Wednesday, October 31, 2007

Government Sued Over Income Trusts

I came across an article by John Partridge while doing my daily read on Globe Investor and thought that it was worth sharing.

A U.S. couple is currently in the process of suing the Canadian government claiming that the 2006 unexpected changes to the income trust tax laws are in breach of the NAFTA agreement.

To read the entire article please follow this link.

Tuesday, October 30, 2007

U.S Housing

Ok so Buffet and many other deep value investors are starting to re-enter the housing market and some of you want to go against the herd and follow Buffets lead (and why wouldn’t you Buffet is the most successful investor of all time)...but which housing companies are going to survive? Which are going to fail? Which are going to thrive? There are some great companies out there that are certainly going to survive ie- HOME DEPOT, LOWES etc…However, are those companies going to thrive? What about builders? Which ones are going to continue to thrive? If you’re like everyone else out there you don’t know the answer to those questions (and neither do I). However, if you’re confident in the sector but not necessarily in the individual names of the sector you might want to check out the SPDR Homebuilders ETF.

“The SPDR Homebuilders ETF seeks to replicate as closely as possible, before expenses, the performance of an index derived from the homebuilding segment of a U.S. total market composite index. The Fund uses a passive management strategy designed to track the total return performance of the S&P Homebuilders Select Industry Index (the "Homebuilders Index" or the "Index"). The Homebuilders Index represents the homebuilding sub-industry portion of the S&P TMI. The S&P TMI tracks all the U.S. common stocks regularly traded on the NYSE, American Stock Exchange, NASDAQ National Market and NASDAQ Small Cap exchanges (except Berkshire Hathaway). The Homebuilders Index is an equal weighted market cap index.”

The above description was taken from the American Stock Exchange

Year to date XHB is has already fallen 42.56%. Here are the top 10 holdings.

Home Depot - 4.44%
Lowes - 4.33%
Sherwin Williams - 4.75%
Mohawk Inds Inc - 4.99%
D R Horton Inc - 4.45%
Pulte Homes Inc - 4.62%
Toll Brothers Inc - 5.38%
Leggett & Platt Inc - 4.73%
Lennar Corp - 4.68%

It’s currently trading at almost exactly it’s net asset value.

(Disclaimer: As always please do your own research before making any purchases.)

Friday, October 26, 2007

Time to Get Back Into Housing? Buffet Thinks So

The U.S. housing sector is a mess, everyone’s waiting for the next shoe to drop in the whole sub prime fiasco and all the analysts are advising clients to avoid the sector. You’d have to be crazy to invest in the U.S housing sector right now… right? Well maybe not, last month Warren Buffet raised $750 million through a debt offering for Clayton Homes, which “builds, sells, finances, leases, and insures manufactured and modular homes as well as re-locatable commercial and educational buildings.”

Other successful investors initiating positions in the housing market include:
Robert Robotti
Robert Rodriguez

Tuesday, October 23, 2007

Natural Gas – II

Here’s a little more detail on the factors that effect natural gas prices.

The demand for natural gas usually peaks sometime between November and March. This of course depends on how cold the temperature gets as natural gas is the main input for heating North American homes. Likewise, the demand for natural gas increases in the summer when everyone starts turning on their air conditioners. The price of natural gas is also influenced by catastrophic weather events ie- hurricanes. If you’ve ever watched your local weather forecast you know that the weather can’t be accurately predicted (especially the long term forecast) so although we know that weather affects the price of natural gas we can’t predict when. However, it is safe to assume that at some point there will be either a vicious hot/cold snap or major hurricane and gas prices will spike (which is when they should be dumped)

Well this one is obvious...the more people that need to heat/cool their house the greater the demand for natural gas.

Economic Growth
Industrial and commercial enterprises use a huge amount of electricity (which is largely generated with natural gas). When the economy is flourishing the demand for goods increases and therefore the manufacturing of goods increases which increases the amount of electricity used. The opposite occurs during a recession. As an example during the small recession in 2001 the industrial demand for natural gas fell by 6%.

Fuel Competition
This basically refers to the ability of large industrial users of natural gas to change fuels if the price of natural gas gets too high. For example, some power plants can change from gas to coal and vise versa if the price of either commodity gets too high. This will decrease demand of the commodity and therefore reduce the price of that commodity.

The amount of gas in storage obviously affects the price…the more gas in storage the lower the price, the less gas in storage the higher the price. This is a simple principle of supply and demand, if there is lots of gas in storage there is a limited threat of a supply crunch.

If natural gas is cooled to -260F at normal pressures it become a liquid know as LNG and takes up 1 six-hundredth of the volume that it does in it’s gaseous state. LNG is really the only economically viable way to ship natural gas internationally and currently only accounts for about 1% of the natural gas used in the United States. However, as technology advances this number is certain to climb which will cause natural gas to be priced based on global demand (as most commodities are) instead of continental demand.

