It's a long news item, but I reprint it as is...
DJ CANADA TIP SHEET: Miller Says Canada Has Cheap Tech Stks
By Scott Adams
TORONTO (Dow Jones)--Canada has cheap technology stocks, said Lynn Miller, portfolio manager at C.A. Delaney Capital
Management Ltd. and manager of the Canadian Trimark Enterprise Small Cap Fund.
Miller defines his investment strategy as value investing, but this can mean many things to him. For some sectors it can mean
using such measures as cash flow ratios, earnings ratios or book value ratios to find cheap stocks.
"We like to find the most growth for the least price," Miller said. In technology, it can mean finding companies that are
undervalued against comparable U.S. companies, and Canada has lots of these stocks, Miller said.
The valuation gap between Canadian and U.S. stocks extends beyond technology stocks and there are many reasons for it,
Miller said. The U.S. has a more developed small-cap market than Canada and U.S. investors generally have a greater tolerance
for high valuations than the Canadian investors, he said. Canadian companies also have a lower profile than U.S. companies, he
said.
"You take quality Canadian companies and do full-blown IPOs on them in the U.S. and they certainly are recognized," Miller
said. It is a matter of Canadian companies finding a way to tell their story to investors that are willing to pay the high valuations,
he said.
Canadian investors aren't willing to pay high valuations for technology stocks for several reasons, Miller said. It starts with
Canada having a less-developed venture-capital market for technology companies than the U.S. That leads to Canadian investors
not understanding new technologies as much as they are understood in the U.S., he said.
There are also comparatively few technology stocks in Canada than the U.S., he said, and this means that many Canadian
technology stocks don't have peer Canadian companies. Canadian investors have to scour the U.S. to find comparable
companies to value Canadian companies against, and this takes time to do, he said.
About one-third of the small-cap fund's portfolio is invested in technology stocks, Miller said. Some of the portfolio is invested
in technology startups, which is risky, but in the current stock market environment, portfolio managers have to be invested in
technology stocks because that is where the greatest returns are.
Miller owns Book4golf.com Corp. (V.BFG), a company traded on the Canadian Ventures Exchange. The company is
developing a North American-wide Internet tee-time reservation system. "If anybody is going to be successful in this space, it
should be Book4golf," Miller said.
Another favorite is Basis100 Inc. (T.BAS), a financial Internet company that has strength in Internet mortgages. "We think that
the Internet is going to be an important delivery channel for financial services products," he said.
An established Canadian technology stock that Miller owns is Hummingbird Communications Ltd. (HUMC), a business
intelligence and knowledge-management software company. The company has experienced some management turnover recently,
but Miller said this negative news is adequately reflected in the stock. Hummingbird trades at a cheap multiple to earnings and is
a more traditional value play, he said.
Miller also owns OCI Communications Inc. (OCC.B), a competitive local exchange carrier that completed its initial public
offering this fall. The company has services in Ontario and Quebec, but will expand into Western Canada.
As the market focuses on technology stocks and valuations soar, this is creating value in other areas of the market, Miller said.
In consumer products stocks, Miller likes Forzani Group Ltd. (T.FGL), a sporting goods retailer he expects to grow both
internally and through acquisitions.
Miller also has a stake in grocery store company Sobeys Inc. (T.SBY). In oil and gas, Miller likes Edge Energy Inc. (T.EDG)
for its high-quality management team and he likes forestry company St. Laurent Paperboard Inc. (SPW). Miller has low
exposure to interest-sensitive stocks, such as pipelines, utilities and financial services.
Delaney started running two Trimark funds in June: the small-cap fund and the Trimark Enterprise Fund. The small-cap fund
concentrates on companies with market caps of less than C$500 million, with the other fund focusing on companies larger than
C$1 billion in market cap. Companies in between those levels can fall into either fund.
The C$31-million small-cap fund has been hot in the past few weeks, returning 22% in the 30 days ended Wednesday. Delaney
manages about C$950 million of assets, most of it institutional and private client money.
-Scott Adams, Dow Jones Newswires; 416-306-2026;
scott.adams@dowjones.com |
