On Tuesday, the S&P 500 was down 0.5% while Toronto was unchanged.
Cameco was up 3.8%. Possibly this will be a good year for the nuclear fuel miner.
AutoCanada was down 2.1% to $16.26. The company itself seems confident of growth but the market worries about weak auto sales and higher interest rates. An equity fund acquired about 250,000 shares in April at just over $20.00 doubling its position to 554,000 shares. There were no other insider trades this year other than that fund buying. Clearly, this fund has confidence – although they have not bought it appears since the Q1 results came out.
Aecon Group was up 3.2%. I am not convinced that they can generate adequate profits despite their revenue growth. I’m still not clear if they will book any material amount of gain on two recent sales of operating divisions (sold a highway construction business in Ontario and about half of their Bermuda Airport operation. Their Q1 report seemed to imply a minimal gain but when I inquire they point out the deals did not or will not close until Q2.
I’ve been giving more thought to the benefits of holding higher quality companies versus what appears to be lower quality but under-priced companies. In the end a high ROE will usually provide the better return even if it was expensive to buy. Ideally we would invest in very high quality companies that can be expected to continue to produce a high ROE but which are not prices to extremely high. A company earning over 20% ROE )and expected to continue to do so) and trading under a 20 P/E would appear to be very attractive.
The highest ROE companies on our list are (in no particular order):
CN Rail, Couche-Tard, Costco, Dollarama (return on assets in this case), Visa Inc., Constellation Software, American Express and TFI International. These usually are expensive but sometimes appear relatively cheap such as TFI at this time. Couche-Tard is also not very expensive in terms of P/E but faces the uncertainty of the long-term impact of electric vehicles.
Another group of companies with somewhat lower but still very good ROEs are:
Stantec, Canadian Tire (and a P/E under 10), Royal Bank, Linamar, Starbucks, and Metro Inc.