January 9, 2018

Another day and another set of records in the U.S. markets.

S&P 500 up 0.1% while Toronto was about unchanged.

With the recent strength in markets, especially the U.S. markets, reasonably diversified equity portfolios and balanced portfolios have been gaining ground at a rate that is more than acceptable.

Stantec was up 1.7% to $35.60. I expect this company to continue to do well given its recent acquisitions and given growth in the economy. The lower U.S. tax rates should be a benefit (assuming the lower rate is not offset by price reductions due to competition). Stantec has both deferred tax assets (any U.S. portion of which will decrease in value) and deferred tax liabilities (which liability will be reduced to the extent it represents U.S deferred taxes). The deferred tax liabilities are about twice as high as the deferred tax assets so I would expect some non-cash gain in Q4 to reflect the lower tax rate.

Boston Pizza Royalty Units were down 2.1% to $21.50. It makes sense that these units would fall in price with higher long term interest rates – all else equal. But I expect distribution increases over the years to offset that such that these units could rise in addition to paying their attractive distribution.

Liquor Stores N.A, which has not been on our list for quite some time but which I occasionally mention has defied my expectation and rose 4.6% today to $11.68. I believe there was some speculation earlier about it getting into  the retail Cannabis business. I did not think that likely since Alberta has said Cannabis will not be sold in liquor stores. And it did not seem to have the cash to get into a new business. But I suppose it could take the opportunity to sublet some of its spaces (which it leases and does not own) to Cannabis retailers as it appears to have too many stores. I have trouble seeing that as a big opportunity. But I suppose any speculation of any involvement with Cannabis is enough to push the stock up. Meanwhile I understood from their recent press release that they apparently took a loss on selling a couple of U.S. stores and, if so, that will be reported in the Q4 results.

Speaking of recreational Cannabis retailers, I wonder how profitable that will be. Private retail Cannabis stores will be allowed in, I believe, Alberta and Saskatchewan but not Ontario or Quebec or most other provinces. If it is like the Alberta liquor stores where everyone is buying at the same price from the government supplier (as will be the case in Alberta) it may be difficult to generate particularly high profits. It may be lucrative initially if there are few stores compared to demand.



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