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December 31, 2006

Happy New Year to all of our valued subscribers. I am hoping that 2007 will be another successful year for all of us.

December 30, 2006

FedEx is updated at rated (higher) Buy at $108.62. This looks like an opportunity to buy a "great" company at a reasonable price. We first added this stock to the Site in October at $112.

Manulife Financial is updated and rated Speculative (lower) Strong Buy at CAN $39.35 or U.S. $33.79. Manulife is one of Canada's very few "world class" companies. Our last update was September 9, when we applied this same rating at $36.10. We originally added it to this Site as a Strong Buy at $17.48 (adjusted for subsequent split) on Dec. 13, 2002.

The final performance figures for 2006 have been updated. It was another good year in the markets. Although the TSX index did well, we managed to beat it for the seventh straight year. And, I believe our Model Portfolio and also our group of Buys and Strong Buys were a lot less volatile over the year than the TSX index.

December 27, 2006

E-L Financial (property insurance life insurance and other investments) is updated and rated (higher) Buy at $635. This company can tend to be volatile given its earnings volatility and low trading liquidity. However, it appears to be a good long-term investment. I bought shares in this today. Our previous rating was Buy at $622 in June this year. We originally added it to this site as a Speculative Buy in March 2004 at $345.

When it comes to property insurance stocks I believe in holding several of them rather than just one or two.

The earnings of these companies tend to be quite unpredictable. Therefore, the ratio of price to book value may be a better guide to value.

(Note a table that was here has been removed as it was causing a problem in width of this page)

It's not our particular intention to focus on the insurance sector. But it has been a sector that appears to offer good value. Therefore we continue to have an over-weighted focus on this area.

The market is worried that auto insurance rates will will due to competition and that therefore these companies will not grow. That may be true. But, off-setting this is high current profits and the fact that sharply higher real estate prices could allow revenues to grow despite lower auto insurance prices. Also, to date, it does not look like auto insurance rates have come down very much.

December 26, 2006

Sobeys is updated but remains rated Weak Buy/ Hold at $39.25 (Our analysis date was Dec 19, since then the price has increased to $40.75). The company is not over-valued but basically we would like to see evidence of more robust earnings per share growth before we would be interested in this stock.

EGI Financial is updated and rated Speculative (lower) Strong Buy at $9.60. This means that we consider it Speculative and also consider that it fits into the Strong Buy category, but at the lower end of that category. We could easily have rated this lower on the basis of risk. But on the basis of the value ratios it certainly looks like a good Buy. In essence, here we have an established  company with a good history of profitability where the market is willing to let us buy in 1.21 times book value, which seems reasonable. But it is in a risky and often unpredictable industry. I may add to my position in this company.

I sold my Cognos shares based on our updated rating. I was a bit hesitant to sell since, although it seems over-valued, it is a great company and it certainly could continue to rise in price. But logically, it makes sense for me to move my money toward my high-rated picks. For the same reason, I added to my FirstService position (Actually, I entered an order to Buy FirstService at its last traded price but it did not hit my price today) . (Canadian Markets are closed today, but I was able to place these trades on the the U.S. market.)

December 24, 2006

FirstService Corporation is updated and rated (higher) Buy at U.S. $23.42 or CAN $27.14. This company has a strong history of growth and appears to be available at a reasonable price.

Cognos is updated and rated Weak Sell at CAN $47.55 or U.S. $40.97. This stock is up 54% since we called it a Speculative (lower) Buy at $30.29 on July 21. At $47.55 it looks over-valued. Possibly it will keep going up on the hopes of higher profits, a special dividend or a take-over. But based on fundamentals it appears over-valued. I plan to sell my shares in Cognos.

To our valued subscribers:

I hope that everyone is having a great Christmas season.

It has been our pleasure to provide stock research to you. As a group, our subscribers have always demonstrated great maturity and intelligence when it comes to investing. You have looked for guidance in picking stocks but at the same time you have taken ultimate responsibility for your own investments. You have understood that that there are rewards in the stock market but also risks.

If you know of others with similar attitudes, who are looking to invest in stocks and are looking for some guidance and high-quality stock analysis, please consider emailing a link to our site to them with your comments. 

At InvestorsFriend Inc. we are just completing our seventh full year of operation and our seventh year of beating the market index.

Each year at this time we update and/or reconfirm our stock ratings for the new year. You can login over the next week to check for updates. I trust we will continue to earn your business throughout 2007 and beyond.

Many of you are set up on monthly or annual subscriptions that renew automatically through PayPal. If you paid by cheque you can check the end-date of your subscription by choosing "My Account" on our login page.

December 23, 2006

I've reorganized the Articles list so that you no longer have to drill down more than 1 level to find any article. Many of these articles are definitely worth reading again even if you have already read them once. (My view is that in any endeavor, you can never review the basics too many times).

My own portfolio break-down has been updates (see links below the stock table) and the 2006 performance has been updated as of Dec 21 (Thursday).

December 21, 2006

Note that we will be updating a number of reports (as many as we can get to) in time for the start of trading for 2007.

I just sent out an issue of the free newsletter, which you should receive.

I was very pleasantly surprised to see Western Financial Group jump to $4.20 today. This may have been the result of an institutional player trying to accumulate shares. It announced today that its underwriters were using a "over-allotment" from their recent share issue to buy more shares. That gives the company cash but I don't see why that should have driven the stock up, unless these brokers were encouraging their clients to buy it. I like WES long term but it does look expensive right now. I would not be surprised at all if it fell back to say the $3.70 level. It is thinly traded and that makes it volatile. I considered selling at $4.15 today but decided to hang in for the long term.

December 19, 2006

Kingsway financial was down 2.7% today to $23.28 . My comments just below under Dec 13 still apply. CN and Telus were also down which could be good buying opportunities for both.

I note that the Dow Jones set a new record high today. As long as the Dow is still going up, it seems unlikely that most "blue-chip" stocks like Telus and CN will continue to slide.

December 17, 2006

My analysis on the valuation of the Dow Jones Industrial Average is updated. Since the last update in September, the Dow index is up a fair amount, but earnings also rose. Therefore the index remains perhaps moderately overvalued. I expect the Q4 earnings reports to be good. On that basis, the Dow could continue to rise unless fears of recession grow.

December 16, 2006

Walgreen Company is added to the list of stocks above as a (lower) Buy at $43.56. (That was our analysis price but note that it closed on Friday, up slightly at $44.50). It is not a screaming Buy and in fact is pricing in continued strong growth. But this may be a case where it is worth "paying up" for quality.

We have added a few companies lately. At this time i am also removing Sleeman's which was taken private and Brampton Brick (which we have lost interest in).

December 15, 2006

Telus is updated and rated (lower) Strong Buy at $53.17. I plan to increase my position in this stock.

December 14, 2006

The markets have kept powering ahead with the Dow and the Toronto composite index at record highs. At some point we will get a down-turn. Therefore, it seems wise to have some money in cash or short-term investments to take advantage of any major market decline. But the market certainly may continue to rise. P/E ratios are still reasonably low compared to where they have been over the past ten years. Therefore I am comfortable keeping most of my investments in stocks. I tend to take a long term view and I am willing to live with the risk of a market pull-back.

Clemex, which is a very tiny higher risk company announced earnings today. Q3 Sales were down 6% to $1.40 million which is disappointing. Profits were down over 70% but that may not be too meaningful as profits last year were only $147,000 and so a small decline in revenues combined with a small increase in expenses made for a large drop in profit. The comapny had indicated last quater that this Q2 would not be strong... The company seems confident about the future. I tend to think it is worth its current price, but then again this company has a bad history of under-delivering (see my comments dated Sept 16 below). The company did not yet release its balance sheet but I believe its debt has continued to come down which has reduced its risk.

I did add to my Kingsway position today.

December 13, 2006

Kingsway Financial fell under $24 today. It's always hard to "step-up" and buy on dips like this. There is always the fear that a dip means that someone knows something negative is coming. Thos who trade on based on analysis of charts and momentum would tend to sell rather than Buy. However, those who, like myself, trade on fundamentals are inclined to buy on dips. In the past three years buying Kingsway on dips would have worked well. But there were periods in earlier years where a little dip was followed by much bigger drops. At this time I believe that the fundamental value of Kingsway is such that a very large price drop is unlikely. Therefore I am inclined to Buy on this dip. Many times in the past I have regretted not adding to my positions on dips.

One thing that is a bit annoying is that Kingway is "supposed" to be buying back shares but have not reported buying any shares since mid-September. They have said that it can be hard to buy since they are only allowed to buy on a down-tick in price and cannot buy on an up-tick in price. I would have thought that they could have stepped in to Buy in the past few days. (Maybe they have bought and have just not reported it yet).

Meanwhile a number of our other Picks were going up... Clemex reported that it believes its shares are under-valued and indicated that it will buy back some shares. I'm a bit surprised that they would have the cash to do so, but anyhow this was positive news. Tim Hortons seems to be fighting back from a recent small decline in its price. They have not reported their same-store sales increase for November (This use to be reported when they were part of Wendy's)

December 11, 2006

Western Financial Group fell to 3.61 today. Based on the financials it looks like only a hold or weak buy. Buy as a speculative play on the Alberta economy it may not be a bad pick. In early December it bough 15 new insurance agencies with the proceeds of its equity issue. This brings the total number of insurance offices to about 71. It may take at least 6 months before this shows up in earnings, so this Stock is likely to require patience.

December 9, 2006

Performance figures are updated.

Target is updated and is rated Buy at $58.09. This retail stock has done very well (up 19%) since we added to this Site in late May at a price of $48.82.

December 7, 2006

I sent out an email to all paid subscribers tonight. It was really just a reminder to login to this Site, but if you did not receive it, we may not have your correct email address (You can check that under "MY Account" on our Login Page). (If you change your email address, the email that is your user name will not change unless you request me to change it.)

Dalsa reported today that its CFO was resigning as of January 13. They did not say why but they thanked him for his service and giving that he is staying until January 13, I suspect he simply left for a bigger opportunity.

Check our recommended book section, I have started to add a few comments under each book.

December 6, 2006

IGM Financial is updated and rate (higher) Buy at $48.80. Since our last update in March the price has not changed but earnings are up. In addition long-term interest rates are down and dividend stocks are more in favor due to the announced Income Trust tax changes. IGM's earnings could fall if the market falls or if Banks win more of the business. But overall if IGM keeps on doing what it has been doing and has success similar to its past then it seems likely to provide a return in the range of 10 to 15% annually (although with volatility) if held for five years. In the short term if markets continue to do well, it could certainly advance to $55 or $60

Good gains today on Kingsway and Shaw Communications. CNR was down but I suspect that is just normal volatility. I did hear today that American executives were selling shares at record or near-record rates. That 's not a piece of information that I would act on but it is a reminder of the fact that with the Dow  and TSX at record levels we have to be aware that a significant market "correction" is always a possibility. As mentioned earlier that is offset by very low interest rates and still-strong earnings. In the end I don't think anyone can accurately predict when a market correction will arrive.

