Shaw Communications, Precision Drilling, Epcor Preferred Shares

The highlight of today in the Canadian markets on the last trading day of the month, quarter and half of the year is Shaw Communications up 4.20% with a couple of hours left in the trading day. With Shaw (SJR.B), you have an excelleng growth story and steady dividend increases. Shaw reported a 40% increase in profits and an 11% dividend increase. For cash flow investors, you are getting a growing dividend of just under 4% annualized and paid monthly.

Shaw is also anticipated to make a very competitive move by entering into the wireless arena as they have entered into the auction to become a participant.

Updating the takeover play of Grey Wolf by Precision Drilling (PD), Grey Wolf has rejected the third offer of $10.00 still stating that its planned merger is a better long term play for shareholders.

In Fixed Income Markets, there are some interesting buys available as spreads between government debt and corporate debt continue to widen. Epcor Edmonton Power (EPP.PR.A) preferred shares now have a current yield of 7% with preferrential tax treatment for Canadian investors.  Laurentian Bank Preferreds (LB.PR.D) are yielding 6.60%

There are National Bank bonds with a 10 year maturity paying over 6.50% and Royal Bank Capital Trust securities with a 3 year maturinty yielding 5.3%. All of these are interesting buys considering the volatility and long term returns of the general markets.

Your comments relating to the attractiveness of corporate bonds would be greatly appreciated. Have a great Canada Day.



Research in Motion, Fundamental Indexing, Gold Stocks

Research in Motion got crushed yesterday down 13% and down another 3.5% so far today. Stocks trading at very high price earnings multiples are usually priced to perfection and need continuous astronomical growth rates both on the top (revenues) and bottom lines (net earnings) of their income statements to maintain their price. Subscriber growth is still very impressive but earnings are down due to expenditures to bring their next generation of phones to the forefront.

Its days like these where fundamental indexing gets a closer look. RIM represents ablout 6% of the TSX60 but get a weighting of about .71% based on fundamentals. You can go to our previous blog entries to learn more about fundamental indexing.

Gold stocks have rallied big time over the last two days up over 10% as gold increased about $50 an ounce the last two days. Gold has broken out about its 50 and 200 day moving averages as support has built around $860 leading one to think gold may break significantly higher based on technical analysis. What are your thoughts on the near term price on gold?

Research In Motion (RIM), Precision Drilling, The Fed and more

A few interesting stats have come out today.  Research in Motion’s subscriber base has been growing nicely but their bread and butter, the corporate market, has been slowing. We shall see where their earnings and subscriber growth rates are after the close today. What are your thoughts on the battle between Blackberry and Apple’s IPhone? RIM is launching its next generation the Blackberry Bold later in the year to compete with Apple.

 Precision Drilling is raising its accretive offer on Grey Wolf to $10.00. This is the third offer in the last couple of weeks making the fight somewhat more interesting.

The Fed makes a decision later in the day on interest rates.  There is pretty well 100% consensus that rates will stay the same. The Fed’s language will be watched dramatically to determine how quickly rates will rise and hence the overall direction of the stock market mid term.

Continuing on the stats front, the media likes to focus on the negative but all is not negative in the numbers on housing in the US. Year over year pricing showed a 15+% decrease in, however, in April, 8 of the 20 housing markets showed an increase in prices. I am sure the Fed has taken this into account.

Do you think the US has turned the corner in housing and if not, how much longer will the US consumer feel the pain?

New links at Rothenberg Website

We are pleased to announce that we have new links to our site to enhance the information provided . RCM has partnered with Dynamic Mutual Funds to provide Portfolio Manager Video podcasts via the podcast link on our site. Take a look by clicking here.

We are also providing a link where you can view our current marketing ads and get information directly off of our site. To view our latest offerings, please click here

Tomorrow’s blog will focus on the 130/30 investment strategy and why large pension plans and fund companies are embracing this style of invesment management.

BCE Closure??? and Fundamental Indexing

The courts ruled in favour of the BCE takeover leaving bondholders with debt that will be interestingly priced on Monday morning. BCE bonds with 5 year maturities should yield in excess of 8% and the bid ask spreads on dealers books should be substantial taking away any trading opportunities for retail investors.

This takeover should continue to be headline news as the banking group funding the takeover will probably try and renegotiate the terms now that the bondholders failed in their attempt to derail it. Dont expect the outcome to be any different. If your think the outcome will be any different, please feel free to leave your comments for a lively discussion.

On a totally different front, there is an investment strategy garnering alot of assets. The strategy was developed by Mr. Rob Arnott who heads a company called Research Affiliates. You may see some exchange traded funds (ETF’s) with the initals RAFI which stands for Research Affiliates Fundamental Index.

The idea behind the strategy is one where funds are placed in each stock within a particular index but the percentage weighting is different than the underlying index. Based on four different valuations, undervalued stocks are overweighted and overvalued stocks are underweighted.

Looking at the Canadian market, Nortel’s weighting on the TSX was 35%+ back in 2000. Fundamental indexing would have allocated only 4% of the funds to Nortel back then. Today, Research in Motion and Potash Corporation would have lower weightings with Fundamental indexing compared to the underlying index.

Over the long-term, results have shown that Fundamental indexing has returned 300+ basis points over its benchmark in developed markets and 600 basis points in emerging markets. These results should lead one to seriously consider adding this strategy to their long term investments.

Bell, Nortel, et al

Interesting news today that brings me back to the dot com era. The courts will decide whether BCE bondholders should be compensated for the sale of the company to Ontario Teachers and private equity firms.

Even though the board is somewhat different today at Bell than it was during the dot com era, one only has to look at how they wrote off their investments in Bell Canada International and Teleglobe back in the earlier part of the decade. Bell wrote off their investments along with the implied guarantee on the bonds of those subsidiaries. Bond investors got pennies on the dollar back then and left many with a sour taste for anything to do with Bell.

Looking at Nortel, formerly a BCE subsidiary, the company was not charged but former executives were charged with putting out financial statements that werent quite accurate allowing them to collect millions in bonuses while individual investors were left with a fraction of their underlying investment.

All this which leads up to the companies that provide credit ratings such as Standard & Poors. The whole ratings game is coming under scrutiny as structured products may get a whole new set of ratings so they arent confused with traditional fixed income investments. Sub-prime mortgages, commercial paper along with other structured investments will garner greater scrutiny from regulators and credit rating agencies in the months to come.



BCE and Bondholder Rights

Even with the TSX hitting all time highs and Air Canada announcing 2000 layoffs later in the year, focus today is on Bell Canada and the takeover by Ontario Teachers Pension Plan and a group of private equity firms in the US.

At the heart of the matter is whether bondholders have any rights in stopping the takeover. Bondholders are upset as the takeover group is going to load the company up with debt and the existing bondholders will have less assets available to protect them in the event that BCE defaults.

The value of BCE bonds dropped about 15% – 20% after the initial deal was announced. What are your thoughts on how the courts will rule and whether bondholders have a right to seek compensation?