June 20, 2018

On Wednesday, the S&P 500 was up 0.2%.

Toronto was up 0.6% and has crept up to a new record closing high. That’s a good thing but not exactly earth-shattering. Stock markets should be expected to trend up over time and therefore must at least occasionally reach new all-time highs.

FedEx was down 2.6% after releasing its latest earnings report.

Dollarama was up 3.3%.

Constellation Sofware was up 2.3%.

Toll Brothers slipped another 0.45%.

A report in the Financial Post today provided some interesting figures about the U.S. housing industry/market. New housing starts were up 5.0% in May to near an 11-year high in terms of the seasonally adjusted annualized rate of 1.35 million. Estimates are that the U.S. needs 1.5 to 1.6 million housing starts to bring supply and demand into a better balance.

The bad news is that permits for single family houses (these will turn into starts down the road) were down 2.2%. But that is apparently because builders are running out of serviced lots and also experiencing labour shortages. So, apparently builders are having trouble keeping up with demand.

I would think that a shortage of serviced building lots will benefit Toll Brothers because they own thousands of lots and may be in a better position than some or most builders.

Higher lumber prices have also been a  concern. Higher lumber prices could certainly lower Toll Brothers profits in the short term. But in a market where building lots and labour are scarce, I would suspect that Toll Brothers can raise prices to reflect the higher lumber costs.

My expectation is that Toll Brothers will probably report an earnings increase of at last 10% in the current quarter. It would be closer to 25% I believe based on an increase in signed contracts from about 9 months to a year ago. However, the higher lumber prices could push the growth down somewhat. I also expect that Toll Brothers will report that it has been buying back shares on the recent dip. They have tended to be very astute in buy-backs over the past few years.

I thought about grabbing a few more shares today but I don’t have the U.S. dollars in my accounts to do so. Plus I have enough Toll already.


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