December 5, 2006

A number of our Picks did well today including Kingsway, CNR and Western Financial Group. Based on economic news today, there was some talk today that the U.S. economy will do a soft-landing rather than a recession. That remains to be seen. But for the moment the market sentiment seems good.

December 4, 2006

The market continued to show strength today. I was surprised that the TSX Group rose 3.5% today on the same day when Instinet announced it would start competing with the TSX in 2007. I'm not sure how big a threat Instinet would form. Tim Hortons was at first up today but ended up down for the day even though the overall market was strong. I don't think there is much reason to think Tim's will rise much more in the short term. Perhaps a dip is more likely but at the same time I am not going to sell since the dip may not happen.

November 30, 2006

Wal-Mart is updated and rated (higher) Buy at $47.39 (our analysis price was $47.39, but the stock closed at $46.10 today). Analysts are focused on weak same store sales growth in the past two months. However total sales increased almost 12% in the past two months year-over-year which seems impressive. Overall the stock is out of favor and may well fall in price, but I view it as an opportunity to buy a company that historically has been exceptionally strong but which is available at a very ordinary multiple of price to earnings.

November 28, 2006

It was good to see stability in the U.S. market today therefore there seems to be no reason to think that Monday's drop was the start of a down trend. EGI Financial holdings appears to have dropped back to reasonably attractive levels.

Loblaw is updated and rated Speculative (lower) Buy at $47.70 when evaluated (closed at $47.26 today). I continue to watch this stock and believe that at some point it could offer good value if there is an indication that profits will rebound. But currently it is not clear if profits can rebound quickly to the 2004 levels. Therefore I continue to take a wait and see approach to this one. It did drop since we gave it the same rating in August at $49.01. It remains to be seen how effective and aggressive will be the new CEO, Galen Weston jr.

November 27, 2006

Home Capital is updated and rated Speculative (lower) Buy at $28.75. It closed today at $27.94. This stock has struggled lately and we last rated it Speculative (lower) Buy at $31.80 on August 7. The high was reached early this year at $43. We first rates this Stock a Buy at $7.43 (adjusted for subsequent split) in April 2002. We have done well on it but don't currently own it.

It seems unlikely that Home will regain it former 30% growth rate. Recently net interest revenue was growing at 14.5%. It faces more competition. Lately I keep hearing advertisements from more and more new mortgage companies that I have never heard of. At some point some of these companies are going to suffer credit losses. But Home has a strong history and I would not bet against it.

I don't own it and am content to wait and see how Q4 does, before considering a purchase.

Our Stocks took some hits today mostly on names that had gone up a lot lately. (New York Stock Exchange, Tim Hortons, Cognos). I had thought about reducing my position in NYSE but having already reduced it once this year, I just decided to ride it out as a speculative pick. I think this company has lots of potential but it certainly go much lower, having risen do quickly. With Tim Hortons, I had mentioned on Nov 9, that I would think about trimming. But again I just decided to ride it out and bank on the long-term strengths of this company.

Today I did add to my positions in TSX Group and Thomson, both as longer term bets.

Nov 25, 2006

The Thomson Corporation is updated and rated Buy at CAN $48.30 or U.S. $42.66. This is another stock where the GAAP earnings appear under-stated. The value ratios would suggest hold rather than Buy. However, it is in a good position for strong earnings growth due to the electronic delivery of most of its products. I may add to my position in this stock. It is essentially a U.S. company although it is based in Toronto. Canadian investors face currency risk. It is up about 7% since we rated it lower Buy in September. The stock price has not done that well over the past 6 years or so, but that was partly due to currency for Canadian investors and for U.S. investors it was mostly the fact that the stock had simply become over-valued in the early 2000's.

The TSX Group is updated and rated (higher) Buy at $45.81. This Stock was originally added to this Site as a Buy on October 12, 2003 at $14.43. (adjusted for a split and for a special dividend) Clearly it has done very well since then. At various times I have considered it to be too expensive. It is not cheap. But I believe that its special characteristics as a near-monopoly in Canada do justify its current price. I have a small position in it and plan to add to my position.

Nov 23, 2006

Performance figures have been updated.

Nov 22, 2006

More gains today...

Note that we will likely have a couple of updated reports by Sunday.

REGARDING PAYPAL

Most of you pay your subscriptions through Paypal. New subscribers to this Site who pay through PayPal end up opening a PayPal account as you sign up with us. We use PayPal because they are an established secure payment processor. But admittedly they do have some confusing and or annoying practices.

If you just opened a PayPal account, they will email you to confirm your email address with them (confirm your PayPal account). If you never intend to use PayPal except for payments by credit card, I don't believe it is necessary to confirm the email. I don't think there is a harm to confirming the email at all but you don't need to do it in my experience.

PayPal may also encourage you to link in your Bank Account. Personally I see no benefit to that and would not do it. In fact if you do confirm your bank account, they will make the bank account the default payment source for any future PayPal transactions (existing subscriptions paid by credit card would continue to go to the credit card). Bottom line, is unless you use PayPal for something other than credit card payments I see no benefit to linking in your bank account.

Be aware that scammers often pretend to be PayPal. Be careful of any email from "PayPal" that asks for credit card info etc. Often they will show PayPal as the link but if you click through you will see the URL is not really a PayPal URL. This is not PayPal's fault it is scammers but the point is always be very careful. If you need to change something on PayPal log in at www.paypal.com. Also the PayPal buttons on this Site of course are safe and go to the real PayPal.

I hope the above is not confusing or alarming. In fact none of our subscribers have ever reported being scammed by a PayPal look-alike. But I just thought the above might help in trying to understand the various emails from PayPal about confirming email address and confirming / adding a bank account.

Nov 21, 2006

Our model portfolio got a nice boost today from New York Stock Exchange Group, up 9.7% today and it has been on a real tear lately. It started this year as Archipelago rated Speculative Buy at U.S. $50. Archipelago was attractive because the it was about to buy the New York Stock Exchange (in a reverse takeover where the former owners of the NYSE would own most of Archipelago - and where Archipelago would be re-named NYSE Group). For a variety of reasons the new NYSE Group is hard to value and we did not have a rating on the combined entity but we kept it in the Model portfolio and I own it personally. Archipelago went up to about $85 soon after the takeover of NYSE and then fell back briefly to the low 50's. We sold half at $65.69 on the way down. It has now climbed all the way to U.S. $104.50. I really don't know what it is worth now. But I have a feeling that the brand power of the New York Stock Exchange makes it worth a lot. It will have to increase its profits by a huge amount to justify its current price. But I suspect it can do that. Having already sold half, and not having a huge position in it, I am content to just let it ride. But I do view it as being quite Speculative at this price.

In terms of easier to predict stocks, Shaw Communications and Kingsway both had nice gains today.

Nov 20, 2006

A good start to the week. Kingsway, Shaw, CN, Tim Hortons all up. Western Financial was down a couple cents most of the day. It finished up one cent but that was on a tiny end of day volume. I did not sell any yet. I may sell some tomorrow.

Nov 18, 2006

Western Financial Group is updated and rated Weak Buy / Hold at $3.64. In August we had rated this a Speculative Buy at $3.25. At the beginning of 2006 we rated it a Speculative (lower) Strong Buy at $2.80.

In Q3 the earnings growth was definitely good with a 44.8% growth and in 2006 to date earnings have grown 38%. But we focus on earnings per share and more particularly on earnings per diluted share. The diluted share count has increased quite materially due to conversion of debentures in January and due to other convertible securities that are now "in-the-money" given the share price increase. In addition the company just issued additional shares at $3.50. Fundamentally, I have trouble paying $3.64 for shares that the company is apparently willing to sell for $3.50 (though I realise the company may have had little choice but to issue shares to finance growth - although I believe they previously indicated growth was more likely to be financed by debt).  I am still reasonably comfortable holding it and I believe it should do well particularly given the strong Alberta economy. But I expect the share price to be volatile. I have a large exposure to it and I may reduce my position, but I will definitely continue to hold some.

For purposes of the model portfolio I will notionally sell half the position at Monday's opening price (but not lower than $3.45) This could be accomplished by placing a sell order now for $3.45 since I would then get the opening price if it was higher than $3.45 or if lower, this becomes a  limit order at $3.45.

Nov 17, 2006

ING Canada is updated and rated Speculative Buy at $54.60. It is not highly speculative but has to be considered somewhat speculative due to its high price to book value and the volatile nature of earnings. But overall it will likely continue to do well. Our previous rating on this stock was Buy at $52.96. It started this year rated (higher) Buy at $51.25. It originally was added to this site as a (higher) Strong Buy at $34.15 in June 2005.

The main reason I was attracted to insurance stocks in 2003 was my theory that auto insurance rates had gone too high and with drivers avoiding claims if at all possible, I figured auto insurance profits would go very high. This has definitely happened with ING.

Nov 16, 2006

I never did own any oil and gas Trusts, and I don't know much about them. But for many the business model included buying production. There was perhaps not much value added in those cases except maybe the tax savings were a big value add if purchased from a taxable corporation . Though I suspect exploration companies never paid much cash tax anyhow with their capital cost allowance deductions or other depletion deductions.

One thing, for sure in a rising oil and gas market if a Trust over-paid for assets, that sin was hidden as the market rose and took care of it. In today's market, oil and gas have fallen therefore we may see some cases where Trusts and others over-paid for assets. That is just one more piece of bad news for the sector.

If I wanted to play oil and gas right now I would likely buy the exchange treaded XEG units on Toronto. I don't disagree that it is a good idea to have some exposure to oil and gas, though I happen to have none and I focus my attention on companies that seem more predictable to me than oil and gas prices.

Loblaw was up only $1.00 earlier today but ended up $2.40. I did not buy. My strategy there would be to establish maybe a third or a half of a target position and then wait and see. Q4 will be ugly and the price may drop . Then again the market already knows about the write offs coming in Q4, so maybe it will just focus on the future. They say it will be a  long haul though so I guess no reason this will shoot up. (unless maybe they did something big like a sale and leaseback of the real estate - and maybe new CEO (young Galen Weston junior) will try something like that to make his mark...) I have not analyzed the Q3 results yet...

Nov 15, 2006

Loblaw reports earnings, tomorrow, Thursday. They announced a certain key executive will stay (I think he had resigned but now will stay..). I'm tempted to Buy but will likely wait for the earnings and then see where the price goes and re-evaluate.

