that good in Q2, I don’t expect
the share price to really jump much (in either direction) on the earnings
release. Q2 earnings will be released on July 28 and I plan to update my
analysis and rating by July 31.


July 20, 2005


CNR is updated and rated Buy at $78.50. I have
said in the past I liked it. Once again it’s earnings (released today) showed
that it is an example of the fact that “Winners Win and Losers Lose”. This
company just keeps on winning. It’s not a screaming Buy but then again
considering its size and stability and its record it is very much worth
considering. I don’t have funds available to buy at this time but would be
interested in averaging in. I would definitely consider it on a pull back of any


Apparently the market was surprised by a big loss at General Motors announced
today. Why would anyone be surprised when an uncompetitive North American
company saddled with huge “legacy” costs for pensions and healthcare and starts
offering huge family discounts? it seems likely to lead to losses…


Most of the Q2 earnings reports so far seem good and so hopefully the next
few weeks should be positive in the market.


I did end up selling half my TSX shares today…


July 19, 2005


The TSX Group is updated and rated Weak Sell / Hold at $39.50. I had first
covered this stock as a Buy at a price of $14.43 (adjusted for a special
dividend and stock split) less than two years ago. I made a good profit on but
did sell some of my stock much too early. Given the almost “unregulated monopoly”
status of the company I hesitate to again make the mistake of selling too early.
But I find the recent share price run-up a bit much. They will release earnings
on July 26. Based on trading statistics on the TSX the earnings will be good.
Still, the market must be expecting a very strong earnings report and so is
subject to disappointment. I may hedge my bets and sell half my position.


With strong performance from quite a number of stocks this year, it is hard
to decide where to take profits. I hate to sell winners unless they are clearly
getting too high. Overall the outlook for stocks still seems good. With the Q2
earnings reports it may become more clear where to take profits.


July 18, 2005


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July 17, 2005


Performance is updated and continues to be
very strong.


July 14, 2005


Alimentation Couche-Tard is updated and downgraded to Speculative (lower)
Buy at $20.25. I had only added this company in March when the shares were at
$17.40. I now realize that I was mis-led in March regarding how many shares
there were. The company did a share split in March and did indicate this clearly
in its Q3 report, but they reported earnings and shares on a pre-split basis
(and I assumed that they were post-split). I had actually noted my surprise at
the low P/E in March but I noted that YAHOO was also showing a low P/E although
a bit higher than I had, I suspect they suffered from the same problem I did in
not interpreting the number of shares properly. The bottom line is that this is
not the bargain stock I thought it was. But is is still a very good growth
story. It’s just a lot more speculative than I thought because it is pricing in
fairly robust growth. I may reduce or sell my position and take my profit  since
although it will likely do well if the growth continues, it is just not the
bargain I thought it was when I bought.


While I took a hit today on Wendy’s the overall market aside from energy was
very positive. Continued strong consumer spending in the U.S. combined with a
low inflation report would seem to bode well for the markets.


I have been rather surprised at the strength in the $Canadian dollar, it
seems it is focusing on probable Canadian interest rate hikes this Fall but I
would have thought it now has more chance to fall than rise in the next few
months. But I am not brave enough to place a bet either way.


July 12, 2005


I note cryptologic down sharply the last few days. When I look at my report I
had certainly called it speculative and not that compelling. At this point I am
not interested in adding to my position and will re-evaluate after the next
earnings release. Wendy’s is gyrating… market trying to figure out if the
company will agree to spin off Tim Hortons. Indications are it will not so stock
could easily fall. Also the strong Canadian dollar is hurting our U.S.
investments. As noted before I like it long term and am reluctant to sell out to
avoid a possible short term loss, given the long term is positive.


For a speculative pick I think Western Financial Group is a good pick even
though it is off its lows. If this company does half what it hopes to in the
next five years it will probably still be a pretty good investment. Given
volatility perhaps averaging in is best.



Alberta today announced some changes that could open up health care to more
for-profit opportunities. The howls of protests of “two-tired health care are
predictable. I can see why those who live pay-check to pay-check (with no
savings) would object to any loss of so called free healthcare (meaning someone
else pays). But I can’t understand why almost all Canadians seem to protest
letting the market have a place in health care. People who support free trade
and free enterprise and self reliance suddenly turn into committed socialists
when it comes to health care. I advocate keeping the public system. But i sure
protest a law that says it is illegal to sell insurance for access to speedier
health care and basically illegal to set up private hospitals etc.  Strangely we
have no qualms about letting the for-profit system take care of such
“non-necessities?” as food, clothing and shelter.


