November 27, 2018

There are lots of things to mention tonight.

On Tuesday, the S&P 500 was up 0.3% while Toronto was down 0.5%.

CRH Medical was up 6.9%. The company did not release any news and there was no new insider buying. Therefore, the reason could be an analyst comemnt or upgrade.

Linamar got smacked down 5.2%. Probably a delayed reaction to the GM news. I don’t know if GM’s news has any material impact on Linamar… but I guess it is safe to say it is not good news and that I suppose was reason to push Linamar down even further.

Bank of Nova Scotia (not on our list) kicked off the 2018 fiscal year end and Q4 earnings season for Canadian banks. Apparently its earnings were about as expected as the stock ended the day virtually unchanged. Bank of Nova Scotia is selling operations some in none “non-core” Caribbean countries while retaining core business in that part of the world. I have always been a bit suspicious of why the Canadian banks have so many branches in the Caribbean. To the extent they simply provide banking there, that’s fine. But I tend to think that a certain amount of it relates to Canadian individuals and corporations hiding money. If so, that is something that they should all probably divest. I believe Royal Bank has also divested some in that area as well.

The Canadian Western Bank rate reset preferred share on our list, which pays $1.10 annually, 1.26 for a yield of was down 2.8% to $21.91 to yield 5.0%. But if the five year Canada bond remains at its current level of 2.29% then it would reset, five months from now on April 30, to pay $1.26 5.04% of $25 for a yield of 5.75% at $21.91. In a recent update I rated it (lower) Sell at $24.57 because Bank of Montreal which would be deemed safer has issued one in September at 4.85%. (Why own CWB at the then 5.05% when you could get the larger BMO issue at not much of a lower yield? Strangely though the CWB rate rest share then rose briefly over $25 before falling back. Basically it would appear that at lest for CWB, the market is pricing in more risk. Simply demanding a higher yield. Not because of interest rate increases (which this share will float up with in four months) but because of simply market participants bidding the price down and effectively demanding a higher return a higher spread over the government rate to hold this share. The same higher risk premium may be affecting the rate reset pref shares of the larger banks, but not to the same extent as CWB and probably most issuers other than the big banks. Risk on, as BNN is fond of saying.

After the close, Alimentation Couche-Tard reported its Q2 results. BNN headlines suggest they exceeded expectations. 84 cents adjusted versus 82 cents expected. Adjusted earnings per share were up only 5%. But because they enjoyed very high gasoline margins last year in Q2, there would have been an expectation for lower gasoline margins this quarter. They did come in lower, but still pretty high. Meanwhile the all important merchandise same-store sales probably very much exceeded expectations at 4.4% growth in the U.S., 4.6% in Europe and 5.1% in Canada. Overall, given the negative mood of markets lately, I don’t know if this will be enough to move the stock higher. Hopefully it can at least hold its own in a period where stock prices are mostly on the decline.

For those interested in Global ETFs, I have updated the P/E ratios and other data on a list of Global ETFs. South Korea looks particularly attractive. In general, most of the P/E ratios are lower and looking more attractive.

I have also updated the article on the valuation of the S&P 500. It looks a bit expensive on conservative assumptions.

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