Markets down but only quite modestly today. The S&P 500 was down 0.2% and Toronto was down 0.3%.
Toll Brothers was strong after its very strong reported earnings release and conference call with a 3.0% gain. And this was despite its contracted homes being down 50%. But they did say that activity had picked up noticeably in January and February.
This is a company that has fairly volatile earnings by nature. I’m understanding more and more that there is no way to predict its earnings in the medium term (the short term is actually predictable based on past contracts to build homes) I do know that it is very well managed and I trust it will do well over time. At the moment, the market seems to be willing to sort of look past the fact that its contracts to build new homes have fallen off a cliff for three quarters in a row. Meanwhile it has reported stellar earnings growth based on contracts signed an average 9 to 12 months before each quarter. It’s clear that its earnings are going to drop quite noticeably later in 2023. But it has great assets and great future and it trades at only a shade over book value. The bottom line is this is a really tough company to judge as to valuation. I updated the report earlier today. My best guess after looking at it is that the shares may slide lower at some points this year and may well end the year lower. It all depends now on whether contracts really ramp up this Spring from the weal levels of this past nine months. They won’t get as high as last Spring but they still may be high enough to support the share price. Over time I do think Toll Brothers will do well but it may be a rough ride. If you have a modest position I would hold. I had a very heavy position and I sold about a third. So I may still be over-exposed to it.
Couche-Tard was also up 3.0%.
As to the overall markets, they may have about finished adjusting to higher interest rates for now. But there is still lots of other things to move the market such as earnings reports and the situation in Ukraine. The best approach is to have a balance of equites fixed income and cash. The youngest investors can take the risk of going all equities but most investors should probably not take that risk.