On a related note a huge swath of subdivisions near me full of $200,000 plus
homes is left begging to get an elementary school. And very well-paid Fort
MacMurray workers are begging for an improved highway. When these same people
want a car, a house, food etc. they don’t beg, they go buy it! If we introduced
toll roads and appropriate gas taxes used for roads, the improved highway would
soon appear. I’m not sure the answer on the school, but maybe if people (who
could afford it) were paying a realistic portion of school costs and if schools
operated on some kind of profit incentive, the school would come too. I simply
observe (and it is, I think, absolutely indisputable) that the for-profit system
is what has brought us the wonderful abundance and comfort we live in today and
for-profit probably has a place in setting up competitors to the public health
care and schools and highways.


When I was a kid I happily relied on my Mom dole out food and all things in a
fair manner among the six kids. Then I grew up – and became able to earn my own
living and decide myself what I can have, and I don’t need some government nanny
to decide if I need a certain heath care item or not. And I would rather pay for
roads in a higher gas tax than have the government nanny decide what is needed
with no user-pay signal…


Hope no one finds my views offensive, and hope if nothing else it gets you
thinking… I’ll be watching for opportunities to invest in for-profit


July 9, 2005


Communications is updated and rated Speculative Buy at $24.70. There are
definitely some things I don’t like here such as huge past losses and mistakes
on acquisitions. And there are some accounting complexities. When I read my own
comments under “management quality” it seems like I should avoid this stock. But
then again there are some real positives. Earnings are ramping up very sharply
(albeit from an unacceptably low level). Free cash flow is more than double net
income indicating net income may be very significantly understated.  The
situation reminds me a lot of
TELUS which a few
years back was reporting quite low net income but high free cash flow and in the
case of TELUS, net income began to quickly catch up and its share price rose
rapidly. (Both companies are in the business of attracting customers to
subscription services – high customer acquisition costs can depress reported net
income but eventually the cash from subscriptions does come in). Finally, there
is a very significant amount of insider buying at Shaw. The company is also
buying back its own shares. Overall, I think this will be a good investment.
With a recent pull-back in the price, I think the timing for buying is good now.
The stock fell moderately on Friday after the release of Q3 earnings after the
market close on Thursday.


July 8, 2005


Another good week in the markets…


Regarding property insurance stocks I not that
ING Canada
reports it will take a hit of $40 to $50 million pre-tax for the recent floods
and hail in Alberta. Although this does not include other Western provinces, I
continue to think that this is not a major big deal to these insurance
companies. Profits will take a hit in Q2 but I still expect 2005 to be another
record profit year particularly for automobile insurance.


Further to my comment on ACE Aviation, (Air Canada) and Aeroplan Income Fund
under June 6 below…


ACE Aviation will likely report a large net income for Q2. ACE Aviation sold
$270 million worth of Aeroplan. The value of those units on ACE’s books was
negative so this will result in a one-time “dilution gain”. ACE may also report
a positive net income before this gain but I am much less sure of that.
Certainly ACE should have a net profit in Q3… Still I will not invest in ACE
given its history (bankruptcy!).


ACE typically focuses on operating earnings before taxes and interest. It
will be interesting to see if they now trumpet the expected one-time net profit
figure in Q2, rather than continuing to focus on operating earnings.


July 7, 2005


It is certainly encouraging to see how the market shrugged off today’s
terrorist attacks.


Wendy’s reported declining same store sales for the Wendy’s – down about 4.3%
but (as usual) strong gains for Tim Hortons. (up 5.6% Canada and up 9.1% at the
(few) U.S. locations). Still the stock rose today. I note (from the comments I
saw) that the U.S. analysts just don’t seem to get it that Tim’s is half the
profit and therefore on profit a weighted basis same store sales were up. The
stock price is higher than it would be in the absence of speculation that
investors may force Wendy’s to spin off Tim Hortons. Therefore there is some
short term risk here. But long term I really like the idea of owning a piece of
Tim Hortons and I feel confident that this will be a good long term investment.


