July 27, 2020

Monday was another positive day in the markets. The S&P 500 was up 0.7% and Toronto was up 1.0%.

Some of the larger gains included Shopify – up 4.7%, Toll Brothers – up 3.8%, AutoCanada up 3.5%.

With the huge gains on so many stocks since the March lows, any investors who have too high an allocation to equities (and too high varies hugely by personal circumstances) should probbaly take the opportunity to sell some equities and move a portion into cash or other fixed income type assets.

After the close, TFI Internation reported Q2 earnings that were down modestly but may be considered good in light of the virus situation.  The stock has been up a lot and so the market action tomorrow will indicate whether the results met expectations.

I am working on an update for the constuction company Aecon Group. Unfortunately it appears to be fundamentally a low return business. Last year was its best ROE in about six years and that was only 9%. And now this year is looking to be possibly down near breakeven or certainly a decline. I applaud the existence of this company and the great work it does. But it does not look like a particularly good or promising investment. At best I would hold a modest position for diversification. It also has complex accounting due to a large amount of work being done through joint ventures. For an example of the complexity it shows a total of $599 million in cash on the balance sheet. But then it explains that after deducting a large amount of cash in joint ventures and some reserved cash it only has $30 million of available cash at the parent level. I am not suggesting it is in any danger at all that way. But this $30 million is vastly less than the $599 million one might picture based on the balance sheet.

Aecon also effectively paid for a huge airport redevelopment project in Bermuda in return for operating the airport and getting the profits for the next 30 years. Normally that would be almost a guaranteed cash stream. Now it faces probably very little if any profit there this year and maybe several years before things get back to normal in air travel. Not their fault. But a big whoops. On the plus side their backlog of projects is at a record level.


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