The contrarian investor’s guide to business TV
Business TV can be a constructive tool, says a Canadian expert who has a contrarian theory on how to watch — and turns up four buys.
Many people claim they don’t watch much TV these days.
They have more constructive things to do with their time (like surfing the Internet).
But who says watching television can’t be constructive? And we don’t just mean Home and Garden TV or Two Guys Garage.
How about business TV? Isn’t it possible to become a better investor by watching BNN or CNBC (if you can stand all the shouting) or Nightly Business Report?
Let’s get an expert opinion on that. Our guide is both an investment executive and a regular watcher of business television. He’s also a writer, contributing frequently to Investor's Digest of Canada.
“I have to confess I am addicted to business television,” writes Mr. John Sartz. But he doesn’t let his addiction get the better of him.
He watches with a purpose, and has developed a strategy that he thinks may serve as a useful one for other watchers of business TV.
We’ll tune in and see how that strategy applies to four major Canadian stocks.
Severe reservations
“I used to watch with the sound off,” Mr. Sartz tells us, “in order to check the ticker tape going across the bottom of the screen. No more!”
Now he listens. But he does not necessarily believe what he hears.
He has several “severe” reservations about the commentators. First, he thinks the investing public “should adopt a far longer time frame than is currently the case.” Don’t be talked into short-term thinking.
Second, less attention ought to be paid to technical analysis in general and momentum investing in particular.
“And finally, pay no attention to that truly misleading indicator, namely, how the majority of analysts feel about the stock.”
Recently, he watched a program in which the commentator announced “proudly” that 80 per cent of the analysts covering the stock considered it as a buy. “He seemed to view this as a good thing.” Uh-uh.
A far better strategy
Mr. Sartz had the opposite reaction. “Think of it this way, he says. “If 80 per cent of opinion makers are already optimistic about the prospects of a certain stock, who is it that is going to drive the stock higher?”
Obviously, the other 20 per cent of the analysts who follow the stock could be brought on board, so that might be good news.
But the bad news prevails, says this observer. If 80 per cent are in favour of the stock, the only direction for a change of opinion is down.
“It seems to me that a far better strategy is to look for companies which are currently unloved, but where sentiment may change for the better. You do not have to look much past the Canadian banks to see how effective this strategy can be.”
Mr. Sartz points to the Bank of Montreal (TSX-BMO), unloved on and off TV less than a year ago. The bank is up 120 per cent from its March low and ahead by some 70 per cent so far this year “as a result of investors’ change of attitude vis-à-vis the bank’s prospects.” It trades at $55 (well above its $24 low) and yields a robust 5.2 per cent on its $2.80 dividend.
Talking down the company
But that stock has already turned around, Mr. Sartz tells his readers in Investor's Digest of Canada. “What we need is to find companies whose future prospects are likely to be upgraded by investors.”
Flick on the TV and you probably won’t have to wait long to find someone to disparage Loblaw Company Ltd. (TSX-L). “The stock has been pretty much universally disliked over the past few years as the company lost its mojo.”
The company’s operations finally have turned around, however, and earnings for the past two quarters have been surprisingly good. This has caused a few analysts to upgrade their opinions, but investors haven’t necessarily followed suit.
This is because “Loblaw’s management keeps talking down the company’s near-term prospects,” explains Mr. Sartz. “Generally speaking this is a shrewd policy in that shares of companies which under-promise and over-deliver tend to do well.” Loblaw’s shares stand at $33.00 and it yields 2.5 per cent on its $0.84 dividend.
But there’s a better way to get in on this turnaround story, says our host.
Buy when depressed
Buy George Weston Ltd. (TSX-WN), says Mr. Sartz. It holds about two-thirds of Loblaw. An investment in Weston allows buyers the chance to participate in the turnaround of Loblaw while getting the company’s bakery operations at a very low multiple of earnings.
Weston trades at $65.35 and yields 2.2 per cent on its $1.44 dividend.
The writer brings out one more stock that is not currently starring on TV. It is CIBC (TSX-CM). “Finding analysts who like this stock is no easy feat,” he says, “with good reason. The bank has demonstrated an uncanny ability to find areas where big money may be lost.”
But the bad news may be at an end. “If CIBC can string together a couple of decent quarterly results, the stock could exhibit explosive performance.”
But beware, Mr. Sartz says. This is not a buy and hold stock. Its management is too accident-prone. “It is one to purchase when it is depressed and a sell once it recovers.” The shares are at $68.70 and yield a little over 5 per cent on the dividend of $3.48.
So that’s how you watch business TV for fun and profit, according to this observer. When the talking heads ramble on about short-term pain, you should be thinking long-term gain.
|
E-mail this article
Printer-Friendly
