Climbing a wall of worry carrying Canadian stocks
As the stock market climbs toward its old highs, this Canadian analyst has a wealth of Canadian stocks to take along on its worrisome trip up.
Stocks, we are often told, climb a wall of worry.
One of the biggest walls of worry this country has seen is the 170-foot cliff fronting the Plains of Abraham.
One brokerage quip goes that General James Wolfe summoned the regimental economist. “What is your forecasted growth for this place?”
The economist said his conservative forecast was 1.5 per cent GDP growth, but that a brisk pickup in trade could produce 2.5 per cent.
Skeptical of forecasts, the general finally sighed: “Well, if the risk really is 2.5 per cent to the upside, we’d better scale the heights.”
Poor General Wolfe, of course, did not live to see whether or not this particular economist’s prediction came true.
Mr. Michael Smedley, who gives us that quip, isn’t going to risk any predictions on Canada’s GDP growth. He’s just going to pick stocks.
Mr. Smedley “would not scale a cliff for either one per cent or three pre cent of GDP,” he tells the readers of Investor's Digest of Canada. But as a stock picker he is still scrambling for winners now that stocks have scaled two-thirds of the heights attained before the crash of 2008.
The manager of a closed-end fund for over two decades, this analyst has plenty of experience in picking stocks. And he has picked a plethora of Canadian stocks, most of them in technology and mining.
So let’s start climbing that wall of worry, stock by stock.
Off to the future
There are plenty of worries for the market to get a foothold on as it climbs, with good news and bad news piling on top of each other.
So Mr. Smedley ignores the present and heads off to the future to begin his stock picking. He looks to 4G (or fourth generation) wireless standards, as the tech revolution continues unabated.
He begins his selection at the top. In Canada, that means Research in Motion (TSX-RIM). Although competition comes hot and heavy in the tech world, this giant has a lengthy head start. It trades today at $71.25 and does not pay a dividend yet.
But this is just running the mouse across the surface of tech stocks, in this analyst’s opinion. While no tech portfolio is complete without a big name or two, he says, right now “many smaller Canadian tech pioneers have started to do well in 3G/4G crossover time.”
Their own territory
In his fund, Mr. Smedley holds DragonWave (TSX-DWI), Sierra Wireless (TSX-SW) and Bridgewater Systems (TSX-BWC), each of which has carved out its own territory in the expanding wireless broadband network. He is also happy that he did not sell off Redknee Solutions (TSX-RKN) in a “silly” tax-loss deal.
DragonWave, which traded at less than $1.29 in the spring, is now at $12.65. Sierra Wireless trades at $12.64 (and was at $3.36 in the past year) and Bridgewater is at $9.26 (was $3.20). Redknee is at $1.22 — and was as low as 18¢ not so long ago.
“We’re not tech crazy,” the analyst insists, but there are a few other tech stocks sprinkled among his firm’s accounts. One-time Ottawa tech superstar Celestica (TSX-CLS), which has a few controversies in its past, is one. Another is entertainment star Imax Corp. (TSX-IMX). Rounding out this group is Logibec Groupe Informatique (TSX-LGI), which has become a rising force in medical information technology.
Celestica is trading at $10.96, well above its 52-week lows. Imax is also up at $12.64. At $21.90, Logibec has had a strong run, although it is thinly traded.
Busy pouring their revenues back into the business, none of these tech stocks pays a dividend.
This resourceful country
There was a time when Canada was far better known for mining than microchips. And it’s still very rich in rocks.
But Mr. Smedley notes that there are few large cap names left in the field here. The biggest, of course, is Teck Resources Ltd. (TSX-TCK.B). It has had a very strong run, currently settling in at $36.35. This analyst believes it will eventually restore its dividend.
And he adds: “I am dreaming of the day when major mining groups get reassembled in this resourceful country.”
In the interim, he likes three smaller companies. One is Northern Dynasty Minerals (TSX-NDM), which is emerging from a long environmental battle in Alaska, mines copper and molybdenum. Imperial Metals (TSX-III) is working on a new copper discovery in B.C. And FNX Mining (TSX-FNX) has a new find of its own on the Sudbury Rim.
Northern Dynasty is up about $4 over the past year, to $9.24. Imperial has had a significant rise up to $14.20. FNX has also had a solid run up to $12.50. Like the tech stocks, these miners put their cash back into development. No dividends.
There’s plenty of gold in Canadian hills as well, and Mr. Smedley likes four domestic projects. None of these pay dividends either, by the way.
In the Timmins camp of Northern Ontario, Lakeshore Gold (TSX-LSG) has the backing of a big Peruvian company. In Ontario’s Red Lake district, Rubicon Minerals (TSX-RMX) is a high-grade operator that could follow other mines into “consolidation” (i.e., takeover). Both have been down a bit, Lakeshore at $3.09, Rubicon at $4.63.
Several stocks have risen in price, and thus offer higher risk, the analyst tells us. Osisko Mining (TSX-OSK), which recently upgraded its total reserves at the Canadian Malartic project in Quebec by 43 per cent, is now at $8.44. Detour Gold Corp. (TSX-DGC) has ridden its deposit at Detour Lake in northeastern Ontario up to $16.55.
Mr. Smedley concludes his smorgasbord of stock picks in Investor's Digest of Canada by turning to two Canadian big caps he likes.
One is Magna International (TSX-MG.A), which he regards as the healthiest of North American auto firms, especially since “it is no longer arm-wrestling with GM over its Opel and Vauxhall businesses in Europe.” It trades at $60.54. Like Teck, it has not restored its dividend.
Finally, he takes us to the prairies and Alliance Grain Traders Ltd. (TSX-AGT). This rapidly expanding company, which processes specialty crops, has seen its share price rise almost five-fold in a year, to $32.90. And it pays a dividend, yielding 1.7 per cent on $0.54.
Like the regimental economist, this analyst passes on a prediction that has emerged from a “think tank” in his offices. The S&P/TSX Composite Index will climb to 13,048 in 2010 (it’s at 11,245 at the moment).
The market may take a turn down, he admits, but “I want to keep on enjoying the climb.” Any investors who want to join him won’t lack for Canadian stocks to carry on the trip.
|
E-mail this article
Printer-Friendly
