Action List Worth A Look

Our Canadian research comes from National Bank. Since November, 2009, they have produced an Action list where their analysts provide their best ideas. In conjunction with their recommendations, they also recommend when to sell these holdings based on price appreciation or earnings surprises.

From November 30th, 2009 to June 30th, 2010, 27 names have appeared on the list with 13 still on the list. In the last quarter, five names were removed while six were added.

In the last quarter, the NBF Action List returned 3.76% vs. -0.33% for the TSX. Since November 30, the Action List netted 6.13% vs. 0.81% for the TSX.

The Action List is updated daily. To get the current action list, please don’t hesitate to contact us and we would be happy to email or send you a copy.

Have a great weekend. Your comments are always appreciated.

Advertisements

Bonds Are Not Stocks

Bonds are not stocks.

The title of this post seems quite obvious in nature yet the amount of calls we received after Manulife cut the dividend on its common shares and how it affected the pricing and interest payments on their corporate debt was quite astounding.

Earnings per share for the company increased to $1.09 in the second quarter compared to $0.66 for the same quarter last year which is a positive.

The dividend cut will save the company $800 million per year. The savings is a positive for bondholders as there is more money available to make interest payments on their debt and pay principal back at maturity.

Unlike common shares or stock where a company can cut the dividend as it sees fit, the company cannot decide to stop making interest payments as part of a change to its strategic plan.

This is why bonds of a corporation are safer than common shares of the same corporation. There is limited upside but you have layers of downside protection. So what happened to the bonds on the day of the announcement? Not much. Manulife’s 10 year bonds dropped about 1% compared to 15% on their stock.

Corporate bonds move up and down in value based on several factors including interest rates, creditworthiness, and the spread between government bonds moving up or down. To learn more about bonds and how they differ from stocks, you can click on the following link HERE on our website that has an educational piece on bonds.

Your comments are always appreciated.

The Week Ahead – August 3, 2009

The TSX is poised to show a 5% + increase for the month of July with less than 2 hours to go in the trading day while the Dow Jones Industrial Average is up almost 9% for the month.

On the economic front next week, US ISM Manufacturing  numbers come out on Monday. US Pending Home Sales Month over Month and Year over Year for June will be reported on Tuesday, August 4th and June Factory Orders are being reported on the 5th.

In Canada, June Building Permits Month over Month are being reported on Thursday August 6th. The July Unemployment Rate, Net Change in Unemployment  and the Ivey Purchasing Mangers Index are all being reported on Friday.

It will be a very busy week on the earnings front with too many companies to list. For a complete list, you can click on the following link with the dates and earnings per share estimates.

Earnings Estimates

New Research Podcasts

Have a Great Weekend

Buffett Hits Home Run with Goldman Sachs

A short eight months ago, the media was asking whether Warren Buffett, the worlds most astute investor according to many had lost his touch after placing large bets on Goldman Sachs through his investment fund, Berkshire Hathaway.

Goldman Sachs reported a record profit for the quarter as its stock has gone from a low of $47.41 to its current high of $165  giving Berkshire investors a return of 44% in just  a few months. Ordinary investors shunned the thought of sinking funds into a US based financial firm and financial advisors would be fired by their clients for recommending such action.

Give credit to Buffett for placing his money where his mouth was. He was one of the few and these bets are why he continues to do well. On one of my previous blog postings, I attached a New York Times article that Warren Buffett wrote outlining his conviction for investing and Buying American which you can read by clicking here.

Only time will tell if he is right but 60 years of following his conviction and being one of the richest men in the world because of it provides some backing.

Your thoughts and comments are always appreciated. Have a good weekend.

The Week Ahead – June 8, 2009

The economic calendar and earnings announcements in Canada are relatively slow. Housing starts in Canada come out on Monday with the consensus targeted at 130,300.

On Monday, there are no announcements while Saputo (SAP) and Major Drilling Group International (MDI) report Tuesday. Viterra (VT) announces results on Wednesday.

MDS, Transcontinental, Transat, and North West Co. all report on Thursday.

To view all consensus estimates and economic reporting, you can click on the following link here. US earnings can be found by going to www.earnings.com .

To get our daily commentary with podcast updates and analyst rating changes, you can visit our site here or even subscribe to get on our email list.

Have a great week.

Real Estate L.P.’s Gone Bad

Last August, I wrote a post titled “Are you a Sub-Prime Lender?” which you can revisit by clicking on the link here.

It took a while but one of the largest firms concentrating in this area has applied for bankruptcy protection on several of its deals. Hundreds and perhaps thousands of investors stand to lose millions of dollars on just this company alone and there are alot of companies in this space.

Why and how could it happen? The why should be easy to explain and understand. If a company buys a property for $100 million. A bank will usually lend 70% or $70 million on a first mortgage. The $30 million down payment is coming from individual investors that earn 11% – 18% depending on the deal that they invested in.

The firm raising the funds has to do alot of marketing to raise these funds. Radio, TV, Seminars, commission to sales people, etc. They also have to start paying interest on the funds they raised now even if it takes them six months to raise all the funds to close the deal.

The real estate investment has to go up 10% or more just to breakeven. As almost everyone knows, real estate especially in Calgary has dropped. If real estate has dropped by 20% and an investment of $100 million is now worth $80 million, the $30 million in equity raised through private investors is now worth $10 million. Add interest and marketing costs and the equity is marginally above zero. With the values going down and the time it took to turnaround and sell a deal getting longer, the real estate companies get squeezed.

Who was watching this? The real estate companies offer these units through an offering memorandum, which is different than a prospectus. An offering memorandum has very little disclosure relating to the viability of the project, the financial health of the promoting company or the history of the directors of the company. All of these things are disclosed in a prospectus offering which a brokerage firm looks at prior to recommending an investment to a client.

Often, the offering memorandum wasnt even filed with the Alberta Securities Commission which means that they dont know it exists until something goes wrong. Even if the memorandum is filed, the promoter will state that an investor is a friend, family member, or business associate of the promoter to allow an individual to get into the deal.

I believe that there will be some regulatory changes and private investments through offering memorandums will be greatly restricted going forward. Unfortunately, it will be too little too late for many.

Your thoughts and comments are always appreciated.

Consumer Confidence Index…What is it?

Market in North America rallied after the consumer confidence index was materially higher than expected. That’s great but what does it mean?

The National Bank put out a report on May 22nd that answered this question as the index in Canada is quite different than the index in the US. Why are they different?

Well, each index asks different questions and they compile their results on different dates. Once the answers are compiled, they are input and calculated differently to come up with their number.

Marc Pinsonneault of National Bank Financial provides some ideas on how to reconstruct the US index to compare it more closely to the Canadian index. To find out what questions are asked, when they are asked and how the index is caluclated, you can click on the following link here.

Your comments and thoughts are always appreciated.