A good day in the markets. Markets can always turn down quickly, but right now it feels like the market will keep rising. The last three calendar years ended very strongly, I hope this will be one more. We expect to have a couple updated reports on the Site by Sunday.

Nov. 14

Kingsway is down from its highs. Basically this stock tends to be volatile but has trended up over. It could certainly drop somewhat more but I am comfortable holding it. Recent lower oil prices and lower inflation in the U.S. bode well for most of the stocks we feature here.

Nov. 13, 2006

Note some of these updates under Nov 13, will not get posted until the 14th due to a problem uploading the Site at this time.

Stantec is updated and rated (lower) Buy at CAN $22.65 or U.S.$19.99 (Subsequent to our analysis date, it closed today at CAN $23.62 and U.S. $20.83).

Canada Bread is updated but remains rate Weak/Buy / Hold at $53.80. Basically not a stock we are too interested in at the moment but given past growth we feel it is worth keeping an eye on.

IMPORTANT ADMINISTRATIVE NOTES

With all the spam and spam filters these days it is easy to miss legitimate emails. My emails may get blocked as spam because they contain links or because they are not addressed to each recipient but rather do not show the recipients.  If you use Outlook, take a minute to go to Tools, Options, then hit "Junk Email" (near the top of the box under Options) then hit safe senders and add shawn@investorsfriend.com. This should ensure you get my emails... unless of course they are blocked by a spam protector before they ever hit your inbox.

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Given our rating on Dalsa I decided to add to my position in it today. I also added it to the model portfolio. As a high-tech company it is always possible that it will surprise us with some bad news such as a write-off of its investment in the cinematography camera. But the stock seems cheap and I believe the risk/reward balance is quite good at prices under $13. I'm not taking a huge position in it, but I figured why have a tiny position that would hardly matter to my portfolio?

Nov. 12, 2006

A edition of the free newsletter was just sent out (1:15 pm eastern time). If you did not receive it by email, let me know, as I am interested in knowing if it is not getting through to some of you for any reason. (To email me click on shawn@investorsfriend.com )

Nov. 11, 2006

Dalsa is updated and rated (higher) Buy at $12.23.  With a P/E of 21 the stock does not look cheap. But the price to book value ratio of 1.27 is quite attractive. It appears to me that earnings may be considerably under-stated due to (presumably temporary) start-up-stage losses in digital cinema and also due to amortization of intangibles and the expensing of R&D. The stock price has not done well over the past few years. However, at prices under $13, I believe that this stock represents strong value with excellent potential. As always though, there are no guarantees. As I mentioned I would under Nov 8, I have added to may position in this stock. I doubled my position and it represents 2.3% of my portfolio and I may increase this to as high as 5%. I would note, that listening to the conference call, the analysts seemed to have some concerns and did not seem supportive. Therefore the Dalsa shares will not likely rise until it actually produces higher earnings, it is unlikely to be driven up by analysts recommending it.

Nov 9, 2006

I notice Loblaw down around $46 again. I believe this will be a bargain at some point. For example they could announce a sale (and lease back) of real estate to a REIT and that would lift the price. I don't believe they have announced Q3 earnings so I would wait for that.

Western Financial Group has announced today (I believe it was after the close) that it will issue $25 million in shares. This is hefty considering it has a market cap around $120 million. I notice this press release did not get picked up in YAHOO Finance, so not all investors know about this. I have often mentioned in my reports the possibility of a share issue as a negative thing. It may be good long-term, but in the short term it usually drives the stock down, and sometimes substantially. Possibly, they can market this at around $3.80. Given their earnings growth and the recent stock price increase it may be possible for them to sell the shares for $3.80. But certainly $3.50 or lower is possible. Given no price is yet announced, we may very well see noticeable drop tomorrow. Unfortunately, if that happens it will likely happen fast and there will simply be no chance to sell at say $3.75 or higher with the hope of buying back in as others sell. Trading was halted as of the end of today. My bet is it will open $3.50 or lower, unfortunately. We have had a good run with this stock and volatility is to be expected...

Tim Hortons is updated but rated only Weak Buy / Hold at $33.55. They really did not release a lot of financial data for Q3 and also due to the share issue in June and other factors associated with the spin-off from Wendy's we really don't have comparable financials for even the last 12 months. It is going to be a least after Q1 2007 and possible later before we really get an accurate picture of the annual profitability of Tim Hortons as a public company -particularly given that there were some unusual expenses associated with going public and the separation from Wendy's. The stock is up 18% since we rated it a (lower) Buy at $28.37 and indicated we were buying on July 30. It has been moderately volatile.

After this run-up and given the quality of the company I am reasonably comfortable with the 5% weighting in the Model Portfolio. However, my own 8.9% weighting may be a bit high and I may trim that. If I did not own any I would probably buy just a small position and average in that way. It's certainly possible that it will fall in price, although long-term the direction is up.

Whenever I am in their stores, or drive by, I think, "how could I not own some of this?". It's a case where the numbers do not indicate a bargain, but then again the strength of the brand is apparent to all and that should bode well in the long-term.

Nov 8, 2006

Wow, yet another great day in the markets. EGI Financial Holdings came out with earnings mid-day and rose 11% to $9.41. Western Financial came out with strong earnings after the close. Clearly the market has been anticipating strong earnings from WES so it remains to be seen if the stock will rise tomorrow. Cognos also did well today.

Our performance is at a record high for the year, and that is a good accomplishment considering the Income Trust situation that negatively affected many investors.

On the other hand Dalsa closed at $12.01 today, although a more realistic price is about $12.50 since it traded at that level most of today. It looks like someone traded a block of 200,000 at $12.01 late today. In the last update I said I would be interested if the price fell below $13. I am going to add to my position in this stock. It could turn out to be a real gem, but is likely going to require patience. It recently reported earnings and I have not updated for that. Basically their digital movie camera unit loses money, but this may be more of an investment than a true loss.

Nov 7, 2006

I ended up selling about 40% (had entered an order to sell 50% but then decided to sell a bit less) of my Kingsway on the stop loss. I really don't like stop losses, I would have got a better price by just selling. But I was reluctant to sell and this stop loss at $25 was a way of forcing myself to sell but only if the price dropped. Tim Hortons had another good day today. I will update the Tim Hortons report in the next couple of days.

Nov 6, 2006

Kingsway Financial is updated and is lowered to a Speculative Buy at $25.60 from the former Speculative Strong Buy at $21.97.

It may be useful to review how the investment thesis on property insurance has changed over the past few years.

When I began looking at insurance companies in 2003, I was attracted by the extremely high insurance rates that were in the news. I figured they might be making a lot of money. GAAP earnings were low or negative around that time but that was being caused by retroactive expenses (developments) related to prior years. My theory was that insurance rates had over-shot the mark as they were moved high enough to generate profits in spite of retroactive expenses. It seemed likely that a profit gusher was around the corner. And this came true, insurance profits have absolutely soared since then. (I hope I am not over-stating the accuracy of my thinking in 2003, but that is how I recall it).

Over the ensuing period profits did rise and so did the share prices but in general the property insurance companies looked very cheap.

At the present time, profits are still high, but rates are declining. And the stock prices have risen noticeably. In general insurance stocks look like good investments but are not as compelling as before. Update added Nov 17, 2006. While rate decreases put revenues and profits under pressure, an offsetting factor is that property values have increased dramatically and ultimately this should increase the revenue and size of the industry.

In the case of Kingsway I was very hopeful that they had over-reserved and would at some point release these reserves creating huge profits and increasing the book value. Now I am not as sure this will happen. It sounds like they were so burned on being under-reserved in the past that even if they think they are over-reserved they will be very reluctant to release that as earnings.

So... I still think Kingsway is a good investment. It should continue to do well. But I will definitely consider cutting my exposure to it. I may put in a stop loss at $25 on half of my Kingsway position. (Hopefully the stop will not be hit...). I generally don't use stop losses but I will make an exception here due to my high exposure to the stock. The model portfolio has a much lower exposure to Kingsway than I do and so I am comfortable with keeping the Kingsway position in the model.

Update: for my own account I entered a stop loss order to sell half my Kingsway if the price goes to $25 or below but not to sell below $24.

Nov 5, 2006

Northbridge is updated and continues to be rated (higher) Buy at $30.84. Northbridge had a combined ratio of 93.6% in Q3. This means it made 6.4% on the insurance itself before any earnings on investments. For whatever reasons insurance company analysts have come to view that kind of profit as normal when in contrast Warren Buffett considers it quite acceptable to merely break even on the insurance. The industry is still quite profitable but is viewed as very risky. Basically this company will likely continue to drag its share price up slowly by its own bootstraps (profits add to book value and that tends to drag the price up). Also it plans some significant share buy-backs which should help although that will actually pull the book value down a little.

Nov 5, 2006

ebay is updated and rated Speculative Weak Buy/Hold at $32.67. We added it to this site back on July 17 with the same rating  and at a price of $25.66. Maybe we were a little conservative then. We realize it still has great potential if past very high growth continues. But the fact is that investors buying now are paying up-front for some pretty robust growth. If growth slows the price would drop. In addition I really don't like their high executive compensation and the fact that they were so slow to expense options. It's an okay investment as a way to benefit if it keeps growing fast, but I definitely consider it somewhat speculative. I hope to have one more updated report later today and some through this week as well.

Nov 4, 2006

Performance figures are updated, as well as for the Model Portfolio, and my own portfolio. See links above (below table of stock picks).

Nov 3, 2006

I'm now in Toronto Airport. Big line up at Tim's... Although not a cheap stock I love the company.

I will update performance figures tomorrow. Also some report updates by Sunday night. Looks like the week ended on a positive note.

Nov 3, 2006

Northbridge earnings out... it fell but does not look bad to me...

I'm sitting in Ft. Lauderdale airport returning to Edmonton. Check for updates over the weekend.

Even with Trust and TSX situation we have not had a bad week maybe down a little but not much.

Nov 1, 2006

A big hit for Telus today... I don't see it going lower from here. This income Trust tax announcement is a bit of a shock, but not really. There has been lots of speculation that the government needed to do something and it was only wishful thinking that people thought the government would stand idle. Our picks lost I believe about 1% today while the market was down 2.4%.

As usual these things happen so fast that there was no time to react. I am not thinking of selling anything on this news. It does take away some of the upside for Shaw, CNR, TSX Group and Tim Hortons.

October 30, 2006

This week started off with a good day for our stock picks, although the overall market was flat... Various stocks could be volatile in either direction in the next few weeks as they release earnings which in a few cases may have negative surprises and a few other cases may have positive surprises. But overall the market tends to "know" (somehow - such as insider leaks) what the earnings will be and therefore the stocks often don't move much at all on an earnings release.

October 28, 2006

The model portfolio is updated. Until Friday, I am attending a course at Delray Beach Florida and may or may not be able to respond to emails.

