MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, JANUARY 28, 1998 (2)
HOT STOCKS
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INCO LTD. (N/TSE), up $1.80 to $26.45, on volume of 1.5 million shares. Alcan Aluminium Ltd. (AL/TSE), up $1.30 to $44.60, on volume of 494,535 shares. Noranda Inc. (NOR/TSE), up 40› to $26.70, on volume of 667,055 shares. ÿSpeculation over further consolidation in the sector and a recovery of base-metal prices from 12-month lows have been driving the stock of Canada's major metal producers. ÿ"Later in the year base-metal prices might make a sustained rally so the time for acquisitions is now," said Patricia Mohr, vice-president economics at Bank of Nova Scotia. ÿThe Toronto Stock Exchange metals and minerals subindex broke through the 4000 barrier, rising 142 points, or 3.6%, to 4100.04. The subindex had languished below 4000 since Dec. 2 and is down 27% from its 12-month high of 5480 in early August.
CANADIAN PACIFIC LTD. (CP/TSE), up 90› to $38.85, on volume of 681,550 shares. The conglomerate's shares have climbed 17% since Jan. 9. The company reported an 11% increase in fourth-quarter earnings on Tuesday.
NOMA INDUSTRIES LTD. (NMAa/TSE), down 10› to $6.20, on volume of 59,020 shares. The electrical wiring manufacturer's shares have gained 36% since they slipped to a 12-month low of $4.50 in late December. Noma has undergone extensive restructuring over the past three years.
TELEGLOBE INC. (TGO/TSE), up $2.25 to $47.50, on volume of 19,118 shares.ÿThe satellite communication company's shares were beaten down to a 12-month low of $41.40 because of perceived risks associated with opening the market to competitors, said Imtiaz Khan at Research Capital Corp. "While Canadian competition means lost market share in Canada, it also gives Teleglobe better access overseas," said Khan.ÿThe firm is also renegotiating its agreement with the Stentor group of companies, which should be a win-win deal, said Khan.
PEMBRIDGE INC. (PEM/TSE), up 15› to $20.15, on volume of 1.3 million shares. ÿThe shares of the underwriter of high-risk policies exceeded the friendly $20-a-share takeover offer from Illinois-based Allstate Corp. Analysts said this might indicate interest from other companies. The $400-million Allstate offer is three times Pembridge's book value.
BATON BROADCASTING INC. (BNB/TSE), up $2.25 to $25, on volume of 267,165 shares. Shares of the television broadcaster soared after the TSE said Baton would be included in the TSE 300 composite index and TSE 200 from today. The shares will replace Pegasus Gold Inc., which has been halted for five trading days. ÿBaton shares advanced despite the company's sale of 4.5 million additional shares, raising the total outstanding to 40.9 million, an increase of 12%.
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U.S. offers wider range of growth stocks -- By SONITA HORVITCH
Philip Strathy, vice-president and chief investment officer at Toronto-based Strathy Investment Management, is putting more emphasis on U.S. than Canadian equities. "We anticipated C$ weakness given that the current account of the balance of payments is under pressure and the lower commodity prices are not helping," he said.
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The U.S. equity market also provides a wider selection of growth stocks, which this money manager emphasizes.
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Strathy Investment Management was formed in 1979 by John Strathy and serves private and institutional clients. Its assets under management are $350 million.
Philip Strathy, who joined the firm in 1983, expects North American bonds to outperform North American equities. "We think that U.S. inflation will continue to decline and U.S. rates will ease further," he said.
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Strathy Investment's asset mix is 30% in fixed income, 50% in equities (of which 30% is in U.S. stocks and 20% in Canadian equities), and the remaining 20% in cash.
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Within the equity component, Strathy Investment invests mostly in U.S. and Canadian large caps, but does recommend that clients hold a complement of smaller caps.
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Philip Strathy's top U.S. stock picks are:
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GLOBAL MARINE INC. (GLM/NYSE), which closed recently at US$21 7/8 and has a 52-week trading range of US$36 3/4 to US$17 1/4. ÿThe Houston-based company is an offshore drilling rig contractor. "The drillers have had a substantial correction but the fundamentals for the sector still look good," said Strathy. There is a 100% utilization in the industry and it takes two to three years to manufacture new rigs. Lease rates are rising. ÿGlobal Marine has a one-year backlog of orders. Earnings per share estimates are US$1.56 for 1997 and US$2 for 1998.
