Among the very few bright spots for our Stock Picks in today’s trading was Constellation Software which was up 3.1% to $90.74. Canadian Tire was down another 0.9%. Showing the courage of my convictions I bought another 200 shares.
While in an ideal world, all our stock picks would rise steadily, that is not realistic. I certainly don’t believe that the market always gets it right when it comes to stock prices. If I did, I would have to stick to buying a broad stock market index fund.
The stock market gives us opportunities by often under-pricing or over-pricing stocks. While it is not easy to do, that feature of the market can be taken advantage of by buying what is under-priced and then selling if it happens to become clearly over-priced or relatively over-priced compared to other opportunities. Given that our stock picking service would have no reason to exist if not for mis-pricing in the market, I can hardly get upset by Canadian Tire’s little swoon here.
Of course it may be the case that Canadian Tire is not under-priced at all. My analysis suggests it is. Others disagree. The consensus of the market opinion is of course that its current price is fair. I have found and documented over the past 12 years that buying stocks that appear under-priced has worked out well for me. But even if my batting average is pretty good, it is certainly not 100%. I happen to think (based on the analysis) that Canadian Tire will be a good investment. But the validity of that belief will only be known over the future months and years (perhaps many months). Meanwhile the market will, if nothing else, provide excitement along the way.
In other news it was reported today that U.S. house starts are running at an annual 715,000, well above the 578,000 of a year ago although down from the 749,000 annualized figure from last month. Home builder sentiment also rose to the highest level in five years. This bodes well for Toll Brothers and also for the U.S. economy in general.
Lower oil prices are hurting the Canadian stock market but will help the North American economy.
My TSX valuation article suggests that the TSX index as a whole is under-valued. That article suggested that a fair value was 13,216 which is some 17% above the current level. That certainly does not meant that the TSX can be expected to rise soon. What it does suggest (but not guarantee) is that buying the TSX index at this level is a rational move supported by analysis and should turn out to be a good investment.
I also added 1000 more shares of Bank of America to my position today at about $7.11.
As I write this around mid-night eastern time the Dow futures are up 49 points, suggesting Thursday will be a better day in the markets.