Friday, October 19, 2007

Chartwell Seniors Housing - CSH.UN

I’ll continue on the natural gas theme next week…in the meantime. I increased my position in Chartwells Senior Housing yesterday bringing CSH.UN up to just over 5% of my portfolio.

“Chartwell is a growth-oriented investment trust owning and managing a complete spectrum of seniors housing communities. It is the largest participant in the Canadian seniors housing business and the third largest in North America. Chartwell will capitalize on the strong demographic trends present in its markets to grow internally and through accretive acquisitions. Chartwell also has an exclusive option to purchase stabilized communities from Spectrum, Canada's largest and fastest growing seniors housing development company.”

-The company is well positioned to capitalize on the aging North American demographic
-They have a significant presence in the higher margin category of retirement homes (ie-retired wealthy people)
-I’ve recently talked to a few people who have just placed their parents in a Chartwells nursing home and they were blown away at the quality of the accommodations and services provided in the home.

Dividend Yield: 8.9%
Current P/E– 0
Projected 2007 P/E – 16.5X
Projected 2008 P/E – 12.3
Price/Sales – 1.9
Price/Book – 1.3

-Were recently for sale but did not receive any offers that management thought were acceptable.
-Have primarily been a growth by acquisition story but are now concentrating on bringing in all operations.
-BMO rates them as “outperform”
-National Bank has a $15 price target
-Canaccord has a $12.5 price target
-First Call consensus is a hold

For more information on CHS.UN please visit their website at:

Thursday, October 18, 2007

Natural Gas

I have been recently doing some research and speaking with a mining engineer friend of mine about natural gas and its prospects as an investment going forward. I’m in the process of developing a general strategy for investing in natural gas. As many of you probably know natural gas prices have been depressed while oil and other resources have been enjoying a boom. This point is be painfully clear if you are one of the many investors that have a gas stock or two tucked away in your portfolio…as many of them have literally been cut in half ie – CMT, GZ, GNY

Now it’s not all bad news. The good news is that because natural gas prices are so low many companies have either greatly reduced (or stopped) their drilling levels. Despite this fact there has been no movement in gas prices, why? Well the reason is simple we still have a ton of the stuff in reserve so there hasn’t been any pressures on the supply side…yet…but what happens when those reserves start to diminish? Well the answer’s obvious increased gas prices. This of course will cause increased stock prices of the gas producers. So in a sense the gas business is largely self-regulating over time.

Other factors that will affect the demand for natural gas are listed below:
1. Weather
2. Demographics
3. Economic Growth
4. Fuel Competition
5. Storage
6. Exports

I’ll elaborate on each of the criteria tomorrow and talk a little more about what I’m planning on doing with natural gas stocks.

Monday, October 15, 2007

Steps to Early Retirement

There is certainly no shortage of opinions on the steps to early retirement. In this post I’m going to outline the steps that I will be following and feel are necessary to successfully retire early.

Step 1
Realizing that you Actually Need a Retirement Plan – this sounds simple but it’s amazing how many people don’t have a real retirement strategy. Many people save for retirement but have no idea how they are doing or how close they are to retirement. I’ve talked to people who’s “retirement strategy” is to work until 60 and then retire…but they have no idea of how much money they’ll need at 60, how much they’ll be receiving or how much they should be saving or investing. I think “Realizing that you Actually Need a Retirement Plan” is the most important but often overlooked step in many people's retirement journey.

Step 2
Now that you know you need a real retirement plan you need to determine exactly how much money you’ll need each month and then add 10% to that number as a safety cushion. Probably the easiest way to do this is to keep track of your current monthly expenditures and then add and subtract any expenses/expenditures that you think you’d have in retirement ie- increased travel costs, decreased commuting cost etc...

Step 3
Determine how you’re going to generate the required income you calculated in step 2. This isn’t an easy task and if you have no interest in investing or finance may require the help of a retirement planner or investment advisor. I’m not going to go over all of the available strategies as your retirement strategy should be tailored to your specific needs and risk tolerance. Personally, I am pursuing a dividend growth strategy, the rational for my decision can be found here.

Step 4
ELIMINATE ALL DEBT – I personally believe that it’s crucial to ensure that when your retirement date arrives you have no debt of any kind (this certainly includes your mortgage). After you retire your employment income will be 0 so to protect yourself from unforeseen events (ie- rapid rise in interest rates) I am going to make sure that I am debt free when I retire. Some people will argue that it’s OK to retire with a small amount of manageable debt…but I disagree.

Here is a link to my personal retirement philosophy. It will probably be different than yours but it works for me. As always comments are welcome.

Friday, October 12, 2007


The Money Gardener asked me a good question in the comments section of my blog but I thought I’d answer it as a post as I’ve recently received a few email regarding Loblaws.

"I am surprised that you still hold Loblaws. Are you in this name for the long term? What is your rationale for holding on to this dog?"

