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Transaction Alert

On April 24, 2017, we executed the following transaction(s):

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Canadian Dividend Watch List: April 2017

Performance Review

Below is the performance of our Canadian Watch List from April 2016:

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On the whole, the watch list underperformed with a –0.10% decline, this is contrasted with the Toronto Stock Exchange +17.70% change in the same period of time.

While the analysts got a majority of the calls wrong, estimates for Shaw Communications (SJR-B.TO) and Canadian Real Estate Investment Trust (REI-UN.TO) exceeded estimates on the upside.  Our call on Imperial Oil (IMO.TO)was short of the mark in the final analysis.  However, looking at the intra-year performance below, we can see that Imperial Oil rivaled the performance of the Toronto Stock Exchange (^GSPTSE).

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Canadian Dividend Watch List

U.S. Dividend Watch List: April 21, 2017

Prior Year Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from April 22, 2016 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Symbol Name 2015 Price 2016 Price % change
BF-B Brown-Forman Corp. CL 'B' 46.63 46.26 -0.8%
NPBC National Penn Bancshares 10.72 13.00 21.3%
MAC Macerich 76.81 65.05 -15.3%
AXS Axis Capital Holdings Ltd 54.74 66.20 20.9%
STBA S&T BanCorp. 25.89 34.84 34.6%
      Average 12.1%
         
DJI Dow Jones Industrial 17,977.24 20,547.76 14.3%
SPX S&P 500 2,091.58 2,348.69 12.3%

The average gain of the top five companies from the prior year was +12.10%. This is comparable to the S&P 500 index. With that being said, we stated clearly that there was little case to be made for this list but emphasized that the financial sector provided good risk / reward. As such, if we excluded the two non-financial companies from the top five, Brown-Forman (BF-B) and Macerich (MAC), we end up with an average gain of 25%.

U.S. Dividend Watch List: April 21, 2017

The market continue to trade in a narrow range. However, the 50-day moving average appears to be a short-term resistance line. More volatility is expected in the coming weeks as earnings are announced. This is a good opportunity to take the time to study companies on this list that came off of bad earning reports. A one-time hit to the stock has proven to be an opportune time to accumulate shares for the long run. Below are 26 companies on our list. Continue reading

Insurance Watch List: April 2017

Performance Review

Below is the performance of the Insurance Watch List dated April 17, 2016:

symbol name 1-yr % chg
OB OneBeacon Insurance Group, Ltd. 29.29%
AFSI AmTrust Financial Services, Inc. -36.81%
UVE Universal Insurance Holdings Inc. 36.12%
ZFSVF Zurich Insurance Group AG 21.72%
AXS AXIS Capital Holdings Limited 19.59%
SAFT Safety Insurance Group Inc. 26.33%
AIG American International Group, Inc. 7.77%
FFG FBL Financial Group Inc. 8.70%
AV Aviva plc -6.93%
AFG American Financial Group Inc. 38.31%

The best performing insurance stock was American Financial Group (AFG) with a gain of +38.31%.  The worst performing stock was AmTrust Financial Services (AFSI) with a decline of –36.81%.  The average change for the entire watch list was +14.14%.  This is contrasted by the iShares US Insurance ETF (IAK) change of +17.59% in the same period of time.

Below we see that the analysts had their challenges.   However, the estimates for AIG in the last year were right on target.  This suggests that it would be worth watching closely what the analysts have to say about AIG going forward.

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Insurance Watch List: 2017

The following are the insurance stocks to watch for the coming year:

Are There “Values” in Gold Stocks?

Looking at any analysis of gold stocks, you would think that fundamentals matter.  The companies have quarterly reports that reflect operating expenses, pre-tax profits, estimates reserves, sometimes earnings and in rare instances dividends. 

However, when it comes to gold stocks, the only thing that matters is the direction in the price of gold.  If you believe you know the direction of gold then, by default, you know the direction that gold stocks are headed.  All semblance of fundamental analysis is ultimately not relevant to the price of a gold stock, in spite of proven & probable reserves, acquisitions, share buybacks, AISC or claims by the CEO that things are looking up (they rarely, if ever, say the opposite).

Take a look at a comparison between gold and the price of Barrick Gold Corp. (ABX) in the period from October 2003 to April 2017.

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The only distinction to be made between the price of the stock and the price of gold is the magnitude of the direction up or down.  If fundamental investing mattered, then at some point there should be some level of divergence in the general direction of gold and gold stocks.  This would allow savvy investors to seize on the mispricing of a stock and ride the wave up or down.

For the sake of comparison, look at the difference between corn and Archer Daniels Midland (ADM) over the same period as the ABX and gold review.

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In the case of ADM, we can see the areas (blue boxes) where there are distinct divergences between the price of the stock and the price of corn.  These are key areas where fundamental values, and basic economics, demonstrate key levels of under/overvaluation.  Of course, ADM is not simply a pure play on corn as they’re involved in other agricultural products.  However, knowing the industry, pricing, competition and other attributes of the business could give you a distinct advantage as a buyer and seller of ADM stock.  This is not the case for gold stocks.

Lest we be called out for being selective in choosing a period that was only in a rising trend, we have included the period from 1983 to 2001 and compared the Philadelphia Gold and Silver Stock Index (XAU) to the price of gold, a time when gold was in a declining trend.  In this more expansive period of time, there was only one point in time, January 1986 to July 1986, when there was a material divergence between the price of gold and gold stocks.

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It is precisely when there is a material divergence between gold and gold stocks that a fundamental review will reveal the true “value” and therefore warrant contrarian investments (short/long) in the gold stock complex.  If a period of divergence isn’t as readily identifiable, as in the ADM example, then you know that what should be examined isn’t the stock but the underlying commodity.

Ultimately, when a well known stock analyst ( or unknown) applies fundamental analysis to a gold stock, you know that you are reading material that is of little or no value in relation to reality.