August 27, 2019

On Tuesday, the S&P 500 fell 0.3% – probably because the market’s faith that a China trade deal is closer started to wane. Toronto was up 0.5% as oil prices were higher.

Couche-Tard was up 2.1%. This has been a winning company for many years. And they have a five year goal and plan to double their financial results in the five fiscal years ending April 2023. They are now in the second year of that plan. I would like to increase my position in this company over time.

Costco was up a hefty 5.0%. They just opened their first store in China and apparently the crowds were so heavy that they had to close early for safety reasons.

AutoCanada was down 5.7% to just $8.33. There was no news from the company today. I suspect some analysts have basically thrown in the towel on this company. On Friday it had announced that it had done sale and lease back deals on two more of its dealerships and I believe in the Q2 report they indicated that will be the last of those deals. Those deals provide cash but come at the cost of the long-term lease liability. The company had reported a lot of progress in Q2 but still reported a loss due to their U.S. operations. The new management under Paul Antony has taken a lot of actions to correct the past mistakes.

Director, Dennis DesRosiers purchased 10,000 shares on August 13 at $9.72. Dennis has spent decades reporting on Canadian auto industry sales and so I view this buy as a definite positive signal. The only other insider trade this year was that the departing CFO sold all of his 30,000 shares at $11.45 back in March. That was a negative indicator but he was exiting the company.

Also, a report tonight indicates that Mawer New Canada Fund has purchased AutoCanada shares this year as one of only five new investments. Mawer has a very good reputation and so this is a positive development.

Melcor Developments was down 2.2% to $11.65. That puts it at about 37% of book value which seems ridiculously low considering the nature of its assets. The company does have debt but the debt is largely on its investment rental properties which are profitable after covering the interest charges. Melcor’s stock is extremely thinly traded. Its price appears to reflect an extremely gloomy outlook. They will almost certainly sell fewer residential building lots in Canada this Q3 compared to last year. They also sold 140 lots in the U.S. in Q3 last year and due to the lumpy nature of U.S. sales they may or may not sell any in Q3 this year. Profits are likely to be low but positive until home building in Alberta returns to a faster pace. However, they are well positioned to simply hold onto their valuable land holdings. They have significantly slowed their land development activity which reduces capital spending. They continue to profitably develop commercial buildings. This is a conservative company that can withstand the current softer market conditions.

Melcor has resumed buying back shares but is restricted to a tiny 1000 shares per day on the market. But they are also able to do larger block trades and I understand there is one such purchase expected to be finalized shortly.

The outlook for residential home building and Melcor depends to some extent on progress with pipelines and there has been some progress recently.