Leaside Life took a hiatus in July for some much needed R&R. We do it every year in the middle of the summer.
Apparently, the Leaside Stock Index didn’t get the memo. In the two months since our last issue the index really took care of business, gaining 3.89 percent, its best result yet, pushing it into positive territory year-to-date for the first time since its creation in February. Mind you, it’s still getting trounced by the SPY and XIC, its ETF benchmarks, but in this two-month period, at least, the LSI prevailed by 74 basis points.
It might not seem like much but it’s a start and that’s all that matters. Momentum has finally taken hold.
Almost 70 percent of the LSI stocks delivered positive returns in June and July, an accomplishment that hadn’t been achieved up to this point. Although some of the U.S. stocks struggled, it was generally a good two-month performance on both sides of the border.
Down south, three stocks stood out in June and July: PetSmart (PETM), Best Buy (BBY) and Starbucks (SBUX), up 19, 8 and 6 percent respectively.
PetSmart gained on news its largest institutional shareholders were pushing the company to put itself up for sale or merge with its biggest rival, Petco. The people working in the stores aren’t the problem, it’s the corporate higher-ups who can’t seem to understand that its prices need to be lower and its stores spruced up a little.
Best Buy’s gains came on the back of a 12 percent increase in its quarterly dividend in mid-June to 19 cents per share, a sign the company is generating more than enough cash to operate its multichannel business model. CEO Hubert Joly has already made the tough choices in order to keep Big Blue open and now it’s up to the company to perform. Electronics are selling poorly these days so it’s not going to be easy. In the July issue I explained why Best Buy should remain in the index. On balance I feel nothing’s changed to alter my opinion.
Lastly, what can I say about SBUX that hasn’t already been said? The Seattle company continues to grow same-store sales (year-over-year comparisons of stores open at least 13 months) at breakneck speed, putting McDonald’s (MCD) completely to shame. Possibly with the exception of Berkshire Hathaway (BRK.B), SBUX is my favourite U.S. stock in the LSI. If you’ve owned it long-term you’ve done very well.
When it comes to the Canadian holdings the big winners were the grocery stores: Loblaws (L.TO) and Empire Company (EMP-A.TO) saw double-digit returns in June and July with both delivering 18 percent over the two-month period. Loblaws is benefiting from the purchase of Shoppers Drug Mart and Empire Company (it owns Sobey’s) from Safeway’s Canadian stores out west. Not choosing Metro (MU.TO) has turned out to be a very good decision as both grocery store owners have outperformed the Quebec-based Metro.
The other big performers in June and July were the banks with Bank of Nova Scotia (BNS.TO) and TD (TD.TO) both achieving total returns of 7 percent spread over two months of trading. Year-to-date TD and BNS are the LSI’s second- and third-best performing stocks out of the entire bunch. With both generating huge profits — $3.6 billion combined in the second quarter ended April 30 — they’ve become the favourite stocks for conservative investors.
Anytime you deliver results that are better than your benchmarks you know you’ve had a good month, or two as is the case here. Unfortunately, the performance gap between U.S. and Canadian stocks that developed early on in the LSI’s creation has made it nearly impossible to catch up.
However, if the margin between them continues to diminish by half a percent each month, it’s possible that the LSI will catch up sometime in 2015. Two months ago that wouldn’t have seemed possible.