Monday was a volatile day in the markets. But at the end of the day, the S&P 500 was up 0.2% while Toronto was down 0.45%.
Most of the stocks on our list were down. Constellation Software was among the few gainers and was up 1.1%.
Checking insider trading, I notice that a Canadian Western Bank insider (Margaret Mulligan, a director since 2017) bought 3600 shares today at $26.54 (That’s $96k worth, presumably with her own money, not shares received as compensation – although that is possible). She now holds 6400 shares. However, the signal may not be reliable because as a director she is required to own shares. But it looks like she may have seen this as an opportune time to buy as she was not obligated to have her quota of shares completed until March 2020.
Linamar was down 4.6% to $44.19. That puts it at 82% of book value for a stock which earned 18% on book value in the trailing year and which according to Yahoo Finance is trading at 4.5 times expected 2019 earnings per share. Looking back I see that Linamar traded at book value at the end of 2011. Most of the time it trades above book value. During the financial crisis it briefly traded below 30% of book value which gores to show that stocks can sometimes trade at extremely low multiples. Unlike today, Linamar lost money in 2009 on a GAAP basis and barely broke even on an adjusted earnings basis. In the case of the financial crisis, the low stock price turned out to be a wonderful buying opportunity as the stock later rose 20 fold and despite the recent decline remains over 10 times higher than its price at the end of 2008. The latest decline could be related to possible tensions with China especially given that four of its sixty manufacturing plants are located in China.
AutoCanada was down 5.2%. FedEx was down 4.2%. Basically investors are more fearful and are bidding down the price of most stocks.
Prices for Alberta oil have improved dramatically with lower spreads versus world oil prices since Premier Notley announced mandated production cuts effective January 1. Possibly there are other reasons such as refineries coming back online. So far, the improvement has not led to any bounce in the Alberta stocks on our list.
Rail car loadings are often seen as a good indicator of the state of the economy. In the U.S., rail car loadings in 2018 continue to run above the 2017 levels. In Canada this is even more so. Petroleum related car loads in particular are up quite darmatically and are trending higher almost every week.
Statistics Canada reported building permits for October which were down 0.2% versus September. Single family residential permits were up 4.2% versus September. But it is beyond me why the news release would focus on the comparison to September rather than compare to the 2017 figures. But they did include a handy table that showed that comparison. Overall residential and non-residential permits were down 4.0% versus the prior year and single family permits were down 10.5%. Those declines are probably much more indicative of the trend than the comparison to just one month earlier.
I always look at Alberta because of Melcor Developments. In good news the seasonally adjusted single family permits for October were up 5.9% versus September. However, that was down 22% versus October 2017. September had been down 31% and August 42%. Clearly single family home construction is down considerably in Alberta at this time. In 2017, Melcor sold a surprisingly high number of single family building lots. Melcor’s Q4 will likely show quite a sharp drop in single family lot sales. With the shares trading at 42% of book value, that outlook should already be more than reflected in the share price. Melcor’s share price in 2019 seems likely to be driven by whether or not progress and optimism on the pipeline front increases.
Meanwhile CMHC reported housing starts for November. They report the trend was 210,000 in November up from 206,000 in October. That is a healthy number and Canada continues to have housing starts that seem proportionally high versus the United states. However, single family starts were down 15% in November versus the prior year. Alberta was down 18%. Calgary was down 23% and Edmonton was down only 6%. Melcor is substantially more active in the Edmonton region at this time which is a good thing.
With the Canadian dollar now below 75 U.S. cents it may be opportune to those with U.S. cash to favor moving some of that back into Canadian dollars. I am in the process of moving a small amount of U.S. dollars using the procedure of buying DLR.u in the U.S. dollar side of my accounts and then having that journaled over to the Canadian dollar side where I will sell it as DLR receiving Canadian dollars. For more information do a search in the comments are for DLR as I have explained the steps in detail in the past including December 9 and December 10, 2017.