I have updated the report for
Boston Pizza
Royalties Income Fund which I continue to rate a (lower ) Buy at now $16.19.
It’s too bad that the Fund does not own the franchising company but instead just
owns a 4% royalty stream on the non-alcohol sales of the restaurants. I
basically luke-warm on it but I do like the restaurants and it is relatively
easy to understand so it might be “fun” to own just so that you can eat at your
own restaurant… (Maybe not that logical a reason to invest but then again
Warren Buffett drinks lots of Coke and he bought its shares…)


July 5, 2005


By today’s actions, the market seems to be shrugging off both higher interest
rates (short term U.S. rates) and higher oil prices. Therefore I feel
comfortable staying the course and hoping for more gains as the Q2 earnings
reports come in. A nice bump of $1.00 to day in Northbridge…..


July 1, 2005


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Summer is here, is it time to drink beer and buy a beer stock?


Breweries is updated. I now rate it a Buy at $12.25. I has last called it a
Weak Buy on Dec 17 at $14.15 and I indicated early winter was probably not the
best time to buy it. Now the price is down somewhat and we are into peak season
for beer sales. I would feel pretty confident buying Sleeman at under $12.75.
(Although there is the risk of lower profits due to competition). There is also
the chance for a quick gain if they decide to go the Income Trust route
(although they don’t appear to be planning that)..


I note the U.S. market was up today so hopefully the fact that the “Fed” did
not signal an end to interest rate hikes is not going to impact the market


June 29, 2005


I have added a new article that looks at the P/E ratios and dividend yields
of all the
TSX sector indexes. Some interesting results.


June 27, 2005


The market is now awaiting Alan Greenspan’s next move and comments on
interest rates. Hopefully he will either not raise the short-term interest rate
or he will raise it but will signal this is the last increase for the
foreseeable future.  The ten year Bond yield in Canada has fallen again, now to
3.73%. Certainly that would seem to suggest no fear of inflation and yet
Greenspan seems to still fear inflation.


It seems that the oil price is now worrying the market. Hopefully the Q2
earnings reports will allay that fear. However the market will focus on what the
high oil price will do to profits in the future. Certainly in the 70’s high oil
prices really tanked corporate profits. But the economy today is far different
and les dependent on energy. So far the higher energy prices have not seemed to
change consumer behavior but eventually it could…


I would not expect a high oil prices to have much impact on the stocks that I
have rated as Strong Buy.


In other developments I suppose the mad cow scare could harm Wendy’s,
although so far there was not much impact. If it did take a big hit, I would
take the opportunity to add to my position.


June 25, 2005


figures are updated. It turns out this was another positive week for the stock
picks, although my own portfolio declined marginally.


Cognos is
updated and upgraded to Buy at $43.50. I have always considered this to be a
great company but most of the time it has been quite expensive. I believe a
recent pull-back should represent a good opportunity to Buy. Profits do tend to
flatten out when the economy turns down and that may be a risk in the months
ahead, but overall I think the price has come down to a reasonably attractive



June 23, 2005


This is shaping up as a negative week for my stock picks. However, I believe
this is the first negative week in about 10 weeks, which was a pretty good run.
I don’t  see any reason to think that the general markets are going to turn
down. They could of course, but I am hopeful that Q2 earnings will soon give the
general market another lift.


June 22, 2005


Wendy’s was downgraded by a credit rating agency today after close of
markets. This could cause it to fall tomorrow. This stock has been bid up in
anticipation that it might sell off the Tim Hortons division. Absent that
speculation it would fall. It’s actual earnings have not been great. But I
expect things to improve. I like it long term but I am prepared for the reality
that it could easily fall back…


I updated two important articles that look at the overall valuation of the
U.S. stock market. While the stock market has risen the past few years, earnings
and dividends have risen even faster and the P/E on the overall market is lower
than it has been in some years. The average market P/E is not at bargain levels
but it also certainly is well down from any kind of bubble level. Click to see
these articles.


I had earlier mentioned my disappointment with the disclosure by Manulife
Financial, which made me a bit nervous. After doing some investigating including
speaking to a Standards and Poors analyst I learned that they have no concerns.
I continue to think of Manulife as a black box with earnings that I don’t
understand (partly due to limited disclosure of actuarial estimates) . However,
I have no reason to suspect that their earnings are not being conservatively
calculated. I will hold onto my investment.