Good question...I bought L with the intention of holding for the long term. However, my patience is starting to wane. Since I bought it has been disappointment after disappointment however, I am going to continue to hold and give them a chance to execute their strategy and get their supply chain issues sorted out. I still believe that L is the best CDN grocery retailer and has well respected brands in both the discount and upscale grocery market. Additionally, free cash flows are starting to increase and at 18X estimated 2007 earnings and 16X 2008 estimated earnings I don’t think the stock has a lot of downside from here as the valuations are getting reasonable. Additionally, the stock is considered to be in a defensive sector and the markets expectations are already so low that the stock won’t be severely punished from here (unless they miss earnings by a huge margin). For now I am going to continue to hold and collect the 2% dividend, but as I said my patience is starting to wane and if they continue to disappoint and falter in the execution of their strategy I will be a seller.

Thursday, October 11, 2007

New Position - WAG

I initiated a position in WAG yesterday. As many of you know I really like the company but just haven’t been able to pull the trigger based on valuation. However, that all changed 10 days ago when WAG missed earnings by $0.07 and the stock was hammered 15%. Despite the earnings miss I don’t think that anything has fundamentally changed with WAG and as far as I can tell the pricing environment is the same as it was before the miss. The recent correction has simply made a great company cheaper and I plan on being a very long term shareholder of the company.

For further fundamental information on WAG please refer to the below posts:

From My Blog
Investing Based on Demographics WAG-CVS

From the Money Gardeners Blog:
Who said Drugstore Stocks Were Boring

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Wednesday, October 10, 2007

Retirement Nest Egg at the Close of Oct 09, 2007

-no change from last month
-up 8.6% in 2007

TRP – 4.25%
CSH.UN – 2.90%
GWO – 5.05%
PFE – 3.7%
POW – 4.45%
BA.UN – 0.41%
L – 3.76%
UNS – 2.87%
GZ – 2.51%
TD – 14.02%
EIT.UN – 2.74%
JNJ – 5.69%
MMM – 4.15%
ZED – 0.44%
ATD.B – 3.7%
O'Shaughnessy’s Global Fund – 3.97%
American Growth Fund – 0.98%
Canadian Value Fund – 3.77%
Small Cap Growth Fund – 4.21%
Chou Associates Fund – 10.12%
Money Market Fund – 16.31%

Last month was unusually active for me (although still quite boring by many peoples standards). I sold GO.A just before their 10% drop, took some profits in ABX (sold too early) and finally decided to unload an underperforming Health Science Fund that I’d purchased almost a decade ago before I really knew anything about investing. These transactions have left me with about 16% of my portfolio sitting in cash. This month I will probably be initiating a position in WAG and will continue to keep an eye on ATD.B, IPL.UN, IIC, TOC, GO.A

Tuesday, October 9, 2007

Investing based on Demographics - Johnson & Johnson (JNJ)

“Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. The company's worldwide business is divided into three segments: Consumer; Pharmaceutical; and Professional.”

Dividend Yield: 2.6%
Dividend Yield 5yr Avg: 1.9 %
ROE levels of above 21% for the past 10 years
Current P/E– 18
Projected 2007 P/E –16
Projected 2008 P/E – 15
4 Star rating from S&P - $74 one year target
Argus rates it a buy with a $76 one year target

Other information:
-44 years of consistent dividend growth.
-Dividends issued to shareowners every quarter since 1944.
-Dividend raised each year for 44 consecutive years.
-Sales have increased each year for 73 consecutive years.
-Double digit Earnings increases for 21 consecutive years.
-44% of sales outside of North America

THESIS: JNJ sells hundreds of brand name products in the health care space. As the population ages they will increasingly be using more health care products and devices made be JNJ. I am very bullish on the long term prospects of JNJ and currently have close to 6% of my portfolio invested with them. I would continue to accumulate as both JNJ and the American dollar dips.

Wednesday, October 3, 2007

Investing Based on Demographics - CLC.UN

I'm still on vacation but managed to get connected with a 28.0 kbps modem (very very slow)...and for those of you that live in Canada have a great Thanksgiving.

CML Health Care (CLC.UN)

“Provides laboratory testing services in Ontario and medical imaging services in five provinces across Canada through wholly owned CML Healthcare Inc.”

Dividend Yield: 6.4%
ROE: 19.91%
PE: 14.6X
Estimated 2007 PE: 13.3X
Estimated 2008 PE: 12.85X
TDNewcrest: Hold, $15.65 target

THESIS: This one is easy, CLC.UN makes money whenever a medical test is sent to the lab. As the population ages more tests are done. CLC.UN is a virtually recession proof company, in an industry with high barriers to entry and rock solid cash flows that I definitely plan on adding to my portfolio in the future. This is another case where I love the company but don’t like the price. The only disadvantage I see with owning CLC.UN (other than valuation)is that many of their prices are regulated but the government which means they lose their pricing power for some tests.