Category: Weekly Commentary

02 Nov 2018

Issue 44 – The Selloff Brings Long Term Investment Opportunity

If we haven’t hit bottom on the Canadian market, we must be getting there soon. In the month of October, the Canadian market corrected by approximately 10%, and don’t forget the Canadian market prior to the October sell off was pretty much flat for the year. What is intriguing with the Canadian market, is even before the selloff of the market, it was already inexpensive compared to its 5-year average. Here are some interesting numbers, the forward P/E and the actual P/E for the TSX prior to the selloff were approximately 15.5x and 17.5x respectively.

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06 Apr 2018

Issue 14 – Superior is Slimming Down

On April 3, 2018, Superior Plus Corp (TSX:SPB) announced $72 million in non-core dispositions. The sales included their U.S. wholesale refined fuels business and some fuel terminal assets. The dispersal of the lower margin wholesale businesses will allow the company to focus on its significantly higher retail business. Superior also sold some US retail distillate assets. The sale proceeds add to SPB’s war chest. The cash generated will be used to acquire more strategic assets for their core businesses: energy services, specialty chemicals, and construction products distribution.

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23 Feb 2018

Issue 8 – No Love for the Bank of Nova Scotia

The Bank of Nova Scotia (TSX:BNS) has been significantly underperforming its peers since January 31, 2018. Palos believes this underperformance is primarily due to NAFTA fears. In our view, this fear is overblown and ignores the bank’s fundamentals and growth opportunities. If Canadian interest rates continue to rise, banks will benefit from margin expansion. However, higher rates are a double-edged sword. With rising rates, you can expect loan originations to slowdown in Canada. Canadian Banks that have low international exposure will struggle to grow their loan book.

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09 Feb 2018

Issue 6 – The Stock Market & U.S. Energy Complex

On most days, no one knows why stocks are up or down. This is particularly true with sudden market moves. I hate to admit it, but we should have seen this one coming. After hitting its highest level in a decade, household confidence in the economy slipped for the third month in a row in January. The University of Michigan’s index is 1.1 points below the 2017 average of 96.8, which was the highest yearly average in two decades. Put simply, it is normal to feel a little less confident about the economic outlook when things are already as good as it gets.

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15 Dec 2017

Issue 50 – Happy Holidays

Dear clients, friends, employees and suppliers of Palos, we want to wish you all the very best over the holiday season. Most importantly, we would like to thank you for your trust and loyalty over the years. We greatly appreciate everything that you have done for Palos.

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02 Nov 2017

Issue 44 – The Tide Continues to Rise

The Tidewater Midstream and Infrastructure Ltd (TSX: TWM) is moving ahead with one of its three large projects. This has been a long time coming. Rome was not built in one day. Palos believes that patient investors will be well compensated. Joel Macleod and his management team have received approval to construct a 100 MM cf/d sour deep-cut Motney gas plant. The project is expected to cost $210 million and includes an extensive network of gathering pipelines. The project will be funded by its current line of credit and by its cash flows. Palos is comfortable with the financing strategy as the project is backed by two anchor tenants that have committed to 55% of the plant capacity under 5 year take or pay contracts. The plant is also very well located and will have a first mover advantage in the area.

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12 Oct 2017

Issue 41 – Los Angeles Orders More Buses

On October 10, 2017, New Flyer Industries (TSX: NFI) announced the introduction of its next generation battery-electric heavy-duty transit bus. The new and improved Xcelsior bus will now be available in 35, 40, and 60-foot models. The new Xcelsior has extended battery range technology that enables travel of 200 miles on a single charge. The motor also has regeneration energy recovery and the highest torque available which makes it compatible for steep grade cities such as San Francisco. In addition to zero emissions, passengers will experience the quietest bus ride possible.

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14 Sep 2017

Issue 37 – Storagevault

StorageVault’s (TSX: SVI) main business is owning, operating and leasing self storage facilities. Since SVI is the only public storage company in Canada, it is the only way for investors to get exposure to this space. We are attracted to this type of real-estate as it is the only one that can achieve 12% growth in net operating income (NOI). At the same time, SVI is consolidating the market by acquisition. Last quarter, SVI acquired a Montreal property for $8 million. Furthermore, on August 01, 2017, SVI announced the closing of the acquisition of Sentinel storage, which is made up of 24 properties, and is in the process of closing on 9 more properties.

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31 Aug 2017

Issue 35 – Hello!!! Propane!!!

Propane has been a sleepy commodity for the past few years and most investors have lost interest in it. However, the fundamentals have been changing in a very unnoticed manner by most. Ever since the US opened its propane business to the world via export terminals, things have been getting a lot tighter for the commodity. We’re always on the lookout for opportunities such as this one where investors have thrown in the towel and driven valuations to compelling levels.

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24 Aug 2017

Issue 34 – Did Someone Say Dividend?!

So far this quarter, two banks have reported their earnings and both have increased their dividend. Royal Bank of Canada (TSX: RY) raised its quarterly dividend by 5% to $0.91, which was higher than expected. CIBC (TSX: CM) raised its quarterly dividend 2.4% to $1.30 from $1.27. In general, over the past few years, Canadian banks have reported strong financials quarter after quarter. However, they are not getting much respect compared to their US competitors. It appears the Canadian housing market and Canadian debt levels have overshadowed the positive news from Canadian banks. Meanwhile, the Canadian economy is firing on all cylinders and even the province of Quebec is experiencing the best economic expansion and unemployment rate in 40 years.

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10 Aug 2017

Issue 32 – On the Canadian Dollar

The exchange value of the Canadian dollar increased in a fast and furious manner in the last few months vis-a-vis the U.S dollar. Since May 4, 2017, the Canadian dollar rose from 72 to 80 US cents a few days ago. That is two cents above our calculated purchasing power parity rate but two cents below its twenty-year average of 82 US cents. At the time of this writing, the loonie was fetching 79 US cents compared to only 68 US cents in January 2016. It appears that the Bank of Canada encouraged the recovery for it sold more than $1.0 billion worth of U.S. dollars in the last six months. Nevertheless, future performance will depend on what will happen to Canadian terms of trade, monetary policy and economic growth.

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