May 13, 2017

On Friday, the S&P 500 and Toronto were each down about 0.1%.

AutoCanada was down 3.5% to $20.06 I last rated the company a Buy at $21.80. It exhibits some volatility. As long as it is destined to grow in value eventually (and I believe it is) then dips cannot help to be beneficial to committed long-term holders. There are never any guarantees but I like my chances owning this one.

Melcor released Q1 earnings this past week. The headline GAAP earnings were negative and also more negative than the prior year. But funds from operations were positive and substantially higher. One has to be careful in ignoring GAAP results but this is a case where GAAP results have mark-to-market items that truly distort the earnings trend. I had said in previous reports that GAAP market value losses on investment property valuations were likely and this did occur in Q1. But meanwhile revenues were up 26%. Revenues from sales of home building lots were up a very surprising 86%. The company is continuing to invest in raw land. Overall the company seems quite confident in the future and the Q1 report was positive despite the GAAP loss. This is my largest position by far. That is partly due to my history with the company. I would not likely make it my largest position if I started a new portfolio today. But I am comfortable with my large position and have not given thought to reducing it. At $16.50, this stock trades well below its book value of $29.41. Given the nature of the assets I believe this provides an excellent margin of safety protecting the downside for long-term holders and providing ample room for upside.

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