We would sell here. The rumour is no more and reality should soon set in. More importantly we can tentatively suggest that a 5-wave move was in fact completed at today’s high. On top of that both the RSI and the MACD are off the chart! The $94 max. that may be paid is extremely generous particularly when the stated reason for this move is not tax-inversion but global growth. Mr. Buffet’s involvement as financier, by way of $3 bln. preferred shares supposedly yielding 9+%, scares us for the clear predatory objective here by lending his name to the deal. That this deal could lead to greater growth internationally is nonsensical given that outside of Canada there are few people who have ever heard of Tim Hortens. As always the risk now is that the deal might not go through. Deal risk now is not imaginary. Our government may think that this is just the beginning of a surreptitious attempt to annex Canada.

Our gap-in-the-middle theory also suggest this is as good as it gets. A sell now and here.

At $52 this one looked a little overpriced – wrong call – we are now at $85, where the X is.

The company may be taken over, or is that merge ?, with Burger King.  At $9 bln or so each they are almost equals. How culturally Canadian coffee and American hamburgers fit remains a mystery (as with Wendy’s), but then the point, if this actually happens, is to create one of these now infamous tax-inversions that would allow both companies to enjoy the lower corporate tax rate which just happens to be Canada’s. In the news comparisons are made between US 40% and Can. 26% even though I thought our rate is, or soon will go to about 15%. In the US the actual rate is usually much lower and probable more in the order of 30% or less. So let us assume a difference of 15% which would apply only to 1/2 of the new company as the other half already enjoys this benefit, so the saving is about 7+%. Despite that both stocks are up by about 22%, or three times as much. Does it then follow that the stock is overvalued?

Tim Hortens trades at roughly a p/e of 30X, Burger King at about 45X so, apart from the fact that there are no overvalued stocks when rates are zero, these very modest p/e ratios indicate that there is potential still. A quick look at Starbucks, SBUX, below, shows how much;

For Timmies to get to this level the stock can rise to $752. The real question is actually if it would not be better to invert the other way as these are American dollars worth an extra 10%. Just remember the old adage, Buy the rumour and sell the fact.