October 27, 2006

Shaw Communications is updated and rated Speculative Buy at $34.90. The current profit would not justify this price but profits have been trending up very strongly. It seems to be in a good position to keep growing cash flow. With the recent dividend increase to $1.00 per share from 60 cents, we may see interest from income oriented investors. I believe it is generally thought that if the company was for sale it would fetch over $40 per share. Also the Income Trust route is a possibility. So it may be somewhat speculative at this price because it needs to keep growing the cash flow and earnings to justify this price, but I like its chances.

October 26, 2006

Lots of earnings news today.

Shaw Communications had great earnings which must have been anticipated, given that the stock was flat today. I plan to update our report on on this company soon. My sense is that it will continue to well.

Tim Hortons reported great sales but lower net income. It showed surprising strength on that news. I was almost tempted to take some profits but thought better of it. It certainly could pull back, but I would not count on it.

I don't follow Wendy's any longer. But I wonder if the market is confused about how much Wendy's is making without Tim Hortons. Some headlines today spoke of Wendy's earning 61 cents per share. But that was with it owning 82% of Tim Hortons for most of Q3. Absent Tim Hortons Wendy's earned a paltry 16 cents per share. That would appear to make its $35.50 share price look pretty expensive.   Meanwhile Tim Hortons earned 27 cents per share. I really wonder if the U.S. market totally "gets it" regarding the fact that Tim Hortons was the main profit element of Wendy's in recent years. I like Wendy's as a business but it looks expensive and it will now be necessary to analyze its profits without Tim Horton.

October 25, 2006

Yet another good day today...

Check out our Performance page. I have added bar graphs to show the average return for Strong Buys and Buys etc. in each year since our inception. Until now this data was in a table format, but as more years were added to the table, it is probably a lot easier to see graphically. Of course past returns are no guarantee of future results, but it seems logical that if we have done well each year for seven years and we keep with the same approach, we can reasonably expect good returns in future.

October 23, 2006

I added to my position in CN today... If oil prices stay low/decline, it looks like the general market outside of energy can keep rising. Nevertheless, it is not a bad strategy to build some cash and also to be ready to react if the market starts to turn down

October 22, 2006

Canadian National railway is updated and continues to be rated (higher) Buy at $52.31. It had a great earnings report. We started the year with CN rated (higher) Buy at $53.15. When it fell to around $46 it was tough to have the resolve to keep rating it highly. We kept it at (higher) Buy. In retrospect maybe we should have said Strong Buy, but we bought in to the fears of recession.  It turns out that $46 was a great opportunity to buy CN. And at around $52, indications are that it is still a good investment opportunity. (But there are never any guarantees).

October 21, 2006

Couche-Tard (operator of the over 5000 Mac's and Circle K convenience stores) is updated and rated Weak Buy at $25.85. This has definitely been a great company and it probably has substantial growth ahead of it. But it seems too expensive at this time. If I owned it I might continue to hold or I might look to re-deploy the money.

Kingsway fell noticeably this week but this may just be normal volatility especially in light of its very strong recent gains. Overall performance of the stocks on this site was up again this week.

CN certainly did well this week. I had mentioned a few times in September and October my interest in CN as it had fallen to prices around $48 and $46. It's always hard to be brave and buy on those kind of dips but now we have CN suddenly back over $52.

October 19, 2006

CN released yet another great earnings report after the close today. Presumably it will rise tomorrow. I think it is becoming even more clear that this was a real bargain when it fell to the $46 level recently.

October 17, 2006

FedEx Corporation is added as a new company rated Buy at $112.68 which was our analysis price. It closed at $115.82 and in any performance figures we would start measuring from that higher price. Our Buy rating would apply up to at about $120 at which point we would want to re-evaluate. The investment thesis here is the chance to buy a great company at a pretty ordinary price to earnings ratio.

We could easily see a few more down days in the market. My hope would be that strong Q3 earnings would quickly reverse any negative trend. I thought Western Financial held up surprisingly well today given a negative day in the markets and the fact it rose so much recently.

October 16, 2006

It was interesting today that Aeroplan announced that points will now have to be used within seven years. That is probably reasonable but will still breed some resentment. I know a lot of people have accumulated a ton of miles via the aerogold credit card. At this point if they don't have travel plans maybe they will switch to another credit card that gives a different benefit. Aeroplan also upped its dividend which is a positive. More importantly Aeroplan introduced a new system whereby all seats will be available but at various levels of points that will be linked to the cash fares of those sets. This should be a very good move and could see a lot more points being redeemed. Bizarrely this will be bad for cashflow but good for GAAP accounting earnings. (Although it could also possibly lead to more accumulation of points which is good for cashflow).

Another good day... particularly for Western Financial Group. I would worry that this could certainly be volatile. Most of the recent increase was on low volumes but today the volume was good. It may start to attract more attention just because it has done so well. At this point our rating at $3.25 is quite a bit below today's close of $3.88. We will update in November after they release Q3 earnings.

With such strong gains lately one could fall into the trap of thinking the market will just keep going up. But from experience we know that it can turn around easily to the down-side. But so far so good...

October 15, 2006

In terms of stocks to Buy I am personally thinking of adding to positions in CN, Shaw communications and maybe E-L Financial and Bank of Nova Scotia. All of the Buys and higher above are worth considering but note that our ratings apply as of their date and if the price has jumped a lot or too much time has passed then our rating would likely change if we updated it. As always, subscribers invest at their own risk. Although we have done very well, stocks are always risky in that surprise events at a given company can take the price down in  a hurry - as we recently saw with Cryptologic. The Q3 earnings will soon be rolling in and we will update many of the reports for that.

I made a note on the model portfolio page that I will notionally buy CN, Manulife and Bank of Nova Scotia

Alarmforce is updated but is only rated a Speculative Weak Buy at $4.66. We continue to monitor the company but it is not one we have much interest in at this time.

Bank of Nova Scotia is updated and rated Buy at $48.20 as of our analysis date (it closed on Friday at $47.74). The basic investment thesis here is that buying a company with an ROE around 21% is a good deal when the P/E is only about 14. Should continue to do well barring a recession that causes significant loan losses.

Performance figures have been updated. Outside of energy stocks much of the market has been doing unexpectedly well and seems to have momentum heading into the Q3 earnings release season.

On Friday, I bought back the half of my Kingsway shares that I recently sold. I felt that the pain of missing out on the the potential gains there outweighed the potential pain of the loss if it drops.

If anyone has emailed me and not heard back, try re-sending the email. I get a huge volume of spam emails. Occasionally when deleting spam I may end up deleting a valid email.

October 11, 2006

Looks like I was early in taking profits on Kingsway and in trying to play the volatility on Western Financial. Both up today.

So.. BCE goes the Trust route, I first speculated on that on this site  a couple of years ago that we might see some mega-conversions. There should be more to come why not Loblaws for example? (not that I have heard anything). Large coprations that pay lots of cash taxes will be looking to convert. Maybe big energy companies...

Some people talk of leveling the paying field with a higher dividend tax credit. That will not work. The playing field would only be level if corporate dividends were tax deductible (like interest payments) to the corporation and fully taxable to the shareholder. Even then some trusts have the advantage of being able to flow through distributions as return of capital so corporations would need that right as well, dividends in excess of earnings would be tax-free return of capital.

Overall there still seems to be some financial engineering at work which is still providing a one-time boost to stocks.

October 10, 2006

Sobeys is updated but remains a Weak Buy / Hold at $37.58 (We analysed the ratios based on a price of $38.16 but the same rating applies at today's closing price of $37.58). It's not an investment we are interested in at the moment but we feel it is worth monitoring and keeping an eye on Sobeys will help us in monitoring other grocers including Loblaws.

Tim Hortons was up again today. If I did not own any I would not take a large position at this price but would definitely be interested in owning at least some of it. It looks expensive but it may be a case where paying for quality pays off in the longer term. I would not mind seeing it drop in price because that would be  an opportunity to accumulate it.

October 8, 2006

I have updated the percentage holdings in my personal portfolio. (See link just below the stock table above). My cash position at 27% is the highest it has ever been. This was due to profit taking and a desire to build up cash in case of a market correction. I have missed out on some return by moving into cash but I think it was a prudent strategy. I may even give some consideration to more permanently allocating a portion of my portfolio to safer short-term investments.

An edition of the free newsletter was emailed out late Friday night.

October 5, 2006

Earlier today, I posted the following note on the login page.

I may sell half my Kingsway today. I was wondering if I should take some profit or maybe even buy more. Checking insider trading I see a a few sells in September and no buys. Just to be prudent I think I will sell half... Later I indicated that I had indeed sold half.

There is a very good chance I will regret selling half my Kingsway shares. But at last check it was about 14% of my portfolio and I just wanted to take some money off the table. I'm not sure that the insider sales in September were anything to worry about at all. Insiders still have very large positions and this was probably just the normal exercising of options and sale of shares that happens to most companies all the time. But Kingsway tends to be volatile and I just did not want to be holding so much of it if it fell - which I have no reason to think it will. In the model portfolio it is around 8% and I am comfortable at that level.

As always there are no truly easy answers in the market, no guarantees. Each of us has to decide what we are comfortable with.

I bought back the 25% of my Tim Hortons that I had sold last week, plus a bit more.

October 4, 2006

Today was another positive day for our Stock Picks.

There was no sign today of selling pressure on the Tim Horton shares despite the float of shares having increased by over 400% on Monday. Volume continues to be ten times normal. It occurs to me that some of that volume is probably just due to arbitrage between the New York and the Toronto price. If it gets cheap in New York based on the Toronto price adjusted for the $U.S. dollars then the arbitrators sell in Toronto and buy in New York and ten minutes later may be doing the reverse so that creates some of the volume I believe.

I was skeptical that all the Americans would sell, but at the same time it seemed logical that there might be some selling, when the number of owners goes up 400% and the pool of potential buyers is unchanged. Tim Hortons itself was going to buy back shares and this may be helping. Also the news stories on the share distribution may have generated some buyer interest. And there is perhaps still the effect of it having been added to the Canadian indexes last week which forced index funds and other mutual funds that track the index to buy it.

I had sold about 25% of my Tim's just as a precaution in case it dropped. Now I think it is time for me to buy these back in the next 1 to 5 days. We only rate it a (lower) Buy but I like the company and it would be a shame if I fail to buy back just because it is up 20 cents from where I sold and then the thing keeps going up. But I will not buy too much, I want to be ready if the price does fall back below $27 and will buy more if that happens. In the past I have sometimes been stubborn and failed to buy a share just because it was 20 cents or a $1.00 higher than where I thought it was going. I'm trying to become less stubborn that way. In other words my "clever" trade of selling 25% of my Tim's last week has not worked out and it is best if I admit that and reverse it by buying back in.