June 21, 2005


I don’t think the flooding in Alberta will be much of a big deal to my
insurance stocks. Certainly Kingsway should not be affected. Northridge might
have some small impact and ING Canada might be impacted.


The ironic thing is most of the damage will not be covered by insurance (as
an investor, ya gotta love this business!). There will be some claims and I
heard of figure of $60 million for the industry and that could easily rise to
$100. But I don’t think that is a lot for the industry to deal with…


June 20, 2005


In my last update of
Thomson, I
indicated that the earnings are probably understated due to the amortization
expense. I believe that much of the amount that is being amortized is similar to
goodwill which is not amortized. If I add back 50% of amortization the the
earnings would increase by about 18% and Thomson could definitely be considered
a Buy. It also offers diversification into an area that is rather unique in the
Canadian market. I am considering adding to my position in this stock.


Today was another strong day for many of my picks including most notably
Kingsway Financial. The outlook appears to be good for most stocks although
transportation companies and others that use a lot of oil and gas might suffer
due to the high energy prices.



June 17, 2005


It is pretty much accepted theory that all investors should hold a mixture of
stocks, bonds and cash. Several years ago I set out to examine the actual
historical data
of holding various percentages of stocks, bonds and cash
over 10, 15, 20 and 30 year periods. For long-term investors the actual data did
not seem to support the theory. In fact, the actual data gave me a great deal of
comfort that my own 100% stocks strategy was not at all unreasonable (That is
given my particular circumstances of being a long-term investor who also has
secure employment and a good pension and benefits plan). I have now updated the
two important articles that examined the historical data. The results continued
to favor a 100% allocation to stocks but only for a long-term investor who is
also tolerant to annual volatility (including losses).


Asset Class
Performance 1925 to 2004


Are Stocks
Really Riskier than Bonds?



June 15, 2005


Another good day in the markets as Northbridge and Sino-Forest had strong
gains. I had a bid in to buy a bit more Western Financial Group at $2.25. Today
it dropped and my order was filled and then the stock jumped to 2.50 before
finishing at $2.28. Looking at the chart on YAHOO this is probably just normal
volatility but does illustrate that it can pay to be patient in bidding


I am working now on an update to some very informative asset allocation
articles and graphs. This will be posted in the next day or so.


June 14, 2005


I bought some ING Canada. I could now definitely be considered over-exposed
to the property insurance sector and therefore may take some profits on
Northbridge and Kingsway. But I’m not in a big hurry to do so.


I hopeful that stocks will continue to rise based on higher earnings and
lower interest rates. I have never in my life seen a better environment for
business in Canada. The great majority of businesses seem to be doing well,
especially consumer oriented businesses. Perhaps this will soon come to an end
but so far there are few signs of any slowdown.


June 11, 2005


ING Canada is
added as a new company above as a (higher) Strong Buy at $34.15


I did not add this company in earlier, despite the fact that I bought it at
the IPO in December as indicated under November 2 below. I already had coverage
of four property and casualty insurance companies (Northbridge, Kingsway, E-L
Financial and Fairfax). However the reason I began looking at property insurance
companies in the first place was in an attempt to cash in on the extremely high
automobile insurance rates. ING Canada is the best company for that purpose. ING
revenues are about 56% from automobile insurance, Northbridge is 38% auto (much
of that commercial). Kingsway derives most of its revenues from the U.S. and its
auto business is concentrated in high risk drivers. Fairfax also derives most
revenues from the U.S. E-L financial operates only in Canada however, I have
other concerns about its lack of trading liquidity and lack of disclosure.


Therefore, to take advantage of current huge profits on auto insurance, I
believe ING Canada is the best bet. Also it seems a well managed company with a
great long term future even when auto profits return to normal levels.


While I still definitely like Northbridge and Kingsway, I will be moving to
increase my exposure to ING Canada and this may necessitate selling some of my
Northbridge and or Kingsway.


I am not much interested in Fairfax Financial and have removed it from the
list above. I may also remove E-L Financial.


June 10, 2005


What a week!
Performance is updated.


