The Passing of an Industry Leader, Westjet, RIM and Financials

It is with great sadness that Sir John A. Templeton, founder of Templeton Management Ltd. and the Templeton Growth Fund passed away at the age of 95 today.  He was definitely a visionary who held strong beliefs on how to value stocks and build portfolios. The company under his leadership looked around the world to buy the most undervalued stocks they could find. I remember hearing Sir John talk about the opportunities to find value in emerging markets over 20 years ago. Definitely thinking ahead of the times.

As of writing, the markets are mixed with the US markets trading in positive territory with the Canadian markets down about .5% on the day. Oil, Gas, and other commodity plays are down while financials, cable and telecom have recovered somewhat. 

Research in Motion (RIM) is up over 4% with the big winner being Westjet (WJA) whose stock is up over 10% on the day after being down 21% over the last 12 months. Westjet announced a codesharing agreement to commence in 2009 with Southwest Airlines which has a very similar business model to Westjet in the US. This will give Canadians greater choice in travelling to different markets in the US which were a nightmare to get to in the past. National Bank raised the stock from neutral to outperform with an $18.00 target. The stock is currently trading above $14.00

Do you think that the codesharing arrangement will allow Westjet to grow their business even with higher fuel costs and general expenses?

The Case for Hedge Funds. Now More Than Ever.

With the S & P 500 down more than 20% from its highs and the TSX down 10% in one month, many investors are wondering how to protect themselves from market declines. Aside from pulling money out of the market entirely, the ability to short stocks and use a multiple of strategies to reduce risk can provide positive returns in an otherwise down market.

Hedge Funds can provide this protection. There has been alot of negative press about Hegde Funds as some portfolio managers took excessive bets or leveraged their positions and blew up their funds in the process when they took the wrong side on a position.

Looking at multiple strategy funds is one way to diversify away some of the risk of downward markets as well as the risk of one manager taking an excessive position.  For example, one could look at Man Group which is that largest Hedge Fund manager in the world managing approximately $75 billion in hedge product. There first offering in Canada returned 25.9% over the 12 month period ending May 31, 2008 and has averaged 11.1% since inception.

It is prudent to look for strategies other than long only stock selection to provide returns and hedge funds can do this regardless of the attention the media has put forward relating to some of the bad apples in the industry. Your feedback whether it be questions relating to hedge funds or your views on the matter are more than welcome.

BCE Deal, Cable and Telecom, Quarterly Earnings

Overshadowing all other news including the Dow dropping 20% from its high, is the BCE takeover deal looks like it will happen as all obstacles have been overcome. Now the interesting part of the deal will be how Ontario Teachers and the private equity firms that will own BCE can turn a reasonable profit on the takeover.

With the deal likely to go through, there will be alot of cash that retail and institutional investors will need to reallocate.  When the deal was announced last year, the general consensus was that Telus (T)would benefit once the deal was done and that can still very well be the case. Other companies that show good value include the cable company Cogeco (CCA) while Rogers an Shaw should see some funds their way as well.

A couple of yield ideas if you want to look outside of North America include Deutsche Telekom (DT) and France Telekom (FTE). Dt has a dvidend yield of 7.5% while FTE is currently yielding 7.7%

Where do you think BCE investors will allocate funds once the takeover is done or do you think the deal will still fall through?

Quarterly earnings next week are being reported by Cogeco and Corus Entertainment on July 9th, Astral Media on the 10th and Canwest Global on July 11th.