Apparently there is a new OPEC agreement to keep oil above $50 to $55 through production cuts and Wednesday night this has driven oil up somewhat. I guess the point here is that oil will certainly continue to unpredictable and that in turn will push the markets around.

The Dow Jones has certainly shown strength after pushing through its highs. I don't follow technical analysis but I understand that a decisive push above an old high is considered to be a positive indicator.

As planed I sold my small amount of Wendy's today.

October 4, 2006 (6:45 am)

I did bail out of Cryptologic yesterday for the reasons mentioned previously. I plan to remove that company from the list above as the report is no longer at all valid given the retreat from the U.S. market and the move to Ireland and the pending change of CEO. I am thinking of selling my Wendy's shares today. They are up a lot... may have more upside as they sell off the Baja Fresh division. But on the other hand their earnings will look bad I think without Tim Hortons and it will take a while to sort out the value of the company on a stand-alone basis. Tim H. shares have not yet landed in my TD Waterhouse account.

October 3, 2006 (6:35 am Mountain time)

I am going to notionally sell the Cryptologic in the model portfolio at the opening price today. Currently the opening price looks like it will $19. Everything has changes for this company and it is likely to make months to get back on track and a couple years to get back to where it was in profits. I may sell what I have as well and move on. It is not worth the mental distraction at this point.

October 2, 2006

CN will report earnings on October 19. I am tempted to add to my position before the earnings come out.

I took a hit on Crypotologic based on news today that they will no longer have revenue from the U.S. due to a change in laws. They will lose about 30% of their revenue and probably a bigger percentage of profit. Perhaps I should have seen it coming , in  fact I had this listed as a risk for this stock. It was no secret that the company operated in an arguably illegal business, which I mentioned in the report. This is (in part) why the stock was called (highly) speculative. Again perhaps I should finally dump it but it is not a large holding for me and so I have not decided to sell. It will be very difficult to analyze the company at this point because one has to figure the earnings under the new situation with the loss of the U.S. customers. The company was trying to put a positive spin on the fact that it was well prepared for this. But still, it is certainly a major blow to them. In retrospect I should have steered clear of this company but as they say, you can't win 'em all.

I mentioned on September 28 that I would place an order to sell about 30% of my Western Financial at $3.35. On Friday there were some trades at $3.35 but those people must have been ahead of me as my shares did not sell on Friday. But they sold today. I hope to buy back at $3.15 or lower. I complained to TD about the high trading charges for stocks like this. The charge is 3 cents per share for amounts over 1000 shares. That is 6 cents for a round trip trade or 1.8%. Compare that to the paying $58 for a round-trip trade of 1000 shares of a stock that is priced at $58 where the percentage is then 0.1%. I feel that the fees on a small dollar shares are way too high on a percentage basis. I am seriously considering switching over to E-trade.

It was interesting to see that Tim Hortons was down only 23 cents today. A lot of people expected it to plummet as the Wendy's shareholders who received Tim Horton shares over the weekend start to sell. Volume on Toronto was 10 times normal so indeed there has been some selling. It may take at least another few days to see if a down-trend develops. My "free" Tim Horton shares are not in my account yet so some people may not have been able to sell yet. I'm hoping it does fall at least to $27.50 so I can buy back what I recently sold at $29.13. If it goes much lower that will be hard to take in the short term but would actually be a good buying opportunity. I mean if a stock goes lower just because more people own it and want to sell, that seems like a decline that should be temporary. The stock is ultimately valued for its future earnings and cash flows and that has not changed with the Wendy's spin-off. Tim Hortons was going to buy back some shares so that may have supported the price today. The bottom line for me is I have some exposure to it, I would like to have more but I am going to wait to see where the price goes in the next week or so.

Kingsway has been up very nicely lately... I am certainly hoping for more yet from it.

October 1, 2006

It will be very interesting to see what Tim Hortons does in the next few days. Report on Business Television were indicating that it was expected essentially all the Americans who receive the Tim Horton shares will immediately want to sell and Canadian shareholders will buy. If true, it seems logical that that Tim Hortons could dive a few dollars. But then again if the market really anticipated this then it should be already "baked in" to the price.  Of course Tim Hortons rose on Thursday and Friday due to a surprise announcement that the stock will be included in the TSX/S&P index. Perhaps many funds were forced to buy for that reason and perhaps all the more so because Friday was the end of Q3. But it would really seem strange if the Tim's were now to dive early this week because if that is expected I would have thought that many of these funds could have waited for the cheaper price this week.

Well, Q3 is over and there has been little or no damage from hurricanes this season. I have to think the property and casualty insurance stocks will report excellent Q3 results. Therefore I am hopeful of good gains in our insurance stock picks by the end of this year. But possibly any gains will be held back by reductions in insurance rates and general fears of risk regarding this sector.

September 29, 2006

This was an extremely good week for our Stock Picks here. See updated performance figures at the links above.

September 28, 2006

Onward and upward so far. I have been surprised by the gains this week. As alluded to yesterday, I did sell just over 25% of my Tim Horton shares at the opening this morning. I intend to buy back if it drops to about $27.50 when Wendy's dividends out all its Tim Horton shares tomorrow. (It may take a few days before the recipients will be able to sell any even if they want to, I know with TD it usually takes a few days before shares like this show up in my account.)

Similarly I placed an order to sell roughly 30% of my Western Financial Shares at $3.35. I am gambling that before the stock goes to up to say $3.50 and beyond (which it should eventually) it will first fall to say $3 and I can buy back in. I usually don't try to get cute like this and play the volatility but I am giving it a try with these two stocks. If nothing else I will have raised my cash position in case the general market falls.

September 27, 2006

Adding to the note below about Tim Hortons. Given that the rise today was apparently simply due to the stock getting added to the TSX/S&P  composite plus TSX/S&P 60, and given all the shares due to hit the market on I understand this Friday, it might make sense for anyone with a lot of Tim Hortons to sell some if the price is still near CAN $29 tomorrow and then hope to buy back in a few days at a lower price. I may do this with a small portion of my shares. The risk of course is that the stock will stay high and I won't get to buy back, so this would just be a short-term risk management type of trade.

Tim Hortons jumped a surprising 5% today... just when it looked to keep dropping due to the flood of shares that will hit the market in about 7 days when Wendy's spins off the approximate 82% of Tim Hortons that it owns and those shares hit investor accounts and some of them start to be traded. But I said before that may not push Tim Hortons down much and if it does it will be temporary.

The 5% rise today was because Tim Hortons will be added to the TSX composite. Actually this is a pretty dumb reason for a price increase. It should have been anticipated and it has nothing to do with valuation, so this particular rise may be indeed temporary.

A new share called WEN-WI is trading and it is Wendy's without the Tim Hortons and it reached $31 yesterday. Back in the Fall of 2004 we had a Strong Buy rating on Wendy's at U.S. $36 and it fell as low as about U.S. $31 briefly after that. Those who bought Wendy's at that time still have Wendy's worth U.S. $31 and will receive about 1.36 shares of Tim Hortons now worth about U.S. $35. So this was a great deal back in 2004. We saw Wendy's as a great deal in 2004 due to the value of Tim Hortons, although we did not expect a 100% gain two years. I did not happen to Buy Wendy's at the low and keep it until now but have still done well on the stock. Also in the Spring of 2006 when investors were frothing at the mouth to buy Tim's at the IPO (and were told they could not get any) we were calmly indicating that you could get Tim Horton shares simply by buying Wendy's.

Tim Hortons may continue to be volatile and could certainly fall several dollars quite easily, but long-term it still looks good. With a good company like this, time is on your side if you hold long term.

September 26, 2006

Canadian Western Bank is updated and remains rated Buy and was analyzed at $41.91 (closed today at $41.49). If you are interested in this or any other stock on this page, please be sure to read the report closely. It is always a judgment factor to come up with a rating and subscribers should read the report to be sure they agree with the analysis. Various facts in each report could cause you to come to a different conclusion.

Kingsway rose 18 cents today. However, very briefly just after the open of trading it was down over $1.00. I have seen this stock do that before. This suggests that one strategy would be to place a bid about $0.75 or 1.00 below the close and just see if it dips down the next day. One strategy might be to keep changing the offer every night to only buy if it dips below the previous day's close. But the danger is that if there is some bad news that sends it down rather than just a dip, you will have bought on the way down. Basically such a strategy would just be a trading a strategy. If you really want a stock then often you are forced to offer the market price. Another strategy is to place an offer more substantially below the market like 10% below and then you only buy if it drops, and in this case you would leave the offer and not change it every day. I paced an order today about $1.00 below the close to add a small amount to my position if it drops.

As mentioned previously, the trading volume on Western Financial is down. It did not trade yesterday at all.  While I definitely like it long term, it could certainly dip below $3.00 quite easily on this lack of liquidity.

September 25, 2006

Cryptologic took a nasty 11% hit today on the news that it move headquarters to Ireland and that the CEO is not able to move and will be replaced. Our report did note that this was risky, after all it is engaged in internet gambling which is of questionable legality. From a risk management point of view it might make sense to sell and move on. I have a fairly small position in it and may hang on to see what happens. I would not be surprised though it it falls further just on the uncertainty. The stock fell steadily all day today, so that might mean it will keep falling tomorrow. In terms of the model tracking portfolio I have not decided what to do there either. It is 2.9% of the model tracking portfolio. If it was 5% I would likely sell half just to manage risk. Unfortunately I can't give a clear direction here, the fundamentals still look very strong but there is now much uncertainty as well as significant one-time expenses for the move.

Sept 24, 2006

Click on "Our Track Record" at the top of this page to see our new "Mountain Chart" that shows the results of investing in our Stock Picks over the years.

Sept 23, 2006

EGI Financial Holdings is added as a new company rated Speculative (higher) Buy at $7.75. This means it is Speculative and that I consider it to be somewhere between a Buy and a Strong Buy. It is quite thinly traded, perhaps almost too thin to put on this Site. It may not be possible to Buy at $7.75 but I would consider the same rating would apply up to about $8.75. Basically, the investment thesis here is that buying a nicely profitable company at a price around book value should be a good investment.

I first mentioned this company around November 2005 when I bought shares at the IPO at $10.50. I did not add it to this Site at that time because I certainly already am over-represented in property insurance companies. But as I see the price here fall under $8.00 I think it is worth considering. Due to its speculative nature I would not want to put too much into it however. Although I am inclined to keep building my cash position, I may add to my position in this stock. I will not do so before Wednesday Sept 27, because it is fair that I trade only after giving subscribers to this Site an opportunity to buy before I do. For most of the stocks on this site, that would be a rather pointless restriction since most of the stocks here are very liquid and my trades would not disadvantage anyone. However, I will make it a practice not to Buy any company until at least 2 full trading days after it has been, for the first time, rated a Buy or higher on this Site.