June 8, 2005


Western Financial Group was up again the past two days. I think it is still
good value at today’s high of $2.55. However, it could certainly fall back and
so, given I already own it, I would prefer to wait for a possible pull-back
before adding to my position.


I note that this company was featured Saturday on “Money Talks” a very
popular radio investment show. I also note that the buying this week was in
relatively small orders (indicating small retail investors) and the volume was
up. Therefore, this recent price jump may not be all that sustainable. I would
prefer to see a price spike caused by an earnings report rather than simply by
an analyst recommendation. My strategy will be to hold unless the stock price
goes over about $3.00 (at which time I would possibly reduce my position) or if
the price falls back under $2.25 and certainly $2.10, I will add to my position.


With strong gains in the past number of weeks and seemingly accelerating
gains this week (so far) I am feeling good about the potential for continued
gains in the short term (but of course there are never any guarantees).


June 6, 2005


Western Financial Group rose 5.6% today. While it will likely be volatile I
believe it has much more room to rise.


Archipelago which I mentioned under April 21 and April 25 and indicated I was
buying but was unable to analyze due to its particular situation, was up 8.5%
today and is up about 37% since I first mentioned it. This was definitely a
speculative pick. It probably still has a lot of potential upside.


Comment on Air Canada (ACE Aviation) and Aeroplan Income Fund


I have been quite negative on ACE Aviation / Air Canada to date. With the
demise of JetsGo things have improved.


Prior to the JetsGo failure, it was clear to me that Air Canada was pricing
flights below its cost. However as soon as JetGo went, Air Canada (in a rare
sane move) increased its prices. I recently had to pay $1200 to go from Edmonton
to Moncton return. That was on short notice but a few months ago would have been
half that. Also the Air Canada plans are very full with recent 80% load factors.


It’s almost enough to make me think that Air Canada will start to make money.
But then again given the same loser management I am not interested to invest in
ACE Aviation.


I did more recently warm up to the idea of Aeroplan Income Trust. I long
questioned it because I knew that the money it should have to cover all the
flights it owes to point holders would not be there. But then again is has an
excellent business model going and is now generating significant cash. So
despite having a negative book value, the Aeroplan business may be very good. In
fact I really like the business model as it sells points for cash and then
inherits an obligation to buy seats on planes, but many of those points will not
be cashed in for years, if ever. It is a “virtual” business and I like that.


I finally saw the AeroPlan financials today they were posted May 20 to






I have not gone through the prospectus. I understand they are raising $250
million and it may be hard to get any. Not having looked at the numbers I would
be going on faith in the investment bankers and it is speculative, but I would
be willing to risk a moderate investment in AeroPlan. But I understand it will
be difficult to get (oversubscribed). Call your broker ASAP if you want to try
to get any. Again though it is speculative. I did look at the financials in the
prospectus and it shows a large negative book value but shows profits in each of
the past three years. I was unable to get a sense of the projected price
earnings ratio etc. I do understand that the units are being priced at a lowish
yield of 6.5% to 7.5%. That would indicate that the business is expected to be
perceived as low risk.  I don’t think it is known yet, how many units will be
issued therefore, it is probably not possible to calculate any P/E ratio etc
yet. Unfortunately this thing probably has to be bought on faith or you have to
wait for the units to start trading. Again overall I don’t have enough info to
judge it but would be willing to risk a moderate investment given the business


On the other hand it might be best to wait and see how the units trade and to
wait for financials that present earnings per unit etc.


June 5, 2005


I have posted a short article that discusses the fact that

long-term interest rates are still declining precipitously and looking at
the implications of this.


Tire is updated and upgraded to Buy at $59.38. The company is not bargain
priced but it has really been doing well for several years and if recent trends
continue, it will be a good investment. I am tempted to buy shares but have not
yet decided if I will do so. This is a stock that would be hurt in any kind of
consumer recession, but so far I am not seeing any signs of recession.


June 3, 2005


Canadian Western Bank is updated and upgraded to (higher) Buy at $27.50. On
Thursday it released a good report for Q2, but the stock price then declined
moderately. This is a conservative stock which I think has a good risk / reward
outlook. I do not currently own it but will consider buying it.


June 1, 2005


caught my eye this morning when it was down to $44.55, it recovered to close at