From the Desk of Irwin Michael – August 28, 2015

Over the past two weeks, global equity markets have exhibited extraordinary volatility and remarkable price weakness amid late summer seasonality. Share price declines are largely attributable to lingering concerns such as China’s decelerating economic growth and stock market fragility, confusion over the U.S. Federal Reserve’s interest rate intentions and U.S. economic growth, a pending and “too close to call” Canadian federal election, etc.

These and other factors led to growing investor fears, frustrations, and, ultimately, the market turmoil which we have experienced over the past few days. Many investors are fixated on chaotic common stock prices rather than fundamental values. They are, in effect, “missing the forest for the trees.” We believe that the recent market disorder and heightened investor anxiety have spawned growing psychological negativity. This pessimism has led to significant irrational investment trading over the past few days.

One example is a favoured ABC Funds holding of CVS Health Corp. ($115 billion $U.S. market capitalization), an integrated and well-run U.S. healthcare company composed of drug stores, pharmacy benefit management and walk-in clinics. We believe that healthcare is a prime beneficiary of an aging population and changing demographics. Followed by over 20 investment analysts with price targets of $115-$130 $U.S., CVS was trading at approximately $105 when the market turmoil of Monday, August 24th set in. The stock was pummeled and CVS traded down to an intraday low of $81.37 before ending the session at $100.21. This low price of $81.37 was characteristic of the extreme market confusion and prevailing fear. Given its fundamental value, should CVS have fallen so low? We don’t think so.

In summation, we believe the unusual market turmoil will pass and that positive fundamentals will prevail. Well positioned companies such as CVS will eventually be recognized to attain their true elevated values.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

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