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Buy low, sell high — there’ll never be a better time

Even this bear market is due to burn itself out. So it’s time to start buying low, says a Canadian analyst with a host of recommendations.

If you were in Reykjavík right now, you’d be feeling the aftershocks of the most spectacular collapse of all in the global credit crisis.

But even if you’re in Red Deer or Fredericton, you’re not liable to be feeling much better about the economy or your investments.

Iceland is now famous for its flameout. In a few short years, it made a headlong rush from a small economy based on fishing to a beehive of investment banking to a financial system in total ruin.

But if Iceland is a “microbasket” case, says Mr. Michael Smedley, the rest of the world is a “macrobasket” case. The Icelanders were simply mirroring a world banking system that was spinning out of control.

The difference is that the rest of the world, Canada included, has “better recuperative power.”

And at the prices we see today, it may be a good idea to start recuperating, Mr. Smedley writes in Investor's Digest of Canada.

This should be the ideal time to “master buying low and selling high,” says this veteran manager of the Canadian General Investments closed-end fund. The bear market is going to burn itself out.

And he takes us on a whirlwind tour of Canadian stocks he believes are ready to make strong moves upward, or are already on the move.

The most secure in the world

“With their attractive, historically low prices and high dividends, the Canadian banks might be irresistible,” says Mr. Smedley.

“They are also among the most secure in the world, and three of them occupy positions seven to nine in the top-ten bank assets in North America,” he adds. He makes no specific recommendations among the banks, however, leaving investors to choose their own favourites.

He names names among insurance companies, however. The two great Canadian life insurance companies, Manulife Financial Corp. (TSX-MFC) and Sun Life Financial Inc. (TSX-SLF), “were trashed in part by negative performance for their premiums invested in stocks.”

Both are making strong moves of the bottom, he says. And both have moved up since his article went to press.

So has ING Canada (TSX-IIC), despite an unexpected sell-off in its shares by its financially distressed bank owner. Subsequently, an upswing in casual and property pricing after last year’s hurricanes has helped push ING to a larger market cap.

But resource stocks, another Canadian standby, are feeding too close to the bottom to consider, right? Wrong, says Mr. Smedley.

Four resource stocks

This manager has no less than four resource stocks to tempt investors with. The first is in the recently sluggish oilfield service industry.

Trican Well Service Ltd. (TSX-TCW) “strong in Canada, the U.S. and Russia, is awaiting the uplift of oil and gas pricing and rig usage.” It, too, has seen its share price move up of late.

Capstone Mining Corp. (TSX-CS) is enjoying the benefits of “two companies going into the new-age merging of mines and precious cash, coupled with high-grade people and a high-grade copper program.” Company two was Sherwood Copper, whose absorption added a Yukon mine to Capstone’s Mexican property. The firm has had encouraging drill results this month and the stock is rising, too.

The failure of a merger (with HudBay Minerals) helped kick the stuffing out of the shares of Lundin Mining (TSX-LUN). But they have started to recover, with a very sharp spike in recent weeks. Lundin has strong international operations and will soon join U.S. giant Freeport-McMoRan in the start-up of the Congo’s Tenke mine, “the first great copper mine of the present era.”

Then there is the biggest of them all. Few firms have fallen further than Teck Cominco Ltd. (TSX-TCK.B) Canada’s largest mining company. It will be helped, Mr. Smedley believes, by the fixing of coal prices, resource market rallies, oil sands assets — and “a reasonable chance of selling assets to pay down its debt.” This stock, too, is working its way up.

Small caps, anyone? Although they may seem very risky these days, good small cap companies are always “in the vanguard of revival, just as they were in the vanguard of retreat,” Mr. Smedley says. He likes four.

Contractors and railway ties

Bird Construction Income Fund (TSX-BDT.UN), “one of the finest and oldest infrastructure contractors” is recovering but well down from its highs. Nonetheless, it has made a sharp move up even in the short time since this article appeared.

Once one of the hottest stocks in Canada, railway tie and utility pole maker Stella-Jones (TSX-SJ) should get back on track soon. It travels on “long-term customer loyalty.”

Another stock that should enjoy the benefits of infrastructure spending is Hammond Power Solutions Inc. (TSX-HPS.A), which has an important stake in the transformer market. Unlike the other stocks on this list, it has not progressed since Mr. Smedley put pen to paper.

SXC Health Solutions Corp. (TSX-SWC) has progressed, however. In fact, this specialist in pharmacy and healthcare benefits management is one of the few stocks that has shown slow but steady growth throughout the crisis and is still thriving.

In the short term, the current bear market should simply burn itself out, Mr. Smedley tells readers of Investor's Digest of Canada.. But the global equivalent of Iceland’s sad saga will endure. Not all of our problems will be solved overnight.

“So invest for the long term, but do not avoid taking big profits. Try to catch the market turns if you can,” he concludes.

At the moment, we can’t imagine anyone who will be too upset at having to take big profits.