Three Canadian stocks that will win the race
Investing today is like competing in the Tour de France, says this Canadian analyst — and he has three stocks that can stay the course.
Many Canadians ride bicycles, but far fewer follow the Tour de France.
The name Lance Armstrong will surely ring a bell, but this event doesn’t exactly have Stanley Cup or Grey Cup status in these parts.
Yet the Tour de France offers a very apt strategy for investing in these troubled times.
And it’s the simplest strategy of all. Slow and steady wins the race.
The strategist in this case is a successful Canadian fund manager. Mr. John Sartz is convinced that investing in today’s markets is very much like competing in cycling’s greatest endurance test.
He explains why in the latest edition of Investor's Digest of Canada. He also identifies three stocks that are bound to prosper through the endurance test the markets are setting these days.
He begins by letting his Norwegian pride show through.
Hang in there
Within the Tour de France, Mr. Sartz explains, there are a number of different winners. And each one gets an identifying shirt. The best rider in the mountains gets the polka dot jersey.
The best sprinter gets the green jersey (and this analyst hopes it’s his “fellow Norwegian,” a certain Mr. Thor Hushoft).
But here’s where this grueling three-week contest resembles the investment race, says Mr. Sartz. The overall winner, the one who takes the coveted yellow jersey, may not win a single one of the stages in the Tour.
He will be the one who finishes the most stages at or near the front. He will have won the endurance race. The winner’s approach, says the analyst, “is to hang in there at all times rather than attempting to do anything heroic at any given time.”
In short, slow (but not too slow) and steady does prevail. And that’s a lot like Mr. Sartz’s own experience in investing.
Far less ambitious
He is reminded of this unheroic approach whenever he gathers with fellow fund managers. “I have a momentary feeling of inadequacy as I am surrounded by competitors who all own the latest big thing, whereas I never seem to be a player in any of those stocks.”
And then he recalls a simple fact. His investment record is pretty good. The small cap fund he has managed for eleven years has done better, with less volatility, than most of the competition.
“The ‘secret’ behind this performance is my failure to worry about short-term performance. I simply try to purchase shares of good companies when they are available at attractive prices.”
He picks them up when other investors think they are not timely buys. And in the short term, they are absolutely right, Mr. Sartz adds.
“However, whereas they want to outperform all the time, I am far less ambitious. I simply want to perform over time.”
Owning it forever
When he purchases a company, Mr. Sartz does it with the intention of “owning it pretty much forever.” That doesn’t always happen, of course, but his average period to hold a stock is more than six years.
And when he does a post mortem in 2016, the first two quarters of 2010 “will not prove to have been a major influence in the success or failure of the investment strategy.”
To make his case, he chooses three stocks for his Investor's Digest of Canada readers. Toromont Industries (TSX-TIH) has been going through an adjustment period. It made an unfriendly takeover of Enerflex Systems, which will be a substantial addition to its Gas Compression unit.
But in the process it shouldered costs for that bid and “probably suffered from inattentiveness to the core business during the process.” The core business is its large Caterpillar franchise.
Toromont’s so-so first-quarter results reflected the ingestion of Enerflex and the stock is trading at $23.99, about six dollars below its March high. It yields 2.5 per cent on an annual dividend of $0.60.
At ShawCor Ltd. (TSX-SCL.A), says Mr. Sartz, “the pipe-coating business is notoriously chunky in nature.” Naturally it depends on pipeline construction to make the most of its unique expertise in pipeline coatings.
The shares have done reasonably well in the past year, though they have flat-lined of late. They trade at $23.99, yielding 1.1 per cent on a dividend of $0.30.
“What these companies have in common,” says the analyst, “is the fact that they have a long record of success, and will reward patient investors.”
In short, check back with him in six years.
Not least, Mr. Sartz chooses Royal Bank of Canada (TSX-RY), which reported disappointing second-quarter earnings. The result was a sell-off of the shares. And that is a buying opportunity, the analyst states firmly.
“Historically, Royal has been one of the three large Canadian banks posting superior long-term performance.” It has always been equal to the task of correcting problems in the past, he says.
The shares are down of late at $54.41 (but still well above the distress levels the banks hit during the height of the credit crisis), and they yield a healthy 3.7 per cent on the $2.00 dividend.
If your stocks win the green jersey with a spectacular sprint, more power to you. But if they stay the course for the yellow jersey, you’d have more than enough to spend three weeks in France watching the darn race. And then see the rest of Europe at your leisure.
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