A bright future takes shape for Canadian stocks
Whatever shape the recovery takes, says this Canadian expert, there are a lot of Canadian stocks worth investing in — like these twelve.
Every recovery has a shape, say the technical analysts.
It’s “V” if the economy or market goes straight back up after it hits bottom, “U” if it drags along the bottom a while, and — horror of horrors — “L” if it goes down and stays down for a long time.
So how about a duck-shaped recovery?
At a recent conference, Mr. Alan Leighton, the CEO of Loblaw Companies Ltd. (TSX-L), overlaid his company’s progress chart along the outline of a duck, from beak to tail.
He got a laugh and made his point, says Mr. Michael Smedley. If a major grocery chain walks like a duck, it’s waddling ahead slowly.
Manager of a closed-end fund for two decades, Mr. Smedley doesn’t worry too much about technical market patterns. He just likes “to spot the ever-changing ways of the world and its markets,” he tells the readers of Investor's Digest of Canada.
One thing he has spotted is a Scotia Capital report entitled “Why You Want to Own Canada.” He agrees with it.
And he has a list of 12 Canadian stocks he thinks are worth owning.
A closet global index
The Scotia Capital report, says Mr. Smedley, “mentions the obvious relative strength of the Canadian banking system and the economy.”
But it also recognizes that Canadian enterprise has a big role to play in the growth of emerging economies.
In fact, you could view the S&P/TSX Composite Index as a “closet global index.” More than half of its stocks — oil, gas, coal and metals as well as finance, industry and technology — are “world-related,” as they contribute to business in developing countries.
Plus there are enough positive trends in Canadian business — and little enough wealth in weak savings rates — to convince investors to look for gains in a mostly positive market.
So let’s look for those gains. We’ll find them in a couple of turnaround stocks, in technology and in metals.
Turning around
Mr. Smedly has had a buy on Loblaw, he admits, and he awaits further progress. But he applied the same turnaround strategy by “trading down” to buy beverage maker Cott Corp. (TSX-BCB) — and it worked. The stock has bubbled up since spring.
A similar candidate is Ballard Power Systems (TSX-BLD), which has been underwhelming investors for some time now. It has made a switch from fuel cells for cars to back up systems in communications and other fields, and it is getting contract feelers in India and Denmark.
The stock has jumped up a bit lately. Stay tuned, says this expert.
Then there are stocks that don’t need to turn around at all.
Explosive and a gamble
One recent success, Mr. Smedley says, is SXC Health Solutions Corp. (TSX-SXC). “I first noticed this firm when its shares advanced slowly in the grim second half of 2008 when bearish ETFs were virtually the only securities making highs and we were all in despair.”
This software company, specializing in the management of pharmacy benefits, went roaring up the charts from $15 to $50. It still has big growth ahead, in this fund manager’s opinion.
“Canada is gaining prominence in other tech fields just as Nortel is in its death throes,” adds the analyst, looking to repeat his success with SXC.
He holds two stocks that are “explosive and a gamble,” but still carry lower risk than biotech firms because their products are proven. They are Dragon Wave Inc. (TSX-DWI) a “backhaul” specialist that connects the wireless world back into the big service provider networks, and Bridgewater Systems Corp. (TSX-BWC), whose software controls access to cell and smart phone networks.
He also cites Rugged-Com Inc. (TSX-RCM), which designs technology for “harsh” environments, like utility, transportation and industrial networks. Its share price has been taking a breather after a big gain.
The rebound in metals
Although he never doubted the upward direction of the market, this analyst tells us, he is “surprised at the speed of the metals rebound.”
Mr. Smedley has five metal stocks he’s following. They start with diamonds. The shares of Harry Winston Diamonds (TSX-HW) have been moving up and it has cancelled its winter mine shutdown. It has also opened an outlet in China, the new luxury market these days.
Gold Resource Corp. (OTC-GORO) is a “speculative mining idea.” The shares are only available on the “pink sheets” of the over the counter market in New York. And its mine near Acapulco is in an area that has never been mined. But a big South American group (Hochschild plc) thinks enough of its prospects to have bought in. The shares are rising.
The same group has also bought into Ontario’s Lake Shore Gold (TSX-LSG). Mr. Smedley’s fund is buying this stock through the back door, as it were. It owns West Timmins Mining, which will soon be acquired by Lake Shore. The shares of Lake Share have been spiralling up the charts.
Farther from home, this fund manager likes East Asia Minerals (TSX/V-EAS), which once concentrated on uranium in Mongolia, but is now giving more attention to a promising gold mine in northern Sumatra, Indonesia. Its shares were pointed up as well.
A few of these stocks are in pretty remote territory, so it’s always nice to have a well-known “safe country” stock to tuck into your portfolio, says the analyst. HudBay Minerals (TSX-HBM) fits the bill, as it builds on a copper and gold extension at its Lalor Lake property in Manitoba.
The investment community had thumbed its nose at HudBay for a while, but it has come back into the fold with this new development.
Mr. Smedley sums up his shopping list of stocks for Investor's Digest of Canada. “I have named quite a few winners in this feature, but I have of course invested in ducks that have gone backward or barely waddled at all.”
But if he’s right about the shape of things to come in Canada, there will be plenty of high-flying stocks in our future.
You can meet the editors of several of the publications we feature in Daily Buy-Sell Adviser tomorrow at the World MoneyShow in Toronto. We will be with them at the Investor’s Digest booth in the Metro Toronto Convention Centre Thursday, October 22 from 12:30 to 2:30 pm.
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