Manager likes look of base metals
By SHIRLEY WON
From Friday's Globe and Mail
Fund manager Wayne Deans is finding bargains among base metals and energy-related stocks dragged down by the slowing global economy.
"Base metal prices will rise again, and in the meantime, you are able to buy these companies at extremely low valuations," says the small-capitalization specialist with Vancouver-based Deans Knight Capital Management Ltd.
This sector will rally once the U.S. economy picks up — perhaps sometime next year — and when the European and Asian economies rebound, Mr. Deans says.
The manager also favours energy-related stocks. The rate of natural gas production has been declining but the demand from gas-fired electricity plants is still rising, he argues.
The long-term fundamentals for oil are also strong, he adds. "The world demand for oil continues to grow, and the excess capacity to produce additional oil globally is very small relative to the daily demand."
Mr. Deans, who buys value and growth stocks for the long term, runs mutual funds such as Northwest Specialty Equity and Northwest Specialty Resource. Stocks he bought recently to add to existing positions include:
LionOre Mining International Ltd. (LIM-TSE): The Toronto-based nickel miner, which closed yesterday at $1.75, hit a 52-week low of 90 cents last November, and a 52-week high of $2.55 in June. Mr. Deans says the catalyst will be the increase next year in nickel production to 10,000 tonnes from 2,500 at its mines in Botswana and Australia. LionOre, a low-cost producer, is also expected to start production at a new gold mine in Australia, he adds. He estimates the stock could be worth $3 in a more favourable gold and nickel market.
Peak Energy Services Ltd. (PES-TSE): The Calgary-based renter of oil field services equipment, which closed yesterday at $2.70, hit a 52-week low of $2.17 a year ago, and a 52-week high of $4.16 in June. He says Peak, which has no net debt, is benefiting from robust drilling activity in Western Canada. Peak, which trades at seven times this year's estimated earnings of 40 cents a share, could hit $4 to $4.50 over a year, he says.
Velan Inc. (VLN-TSE) The Montreal-based maker of steel valves for the power and oil and gas industry closed yesterday at $15.61. It traded a 52-week low of $12.35 last December, and a 52-week high of $18 last September. Mr. Deans says Velan, which has a strong balance sheet, should benefit from increased demand for power, and 'positive long-term fundamentals for oil and gas.' Strong North American currencies against a weak euro have hurt Velan in Europe, but a reversal of that situation would improve its competitive position, he says. He estimates the stock, which trades at 11 times trailing earnings, could reach $25 over one year 'under the right circumstances.'
Dundee Bancorp Inc. (DBC.A-TSE): The Toronto-based financial services company, which indirectly controls Dynamic Mutual Funds Ltd. and brokerage Dundee Securities Inc., closed yesterday at $17.00. Its stock hit a 52-week low of $15.40 in March, and a 52-week high of $20 last November. Mr. Deans says Dundee is undervalued considering it has market capitalization of about $440-million, while the market value of its investment portfolio 'is worth roughly what the entire business in trading at.' He figures the mutual fund arm is also worth $400-million to $500-million while its brokerage arm, with $6-billion in client accounts, is also 'worth something.' He believes Dundee stock should trade between $25 and $30, and is betting consolidation will unlock the value eventually.
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