Speaking of property insurance companies. I continue to think Q3 should look very good for them, given the lack of extreme weather or major fires in Canada. I am tempted to buy back into ING Canada as it has fallen in price in recent days.

Performance figures are updated. My own portfolio and the Buys had a small gain on the week even as the TSX went a bit lower.

Sept 22, 2006

At this time the overall broad market such as the DOW index is in something of a tug-of-war between lower oil prices and lower long-term interest rates which should both push the broader market up and fears of recession which is pulling the market down. This week the fear of recession was the stronger force.

The Thomson Corporation is updated and rated (lower) Buy at  CAN $45.02 or U.S. $40.31. I like the business it is in - selling information electronically. I seems to me that profits could really grow as it continues to deliver more products electronically and less in print. But the price is high. I prefer to wait for a pull-back before I would buy. I have a small position in it and may even consider selling that to raise cash or to move into a stock that I rate Buy or high. A (lower) Buy rating means I consider it somewhere between a Weak Buy / Hold and a Buy.

Sept 20, 2006

Loblaw was down 2% today after announcing its President is being replaced by Mark Foote an executive that had joined them from Canadian Tire earlier this year. I was also surprised that Galen Westin senior age 65 will hand over the executive chairman role to junior aged 33. In some ways I saw the moves as positive. It says to me that the Weston family is concerned about the stock price and the profit slide and they want action to fix it. On the other hand, it could well signal that Q3 will be bad. The new CEO could take the opportunity to make certain "charges" for the future costs in the restructuring which would drive earnings down in Q3. After all if there is any way to transfer expenses from Q4 when the new guy is in charge to Q3 where it can be blamed on the old guy, it would be an easy decision for the new guy to do it.

My belief is that at some point Loblaws will be a good investment but it is not clear if it has bottomed yet. I believe there are things the company can do to "realize value" these include turning into an income trust (why not?, everyone else is) or selling off the real estate and leasing it back. I have not bought any yet. If I did I would consider buying about 25% of the shares I would ultimately like to have and then waiting to see where it goes after it post the Q3 numbers. If the family ever wanted to sell, I wonder if Buffett would be interested? Other Canadian companies that I have thought Buffett might like to buy include Thomson, Shaw Communications and any of the Power Financial group. (Although Buffett prefers totally private companies that do not trade on the market.)

Shaw was up nicely today. With oil down I would think CN might recover. It may depend if the market is still expecting a recession.

I may place an order to sell some (say 25%) of my Western Financial if I can get say $3.30 or more. I have a big exposure to it. I notice its trading volume is down so not much buying interest right now. On the other hand it could announce an acquisition which could boost the price. And Q3 should be strong unless there are developments in the area of bad debt on loans. But with the strong Alberta economy there is little reason for people to default on loan payments.

September 19, 2006

With oil down today and with benign inflation reports I would have thought the DOW and non-oil stocks would go up. At some point I may become interested in the Energy Exchange traded fund XEG if oil falls further. We have some XEG in the model tracking portfolio but I do not own it personally.

September 18, 2006

It was not surprising to see CN go up today. This is a strong cash generating stock and it should do well. If we had a bad recession it would likely drop but it's not clear that we will have a bad recession and in the long run it will do well even if it does dip temporarily. As a different situation I also like Shaw Communications as a company that is increasing its cash flows. It seems it could be running a path similar to that of Telus but maybe a year behind Telus in its move towards better profitability. I sold some of my Pason Sytems stock today (no longer rated on the Site). If I bought anything right now it might be to add to my Kingsway or Northbridge positions.

September 16, 2006

A tiny company, Clemex is updated and rated (highly) Speculative Buy at 22 cents. This stock would not be on this Site if it were not for the fact that I have held this stock for many years and that it was one of our picks in our earliest days on this Site.

I will provide here some "true confessions" on my history with this stock:

I have a rather unfortunate history with the stock having first bought it at its IPO around 60 cents, followed it down to under 30 cents and then very briefly up over $1.00 where I sold only to buy back at around 80 cents and then bought more as it fell to 20 cents. As I averaged down all the way to about 15 cents I became way over-exposed to it. Around then I removed it from this Site. It ultimately fell to under 10 cents.  As it finally became profitable again in recent years I sold some around 23 cents and 33 cents but still have it as about 1.6% of my portfolio. As it recovered in the past few years from under ten cents to the 40 cents level, I finally added it back to this Site at 38 cents which in retrospect was either too late or to early given the recent move back to the 20 cent level.  This is a stock where I basically clung to my early positive views on the stock (from year 2000) even when it began posting losses. Hopefully that is the type of mistake that I can avoid in future. Certainly most of my trades in recent years have worked out much better than this one.

The thing is, it really does seem to have great technology and so I keep thinking there is potential here. Right now I consider it quite speculative but I keep it on the Site because of my own interest in it. It is not a stock that investors should get over exposed to. Management appeared to indicate that Q2 will not be all that strong, but that Q3 and Q4 will be strong. (The year end is April 2007). If so the stock price could recover nicely in the Spring of 2007 but may or may not do much until then.

September 15, 2006

Recently I decided to refresh my memory by re-reading a book called How to Pick Stocks Like Warren Buffett by Timothy Vick. According to Vick, Buffett had a rule that he would not invest in a stock unless there was a reasonable chance of making 15% per year if held for the longer term (say ten years). We calculate intrinsic value on the assumption that an investor would be satified with an 8% return. However, in truth most of us are certainly hoping for more like 15%. Therefore we have added a new calculation to to our analysis where we will calculate what earnings growth would be required in order to provide a return of 15% per year using a reasonable projection for the selling P/E in five years. In some cases this may help reveal cases where there is little hope of ever achieving a 15% return.

Canadian Tire is updated and rated Weak Buy at $69.02 (it closed today at $69.85). In the past we have under estimated the company's ability to grow earnings and perhaps that is the case again. But the stock price is pricing in fairly robust earnings grow at a time when the economy in most of Canada may be slowing.

September 14, 2006

For those holding Wendy's, do not panic if the stock appears to plummet from its current $63.84 level to about the $29 level. It should do so on whatever date it starts to trade without the right to receive the 1.3593 shares of Tim Horton per Wendy's share that it is expected to spin-out at the end of this month. I saw an indication today that tomorrow Friday September 15th may possibly be the last day that Wendy's trades as a Wendy's / Tims combo. But I am not sure on that date. The correct date may be Oct. 2. TD indicates record date September 15 and ex-date Oct 2, so it seems more likely that Wendy's will drop to a "Wendy's only" share on October 3. It's been a nice run for Wendy's considering that when I first added to this site in 2004 it was just under $38 and it fell as low as about $31 before eventually doubling to in the two years after that.

Tim Hortons has fallen back a bit and while we only rate it a (lower) Buy I do like the potential and will likely add to my position if it should happen to drop to about the $27 level.

My cash position has increased to about 16%, which is still not that high given the possibility of a pull-back in the markets. Still, I find myself itchy to add to some of my higher rated positions.

September 13, 2006

Performance figures have been updated. Our Buys and Strong Buys have done well in the past few weeks even as the TSX index has fallen. At the moment I am feeling optimistic about how things will go through to the end of the year.

September 12, 2006

Quite possibly I was too hasty in selling off some of my Telus shares. For the model portfolio purposes I will hold onto Telus for now at least and see what happens.

I don't se why a company like Loblaws or CN might not think about going the Trust route as well, which is an added bonus in holding those stocks. (Though I have heard absolutely no indication that they would consider it).

The conversion of Telus could cause the government to start looking at this again. If they don't do something, then at some point very few companies will be left paying income tax. If they do announce a review of Trust taxation then it will send the Trusts down in price.

Trust conversions are financial engineering - wringing more value out of the same pre-tax cashflow. We seem to have had an awful lot of that in the past five years or so. But at some point I would think most of the financial engineering and mergers and divestitures will be essentially done and then we could enter quite a dry spell where this extra boost to stock prices will no longer happen.

I noticed today a stock I used to cover, Sino-forest is down to $3.70 from highs around $7. Based on earnings it would look quite cheap. Also there has been some insider buying. So that seems tempting. But as I said earlier about this company I was just not comfortable with it due to past changes in strategy and seeming inconsistencies in their story. Warren Buffett teaches us to not invest unless we are comfortable with management. For whatever reason I am just not comfortable. Therefore I think it is best if I just stay away from this stock. Maybe I will miss out on something here. But the fact is that there are thousands of companies to choose from and I prefer to put money into companies where I don't have any nagging doubts about whether I quite trust management. So, I think I will continue to ignore Sino-Forest.

September 11, 2006

The TSX market was down over 200 points today as the hot energy and minerals sectors continued to cool. However my own account and our stock picks here had a positive day.

The big news was Telus announcing it would become an income Trust. I did mention that rumor under March 9 below. But we rated Telus a (higher) Buy even without the Trust conversion possibility. So the Trust conversion is just an added bonus. I sold just over half my position this morning. For the model portfolio purposes I will continue to hold it.

Another interesting thing with Telus today. The non-voting shares which in recent days trailed the voting by $2.00 and have generally trailed by about $1.50 closed the day at only 40 cents lower than the voting shares. I have for some time felt that in the case of Telus it would be best to buy the cheaper non-voting shares because the vote was not really worth anything to a retail investor and because the two share classes would likely eventually come together. The non-voting shares existed so non-Canadians (mostly Americans) could hold more Telus than would otherwise be allowed. As soon as Telus found a way around that foreign ownership restriction it was predictable the two share classes would converge. That's why I switched to analyzing the non-voting shares back on May 7, 2006. And under Feb 21, I mentioned I bought Telus non-voting for my account.

For the moment I consider Telus to be a hold. It may well rise further if the conversion goes through but that is some months off. If the conversion does not go through it would drop. So overall I am comfortable with my decision today to sell about half my shares and play wait and see with the other half.

It looks like this Fall could be a tough period for stocks. Ina falling market it will be more difficult for the picks here to rise, still I like the chances for these picks.

September 10, 2006

An edition of the free newsletter has just been sent out (11:35 pm Eastern time). If you have not received this then try adding your email to our free list on the home page. The system will tell you if your email was already on the free list or not. If your email was on the free list then my email with the free newsletter was likely blocked by a spam filter. Some spam filters may block any email with links in it. If you did not receive the free newsletter despite being on the list let me know, since I am interested in knowing if it is getting blocked by spam filters.

This weekend I have been doing analysis regarding whether or not the broad stock market indexes such as the TSX or the Dow Jones Industrial Average are fairly valued and what return we can expect on these indexes in long-run if we purchase these indexes today. This analysis is based on logic and also on looking at historical relationships between stock market returns and growth in the economy. I have updated 6 articles that explore this topic. To explore these important articles, click on the "Articles" link at the top of this page. A new summary article has also been posted.

