March 31, 2022

Thursday marked the end of the first quarter of the year and was a negative day in the markets.

The S&P 500 was down 1.6% while Toronto was down 0.8%.

Toll Brothers got hammered down another 4.9%. At last word company management was very upbeat about the demand for their houses and the profitability. The market disagrees and fears the impacts of higher interest rates. This stock has been highly volatile over the years and indeed the underlying earnings have also been quite cyclical.  I still see it as very cheap. I understand basically all the U.S. home builders are cheap. Yahoo Finance is showing a forward P/E ratio of 5.0. Perhaps they expect high earnings this year based on homes contracted for last year but then expect earnings to plummet? My strategy has always been to add when stocks get cheaper. Sometimes that has been painful but has generally worked out eventually.

With Costco at a record high earlier today I sold a third of my smallish investment in Costco and used the funds to add to Toll Brothers. That may end up looking like a bad move because Costco may well report (in just a few days) another month of stellar same-store sales growth for the month of March. So far it seems that inflation has benefited Costco’s revenues greatly. It seems that customers have likely bought the same volumes despite the higher price. And perhaps inflation is driving more people to shop at Costco because of Costco’s generally lower prices. Costco looks expensive at 44 times forward earnings. But then again it always looks expensive… 

 

 

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