Just another recommendation:
MEDIA - BUY - HOLD - SELL / CANADA LIFE INVESTMENT
MANAGEMENT -- RENAISSANCE ENERGY
Wednesday, April 2, 1997
Volatility puts premium on cash, caution
By SONITA HORVITCH - The Financial Post
Russel Robertson, vice-president of Canadian equities at Canada Life
Investment Management Ltd., has been increasing the cash component of
his portfolios by trimming some stocks and selling others outright.
"It is not the last act of the play, but close to it and it is a time to be cautious."
Although North American equity valuations are not at extreme levels by all measures,
they are certainly entering that territory, he said.
In response to the increasing volatility, said CLIM president Jock Fleming, the firm has
made modest shifts into cash by reducing its exposure both to Canadian and foreign
equities. "There will be more of this in the coming months."
Robertson said the biggest issue facing markets is rising U.S. employment costs and
the implications for Federal Reserve Board monetary policy. The Fed moved last
Tuesday to raise rates and there will be more to come.
This will certainly spill over into Canada. If it affects the U.S. equity market, it will
affect the Canadian market, said Robertson. "We dance to their drum."
Fleming said higher rates do not represent the end of the economic cycle. Instead, they
are an attempt by Fed chairman Alan Greenspan to extent the cycle.
Robertson's advice to investors is to choose those companies that have a clear strategy
for expanding earnings and will do well even if times get tougher.
His picks:
Laidlaw Inc. (LDMb/TSE), which recently closed at $18.75 and has traded in a
52-week range of $20.85 to $11.90. Based in Burlington,
Ont., Laidlaw provides transportation and environmental services to municipalities and
industries. "The company has a clear strategy in that it is focused on its waste business
and its school and medical transportation services. They are good businesses and are
not economically sensitive," said Robertson. The U.S. investment community is
increasing its coverage of the stock and there could be a multiple expansion as medical
transportation stocks tend to attract higher multiples.
Renaissance Energy Ltd. (RES/TSE) $39.35 ($51-$34.20). Based in Calgary,
Renaissance is a leading energy producer with a good record of cash flow growth. Its
stock has been hurt recently by "a negative reserve adjustment in some of its fields."
The stock is cheap on a cash flow and net asset value basis relative to its historic
valuations, said Robertson. "It is the classic case of buying on bad news," said Fleming.
For the more aggressive investor, Robertson is highlighting: Newbridge Networks
Corp. (NNC/TSE) $39.50 ($51-$27.75). Based in Kanata, Ont.,
this major technology company with its asynchronous transfer mode (ATM)
technology will benefit from the capacity pressure on carriers such as telephone
companies. The company is expanding its reach geographically. It has an alliance with
the giant German electrical
engineering and electronics company, Siemens AG. "The stock is a good place to be
for the next two to three years for the higher risk money."
Robertson has sold fertilizer company Agrium Inc. (AGU/TSE) $17.50 ($21.30-$16).
"There is a lot of capacity in its industry."
He has taken some profit in Thomson Corp. (TOC/TSE) $27.35 ($31.30-$20), which
has "transformed itself into a modern communications business and is a great
company." But the stock was at the top end of its valuations, said Robertson.
He has also trimmed Cinram Ltd. (CRW/TSE) $35 ($40.50-$23.55). This company is
one of the world's largest manufacturers of CD-ROMs and audio cassettes. "It is an
excellent company in a wonderful business," said Robertson. But the stock is
vulnerable in a market pullback as it trades at a high earnings multiple. |