September 9, 2006

Manulife Financial is updated for its strong Q2 earnings and rated Speculative (lower) Strong Buy at $36.10 (The rating is better than Buy, better than (higher) Buy but not quite a full Strong Buy). Few analysts would call it speculative. I think it is moderately speculative due to the "black box" nature of its earnings calculations. Earnings are calculated using actuarial assumptions which are rather opaque. In addition, I don't think management does as good a job explaining those assumptions as it could. Howeve, this is a company that hhas really delivered. The stock is up 107% since it was first added to this site as a Strong Buy in late 2002. Earnings have almost doubled since that time as well. I would consider adding to my small position in this stock except that right now I have a goal to be a bit higher weighted in cash.

Telus has slipped back a little on its announcement that it will increase capital spending on its internet facilities. Given there recent successes I am willing to assume that the investment will pay off and so my opinion of the company has not changed.

September 8, 2006

Our stock picks lost some ground this week. Performance figures have been updated. But they held up quite a bit better than the TSX which was down 2.4%. Kingsway Financial did quite well this week. It now becomes even more clear what a bargain it was when it fell to about $19 in June. It still looks to be a bargain. Even though it is my largest position I am tempted to add to my position. So far in Q3 the hurricane season in the U.S. has been tame. And in Canada I have not heard of any major fires or weather causing property damage. Therefore, I believe Q3 is shaping up to be quite good for insurance company earnings. However, I always have to caution that insurance stocks are by nature risky.

September 6, 2006

The markets took a hit today. Just when they seemed to be reaching for new highs. It goes to show the market is nervous about a U.S. recession and therefore it may be a time to be in safer stocks and to raise the cash percentage somewhat. Still our picks did not get hit as bad as the market today. With the oil price coming down that is good for many stocks. Also long-term interest rates have come down which is generally good for stocks (unless that is, it signals a recession). These are some of the factors the market is trying to digest at this time.

September 5, 2006

I did sell my small position in Aeroplan today, as I indicated on September 3 that I might do.

Nice gains today in Kingsway and Cognos. It is disappointing to see Western Financial fall to $3.06 from recent highs over $3.40. But this is the nature of smaller companies, they do tend to be volatile. Also provides a chance to buy it at lower prices (I have enough of it already...).

September 3, 2006

Aeroplan is updated and is rated Speculative Weak Buy at $13.60. On the one hand I really like the loyalty points business model. It is a virtual business with few hard assets and it does not actually create a product. It has great strength as the loyalty program of choice in Canada. It appears to be a cash generating machine as points are sold and the cash is in hand long before the members ever cause a cash expenditure by using their accumulated points.

However Aeroplan is saddled with problems related to Air Canada. Until 2002, Air Canada essentially used to take out all the cash and nothing was set aside to pay for the trips earned by members. Even after raising money from the public it still retains a billion dollar deficit rather than any equity. That does not seem exactly a responsible situation. If Aeroplan were regulated like insurance companies and banks it would have to have equity. Perhaps it should not be a Trust. As a Trust it is paying out essentially all earnings and does not seem to be building equity at the current time.

Maybe the strong underlying business model will allow it to prosper. But overall it makes me somewhat nervous. Also I found the accounting to be complex to understand. Given that I wish to build my cash position, I may sell my small holding in Aeroplan. (Having said that, I would expect Q3 to be strong from a GAAP earnings perspective as many points will have been redeemed for air travel and it books earnings only when points are redeemed.)

I understand that ACE aviation may distribute its 75% stake in Aeroplan to its shareholders. his may be good for ACE shares but could have a temporary negative impact on Aeroplan.

September 2, 2006

Reitman's is updated and rated Buy at $20.61. This company has performed well and if the trend continues it will provide a strong return.

Sobeys is added to our list of stocks and rated Weak Buy / Hold at $38.88. (the price closed at $39.15 on Friday and that is the price we will use in any performance figures). Sobeys has an attractive price to book ratio (which should limit its downside risk) but the recent growth is quite low and the growth outlook is quite uncertain.

Heading into the Fall I am somewhat cautious about the direct of the overall markets. In any event I expect the Buys and Strong Buys on this Site to continue to do better than the market averages. The U.S. market rose yesterday based partly on lower inflation indicators. The danger is that the U.S. will enter a recession due to high interest rates, stagnant or falling house prices and high energy costs. Offsetting this is the fact that interest rates are still not high by historical standards. Also it seems likely that the Q3 earnings reports will be good.

I note that Western Financial came back to $3.15. It may settle at this level until such time that the company issues further news such as acquisitions.

August 28, 2006

I sold my Jean Coutu shares (see posts of the last few days) today at a small loss. Normally I am investing for the longer term. This was a case where I thought the market might grow to like the Coutu deal more and more over a period of a week or two. Instead the market decided, the more it understood about the deal the less it liked it. The original basis for my trade was proved wrong and I decided to make a quick exit.  When the entire basis for a trade changes then it probably makes sense to get out.  Coutu could do well in the long term but since I have not done a detailed analysis I had no good reason to continue to hold.

August 26, 2006

FirstService is updated at U.S. $23.81 or CAN $26.45 and is rated Buy. This is a company with a great history of growth in earnings per share. With a P/E around 20 it is not necessarily a bargain but it is reasonably priced if it can grow earnings at at least 10% per year and historically it has been closer to 17%. This is analyzed in U.S. dollars, even though it also trades in Toronto, because it reports in U.S. dollars. Revenue comes mainly from the U.s. with some international and only 22% from Canada. So it makes sense for it to report in U.S. dollars. Canadian investors have been hurt by the rise in our currency and that risk continues to apply if our dollar keeps rising.

It was disappointing but not exactly shocking to see Western Financial Group trade down 8.7% to close at $3.15 on Friday after reaching $3.45 on Thursday. This is thinly traded. Possibly what happened was that someone wanted to sell say 25,000 shares. In fact it looks like someone sold about 17,000 at $3.40 and then another 9,000 or so went at lower prices with probably only 4000 at $3.15. Basically the $3.15 is meaningless. The bid was at $3.25 at the close. The point is this stock will tend to be volatile and it may pay to be patient in placing orders to buy or sell. As mentioned below I let a small potion of my shares go at $3.40. I considered placing a "stink bid" to buy back at a lower price like $3.05 but I still have this as one of my biggest holdings and so will probably sit tight. Possibly I would sell a bit more if it happens to climb to say the $3.60 range, just to take advantage of the volatility. 

Wal-Mart is updated and rated Buy at U.S. $44.09 (it last traded at $43.88).  The investment story of Wal-Mart is that the stock rose by something like 1800% from the mid 70's to the start of 1993 (with some volatility but generally pretty steady). During 1993 to about mid 1997 it declined noticeably. Then it took off and rose sharply about 400% by the start of 2000, peaking over $80. In the over 6 years since then it has trended mostly down. This was the moody "Mr. Market" (See Benjamin Graham's The Intelligent Investor) at his "finest" given that the earnings per share of the company advanced in much more steady fashion than has the share price. On a valuation basis the stock appears to be a  reasonable long-term investment at this time.

My speculation on Jean Coutu shares is not going so well. A major difficulty is that a large portion of the purchase price will paid to Jean Coutu in the form of shares of Rite Aid. But Rite Aid is apparently a weak company that will (especially after this deal) have excessive debt. The future valuation of Jean Coutu is therefore tied to that of Rite Aid. For one thing that makes it complex to figure out even if Rite Aid was a strong company. But worse, Rite Aid is weak. The market is therefore not too excited by the deal.

The announcement of the deal was certainly badly handled as it was leaked Wednesday night and then hurriedly announced Thursday morning but with no analyst conference until mid-day Friday. Some news reports indicated that Jean Coutu was getting $3.4 billion for stores it had paid only $2.4 billion in 2004. However the company indicates it will post a loss of $140 million on the deal. (Just in the past two days our dollar has moved noticeably higher which will add to the loss.  Coutu also indicates it will take 12 months before its earnings go up as a result of the transaction and for the first 12 months it would lower earnings. Apparently there may be some legal challenges about a transfer of debt to Rite Aid. Overall this is looking very messy. I believe I should exit my position. It no longer looks like the Coutu shares are about to rise unless somehow an alternative bid were to materialize and there is no sign of that. The lesson for me is to stick with investing only after making an analysis of the facts and to avoid speculating and investing before the facts become clear.

Listening to the conference call Coutu seemed less than fully open and also seemed less than totally "on their game", in terms of being able to answer the questions.

August 25, 2006

Stantec is updated for Q2 earnings and rated (lower) Buy at $20.75 (note it closed today at $20.48). The graph of the revenue and earnings per share growth for Stantec is a thing of beauty. It has truly been a remarkable success for many years. However it now gets about 40% of its revenue from the U.S. and with a housing slow-down there and a possible recession looming, we rated it a (lower) Buy rather than a Buy. If the past is any indication, it would be a good long-term investment, but the share price can be volatile. This stock is up 730% since it was first introduced to this Site as a Strong Buy in September 1999.

August 24, 2006

There are more and more signs of a slowing U.S. economy. Nine or twelve months ago I worried about energy prices and higher interest rates but the consumer boom roared on. Now it looks to slow considerably. This is one reason to have a higher allocation to cash and to generally watch the market closely.

I mentioned Jean Coutu yesterday. Like I said, I normally don't get into speculating on takovers. By this morning Jean Coutu had confirmed a big deal was in the works, so that made it a bit less speculative. As expected the price moved up at the open. It opened up $1.70 at $12.65. Had a range today of $12.46 to $13.24 on huge volume. Therefore existing holders of Jean Coutu were up about $1.70 at the open and ended up being ahead $1.81 at the close.  That's fair, on this kind of positive news it should be existing shareholders who benefit, which is what happens unless the news gets leaked and then a few inside players get to scoop the gain from some shareholders who unwittingly sell ahead of good news.

Anyone who bought today paid at least $12.46 so most who bought today are only up a few cents and some were down. I decided to buy some on speculation. I have not analyzed the stock. But I understand that the U.S. stores purchased in 2004 were viewed as a big problem. From what I can see they did not lose money on the sale (may have gained) and so it appears that a problem has been solved or at least made a lot better. If a big problem has been solved then it seems to me that the share price might jump a bit more yet and at the same time hopefully will at least stay where it is. Again, I normally have analysis to back up opinion, in this case I am speculating on the news event so that is risky.

They have an analyst conference tomorrow at noon and maybe the price will move one way or the other based on the conference. It is not unusual to have the analyst conference in the middle of the trading day like this. But I find it unfair and frankly offensive to retail investors since most retail investors will not be a position to react to the news but the big guys will. If the conference were after the close then retail investors would get a better chance to digest the news.

