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Instead of talking about the economy, why not invest in stocks?

In this Canadian advisory, we meet a money manager who says to heck with more economic predictions, a good stock is a good stock.

It’s fairly obvious that the outlook for the economy isn’t great. But can we really tell the difference between a recession and a slowdown? If we knew the TSX and the Dow Jones were going to be down three days next week and up two, would it really make a big difference to most of us?

Probably not, is the answer of at least one seasoned observer. “As a money manager,” says Mr. John Sartz, “I am often asked to provide a forecast for the stock market. Although many of my colleagues may not admit it, the usefulness of such exercises can be considered on a par with party tricks at a social gathering.”

So writes Mr. Sartz in Investor’s Digest of Canada. It’s a much better idea to take a look at good stocks — such as three he particularly likes at the moment — and contemplate the economy in your spare time.

And that’s the order we’ll go in. We’ll look at Mr. Sartz’s three stocks and then contemplate the future of the economy and the markets and what they’re liable to mean.

No longer lost in space

Once upon a time, CAE Inc. (TSX-CAE) was one of Canada’s rising gems, a unique flight-simulating aerospace engineering firm with a brilliant future. Then 9/11 happened and the airline industry got lost in space. Now it’s coming back into orbit.

Mr. Sartz, who’s president and head stock picker at Viking Capital, recommended CAE when the shares were sitting below $5. “At the time,” he admits, “my only argument was the fact that this was a good company which would fare well once the aerospace cycle turned.”

Subsequently the stock tripled. Now it has corrected as investors worry about uncertainty in the markets. But that worry is completely misplaced. “The fact, “ says Mr. Sartz, “is that because of the enormous lead times the aerospace cycle is completely divorced from the economic cycle.”

“And if valuations for previous cycles are any indication, CAE will trade in the high teens when it’s everyone’s favorite at the peak of the aerospace cycle.” When this article was written a little over a week ago, the stock’s price was $11.63. It closed yesterday at $11.82.

A cold winter

Another company Mr. Sartz likes is Enerflex Systems Income Fund (TSX-EFX.UN). It installs compression units and other equipment used in the natural gas business.

Like CAE, it is in a business that does not move in tune with the economic cycle. “Instead,” says the money manager, “it tends to depend on the production and transportation of natural gas, and as such natural gas prices tend to be the key. The outlook for those prices seems to be improving, following a surprisingly cold winter.”

People in many parts of Canada are wondering if that cold winter is really over yet. But it was certainly kinder to natural gas prices. Enerflex units were trading at $10.80 when this article hit the press. They opened today at $11.90.

Never gets any respect

Next is a company that “never seems to get any respect, or investment coverage,” says the money manager. Yet it’s literally a household name in most of Canada — Leon’s Furniture (TSX-LNF).

“Given the daily bad news on the U.S. household front,” adds Mr. Sartz, “Leon’s may seem vulnerable. However, this company has in the past shown a remarkable resilience and periods of weakness have been good times to buy.”

Leon’s stock stood at $11.90 when the article was written. It closed down a little yesterday, at $11.50. (And if you buy the shares, you do have to pay before 16 months.)

These shares have all been manhandled by the stock market’s seemingly endless corrections, but you can purchase them without worrying about the economy, in Mr. Sartz’s opinion. In fact, worrying about the economy may not do you any good at all.

Angels dancing on the head of a pin

As investors, we may not know as much about the economy as we think we know, implies Mr. Sartz. “With respect to economics,” he says, “I really don’t think you or I would notice any difference whether the economy was in a recession or simply a slow landing.”

“However, the media, attempting to create interest would like to impart to us the notion that the distinction is key to your financial well-being. Personally, I find attempting to forecast the short-term direction of the stock market as relevant as the general population a few hundred years ago would have found theological discussions about the number of angels who could dance on the head of a pin.”

As a sage observer once suggested, adds Mr. Sartz, “we are dealing not with a stock market, but with a market of stocks.” In other words, seek out good individual stocks. Don’t chase the market.

You will find economists and strategists liberally sprinkled through the business section of the newspaper, but if you pay too much attention to their general musings, you may be missing specific opportunities.

“Obviously, the near-term outlook for the economy is far from robust,” concludes Mr. Sartz. “However, the prices of these three stocks seem to already reflect a less-than-stellar outlook, as they have shown considerable weakness of their highs. These are good companies that can be purchased at reasonable valuations.”

You can certainly uncover more stocks at reasonable valuations — and absorb as much or as little discussion on the economy as you want — with a trial subscription to Investor’s Digest of Canada.

Just now this advisory, which treats its readers to the opinions of a veritable army of independent experts, money managers, brokerage analysts and — yes — newsletter editors, has a special offer that lets new readers try it at $100.00 of the regular price. You’ll also receive 5 special reports jam-packed with specific investment advice you can use right now.

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