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AIR TOUCH COMMUNICATIONS INC. (ATI/NYSE) US$44 (US$45 1/4- US$22).ÿThe San Francisco-based company provides wireless communication services worldwide. Its subscriber base has been growing at 30% a year and revenue has been up 44% annually since the company went public in 1992. Strathy's earnings per share estimates are US71› for 1997 and US$1.08 for 1998.
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SAKS HOLDINGS INC. (SKS/NYSE) US$22 1/8 (US$36 1/4-US$18 5/8).ÿThe New York-based international retailer is reducing its discount stores and focusing on its high-end business. It is adding new stores and is enjoying better margins. His earnings per share forecast is US98› for fiscal 1998, ending January, and US$1.21 for fiscal 1999. ÿ The Canadian stock picks are:
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AIRCANADA (AC/TSE) $13.50 ($15.40-$6.55). ÿCanada's major airline, based in St-Laurent, Que., has a modern fleet of aircraft. It is doing well with business class customers domestically and internationally and margins are improving substantially. It also has little exposure to Asia. Strathy's per share estimates are $1 for 1997 and $1.75 for 1998. "The stock trades at a discount relative to its U.S. peers."
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STRONGCO INC.. (SQP/TSE) $15.10 ($17.25-$9.75) is Strathy's small-cap pick. The Toronto-based company distributes heavy equipment and industrial products. It has been growing internally and through a steady acquisition program. Strongco is able to buy private companies at about 4.5 times earnings. In turn, the stock market places an 11.5 times multiple on the acquired earnings, so there is an immediate benefit from the purchase, said Strathy.
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For the more aggressive, Strathy is choosing two gold stocks. One is South African gold miner DURBAN ROODEPOORT DEEP LTD. (DROOY/NASDAQ) US$3 1/4 (US$9 1/4-US$17 1/816). The Johannesburg-based company "has 42 million ounces of proven and probable reserves and an annual production of 800,000 ounces".
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The other is Vancouver-based GITENNES EXPLORATION INC. (GIT/TSE) $3.10 ($3.25-$2.20), which has a discovery-stage gold prospect in
northwestern Peru. "The property is adjacent to those of two major gold producers which are potential suitors," Strathy said.
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The money manager has sold financial services company Newcourt Credit Group Inc. (NCT/TSE) $56.30 ($58-$23.50). "It is going to take a while for its acquisition of AT&T Capital Corp. to become earnings positive."
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Philip falls again as queries continue -- By SIMON AVERY
Philip Services Corp.'s US$60-million inventory shortfall has attracted the attention of Revenue Canada, while the battered company's stock continued to fall yesterday.
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"When they file their final return for the year, if they have a loss due to the discrepancy, obviously we'd look at it," said Donald Marchand of Revenue Canada's customs and excise group.
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"Unfortunately, I can't really discuss anything that we're going to do in relation to Philip or any officers of the company. I can only say, ordinarily, we'd look at something that large."
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Shares of the integrated metals and industrial services company (PHV/TSE) dropped another 80› in heavy trading yesterday to $11.20, down 41% since Monday when the company announced it planned a US$200-million after-tax writedown.
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The writedown includes about US$60 million after tax for missing inventory at its yard copper business at two locations in Hamilton, Ont. Another US$120 million is to cover acquisition costs such as severance pay and a writedown of goodwill, incurred after a year of 13 acquisitions worth more than $1 billion.
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Philip insists the missing inventory has nothing to do with theft, but has not been able to explain it.
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Analysts are divided about the future direction of the firm's stock. Peter von Ond of Midland Walwyn Capital Inc. said he expects the share price to bounce back with time. He has reduced his earnings expectations slightly for 1998, from $1.30 to $1.25, because of the one-time writedown charge.
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But analyst Steve Gluckstein of Arnhold & S. Bleichroeder Inc. in New York, called Philip's situation "unanalysable" in a report yesterday and downgraded the company to "neutral" from "buy." "The magnitude of the difference between book inventory and physical inventory is large enough to give us concern that the accuracy of reported earnings in prior years may be called into question," he wrote. "We see little chance for the share price to reflect [the company's] potential until a full accounting is provided to the investment community and we are increasingly less sure that an easy answer will be forthcoming."
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