There should be a couple or three updated reports on the Site over this coming weekend including most likely a new stock being added.

August 23, 2006

It was a good day in the markets for many of our picks. Western Financial closed at $3.44 on higher than average volume of 88,000 shares - which is still not that much volume. Based on my order placed when the stock was $3.20 or so, I sold what amounted to 18% of my Western Financial shares today at $3.40 to raise cash and possibly take advantage of volatility. It's hard to say if this will turn out to be a good move. But based on normal volatility it will likely be back to the $3.25 level unless it announces news like acquisitions that are viewed favorably. And despite the fact that we rate the stock a Speculative Buy, it could also fall noticeably if it happens to announce any bad news.

The Wall Street Journal is reporting that Jean Coutu is close to a deal to sell its problematic U.S. stores for cash and shares in the purchaser (U.S. Rite Aid Corp). From the figures quoted I suspect Jean Coutu will rise sharply tomorrow. (Sounds like they would be selling at a noticeable gain over what they paid in 2004). However I have never looked at the company and so my suspicion is based on very limited information. The problem with this type of news is that usually the market reacts so fast that there is no time to trade. But if this turns out to be a good deal and if the deal is actually struck (they are only reported to be close) then maybe the price of Coutu will go up only gradually. The danger is it jumps up and then the deal falls through. Might be okay to throw some speculative money at it. Overall though my inclination is to sit these things out since it does seem quite speculative.

For the story see:

 http://ca.news.finance.yahoo.com/23082006/2/biz-finance-jean-coutu-close-selling-u-s-stores-3.html

August 22, 2006

Cognos had moved up nicely to about $35 since our report at $30.29 but now has fallen back to $31.80. It's always hard and possibly dangerous to buy into a down-trend. I hold some and I would consider buying more but will likely just hold tight.

Western Financial has been somewhat volatile, with a range today from $3.13 to $3.39 on light volume. On a stock like this it may pay to be patient in buying or selling to try and get a better price. Of course the danger with that is is that it then refuses to be volatile in your favor and you fail to buy or sell as intended. Similarly I sometimes think with a stock like this, I should put an order to sell  a bit if it moves up say 5% and to buy if it moves down 5% and hopefully take advantage of the volatility. Since I hold a lot (by my small standards) of Western Financial I put in an order when it was $3.15 to sell a bit if it goes to $3.40. Almost got there today. The danger with my strategy is that if it moves more permanently up I will have sold and miss the upside. Similarly if I put an order to buy some if it goes to say $3.05 then if it takes a sustained run under $3.00 I will have bought on the way down. There are no riskless strategies but I will leave my order to sell a little if it happens to get to $3.40 in the near term.

On the subject of Western Financial. They are trying to grow their little banking operation. One of their main strategies has been to offer financing for recreational vehicles including travel trailers, largely in Alberta. A Trailer dealer that I talked to told me that Bank West had been aggressive in that it gave financing to some people of lower credit quality. That trailer dealer who had some experience in loans said he would not have given the loans. That is a bit scary. I have always said that a bank can wipe out its equity on bad debt if it is not careful. And I have said in the report that Western Financial Group in particular faces this danger due to its inexperience. On a positive note though, the economy is so good in Alberta that it is hard to imagine there would be many people who default on payments. Also Bank West is only a part of Western Financial's operations. Even in a worse case scenario where Bank West lost money and maybe closed up shop, I see no reason that Western Financial would not survive. But it would be beaten up by such an event. I hope I am not sounding too scared about the company. The fact is that every stock has some kind of risk. If investors always worry too much about worse cases then probably investing in individual stocks is too risky for investors that would worry too much or who are not prepared to take the occasional hit. Overall my sense is that Western Financial is going to continue to do well. (But I wanted to pass along the the word of caution from the Trailer dealer).

August 20, 2006

Canada Bread is updated for its Q2 earnings and is rated Weak Buy / Hold at $62.40. Our analysis was done at a price of $62.40. We note that the stock last traded at $61.00. Our rating would not change with that small price fluctuation.

August 19, 2006

Our Performance figures are updated above. We are not yet back to where we were in early May. But the progress in the last few weeks has been quite good.

The Q2 earnings reports are mostly in now. From the S&P web Site I calculate that reported earnings per share on the S&P 500 were up 10% year-over-year, while adjusted earnings per share were up 13%. That is yet another quarter of very strong earnings growth. In the long run earnings per share growth in the stock market does not tend to exceed the nominal growth in GDP which is closer to 6%. Earnings growth has been running well above the long-run expected level for at least three years.

Market sentiment seems to be strong at the moment as the market is expecting that interest rates will not rise. Offsetting this is the fact that a possible recession is the reason that interest rates will not rise. As always the sentiment in the market can change very quickly, but for the moment thhe trend is positive.

Western Financial Group is updated and rated Speculative Buy at $3.25. This is one of own largest holdings. In terms of a trading strategy the price is a bit volatile and it may well be possible to get it at close to $3.15. I have an order in to sell a bit at $3.40 if it is should reach that price in the very near term. That is just to raise cash and if it falls to $3.05 or so I would be tempted to add to the position rather than reduce. I look at this as the chance to buy at a reasonable price -  into a successful company that probably has a lot of growth ahead of it.

On Friday I sold half of my Wendy's because the price was up. I may move that into Tim Hortons. I was only ever holding Wendy's because of my interest in Tim Hortons. Now that I am not rating Tim Hortons and no longer rating Wendy's it made sense to move my holdings directly to Tim Hortons which I have largely done. Still I would not have minded continuing to hold the Wendy's until it spits out the Tim's shares on October 1 because that potentially could work out well. Also Wendy's may still get a boost if it splits off its Baja Fresh unit as some activist shareholders want it to do. For me, though the Wendy's seemed more speculative as I am more familiar with the Tim Hortons.

August 15, 2006

August 11, 2006

Telus (non-voting shares) is updated for its Q2 earnings ad rated (higher) Buy at CAN $51.35. This has done very well since we called it a Speculative Buy back on October 6, 2004 at $28 (that was for the voting shares, the non-voting were a bit lower). At that time, our theory was that the GAAP earnings were under-stating the true value and that GAAP earnings would rise and that the company was generating more cash than the GAAP earnings suggested. Our theory was correct and the price has risen. Perhaps most of the "easy money" has been made. But if the company continues on its current trend then the shares should continue to rise. As always, there are risks. In this case more intensified competition with Shaw Communications is a risk.

For interest the old Telus report from October 2004 happens to be one of our example reports and is available here: http://www.investorsfriend.com/ExampleTelusOct6sdfg.html

August 10, 2006

Good earnings reports out from ING Canada and Western Financial Group today. By Sunday, we will have some updated reports for these or other companies that have recently reported.

After today's terrorist scare (threats to blow up large passenger jets) I was pleasantly surprised to have a good day in the market. Our stock picks have recovered much of the ground lost in the recent market down-turn. The Q2 earnings releases have been strong, as expected.

But I am getting nervous being about 91% invested in equities. Historically, a high equity allocation is best over the long run. But if the market takes a dive due to recession/interest rates or terrorist attacks, I am then going to regret being so heavily weighted to equities. I am therefore going to look at trimming my equity position. I find this hard to do because it might mean selling some stocks that I really like and which I think will continue to rise. But I won't sell whole positions on any buy or strong buy rated stocks, rather I hope to just trim some of those.

Given today's terrorist scare and given all the problems in the middle east, we certainly should not be surprised if there does come major terrorist attacks in North America. It seems there are millions of people with a seething hatred for the United States. Partly this is due to the U.S. support of Israel. I make no judgment who is "right" in these wars. But I can imagine that when people have family members or fellow citizens killed, emotions run extremely raw. Also many of the survivors are leading bleak lives and see no bright future. Under that scenario, it is really not that hard to imagine someone deciding to become a suicide bomber. Unfortunately that is starting to lead me to think that a major terrorist attack(s) in the U.S. will occur.

Having said that, North America is a resilient place and stocks will eventually do well in almost any imaginable future. Still, I think I will feel more comfortable if I can raise my cash position to say 25%.

For those with exposures to oil stocks I would think that recent events bode well for the price of oil. I also think Alberta will continue to do very well. This would benefit any Alberta-based companies including Stantec, Canadian Western Bank, Western Financial Group. Even if oil prices drop, I would think that North American governments would desperately want to see the Alberta oil sands developed as fast as possible. More Alberta oil supplies mean less dependence on the middle east and it also means that less money flows into the hands of the potential enemies of the United States.

August 9, 2006

I added to my Tim Hortons today as I had entered a price below the market and ended up buying as the price fell. This stock is now below the $27 IPO price and certainly well below the $36.21 that it opened trading with on its first day back on March 24. Remember back in March there was a frenzy to buy and you could not get your hands on any at the $27 IPO price and so it "popped" into the mid-thirties when it started trading. Now it is available in the market at $27 and apparently few people want it at this price. The frenzy is long gone. I only rated it (lower) Buy at $28.37 so I too think it is not a screaming bargain. Still, I am happy to hold some and may buy more if the price keeps going down.

 Apparently one reason for the decline is the fear that all the American Wendy's shareholders will dump it when they are handed their shares on October 1. Well maybe so, but that has exactly zero impact on what the shares are actually worth, and will affect the share price only temporarily. Also Wendy's went to great pains to insure that the Tim Hortons shares would be received without a capital gain by those American Wendy's shareowners. They will have to keep the Tim Horton's if they want to avoid the capital gain.

Maybe Tim Hortons will not have any kind of spectacular growth but I am willing to bet that this company which has been growing fast in Canada for 40 years has a bit more growth left here. And maybe it will stumble in the U.S., but on the other hand maybe it will start to slowly build up in the U.S. as well. I like its chances.

August 7, 2006

The market has now recovered half or more of the losses from the recent down-turn - although this depends on an individual's portfolio composition. Investors may be wondering if it would be best to reduce the equity position and move into bonds or cash. I believe that such a decision is very much dependent on individual circumstances and risk tolerances. For that reason, I will have little to say on that subject.

Personally, I do see some risks in the overall market. There is the risk of higher interest rates and a consumer recession due to interest rates and high energy prices. The events in the middle east are indicative that major terrorist attacks in the U.S. are certainly a possibility. For that reason I would prefer to be adding to my cash position (given I am about 91% in equities and only 9% in cash). However, right now I not holding stocks that I would like to sell. I will be reviewing that and may sell some lower rates stocks just to raise cash, although I have nothing definite in mind. For the next week or two I am hopeful that strong earnings releases will out-weigh the negative influences of oil prices, possible recession and the middle east situation.

Home Capital is updated and rated speculative (lower) Buy at $31.80. The value ratios indicat