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Leaside Stock Index – May 2014

The U. S. stocks here might as well surrender

leaside stock indexIf the first quarter is any indication of what we can expect in the future, the Americans might as well send up a white flag of surrender because without the currency exchange, it’s a relative slaughter.

By the time you are reading this we’ll be well into the second quarter of the year. Given Canadian stocks in general outperformed their U.S. counterparts in the first quarter of 2014 — S&P/TSX Capped Composite Index Fund (XIC) up 5.5 percent versus 1.3 percent (excluding currency exchange) for the SPDR S&P 500 ETF (SPY) —  it’s not surprising that the 10 Canadian stocks in the LSI easily outperformed their 10 American counterparts. 

In the first three months of the year only three of 10 American stocks produced positive returns with the best performance a 5.4 percent gain from Berkshire Hathaway (BRK.B-N), a stock considered a has-been by many business media types. Warren Buffett might be in his 80s but he’s still got something left in the tank when it comes to investing.

leaside stocksWith the ongoing crisis at Best Buy (BBY-N), which is down 33.8 percent through the end of the first quarter, it’s not hard to understand why the American stocks are off a combined 6.5 percent including currency and 10.0 percent without. The only other stock showing any kind of life is Dunkin’ Brands (DNKN-Q), the owners of the Baskin Robbins franchise, which is up 4.1 percent year-to-date. Otherwise it’s been a brutal year.

On the Canadian side of the LSI tally a total of five stocks finished the end of March in positive territory including Alimentation Couche-Tard (ATD.B-T) up a sizzling 11.9 percent. While the three American stocks averaged a gain of 3.5 percent, the five Canadian stocks gaining ground in the first quarter averaged 7.9 percent, more than double the Americans. If only this were hockey and not money, we’d all be much happier.

So, where to from here?

I expect Canadian stocks to continue to outperform their American counterparts for the reminder of the year. While the U.S. economy looks to be growing faster than the economy here in Canada the simple fact remains that Canadian stocks currently provide better value having trailed those in the U.S. by quite a margin (7 percent annually) over the last five years.

Individually, when it comes to Canadian stocks, I see good things happening at Canadian Tire, Alimentation Couche-Tard and TD Bank over the next three quarters.

South of the border I expect Starbucks to move into positive territory as we move through the year and it starts rolling out its beer and wine evenings concept across the U.S. However, don’t expect this to come to Ontario anytime soon because the red tape here when it comes to serving liquor is legendary.

Bottom line: Unless something happens to spur stocks south of the border it’s going to be really hard for the Leaside Stock Index to make any kind of concerted move in 2014. The only possibility is if Best Buy were to go on a big run after a good earnings report and that’s looking less likely by the day.

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