MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY DECEMBER 16, 1997 (2)
HOT STOCKS
Rogers Communications Inc. (RCIb/TSE), down 20› to $6.95, on volume of 261,030 shares. Rogers Cantel Mobile Communications Inc. (RCMb/TSE), up 15› to $13.55, on volume of 61,595 shares.
Increasing competition in the sector for Rogers' mobile phone and cable businesses led Dominion Bond Rating Service to put debt issued by three companies within the Rogers group under review, with negative implications.
Rogers Communications senior notes and debentures, convertible senior debentures and liquid yield option notes, rated B (high), are under review.
Rogers Cantel senior secured notes and debentures and senior subordinated notes, rated BB and BB (low) respectively, are also under review.
Senior secured notes and debentures and senior subordinated debentures issued by Rogers
Cablesystems Ltd., a Rogers Communications subsidiary, are also covered. They are rated BB (low) and B (high).
Atlantic Communications Inc. (ATV/TSE, up $1 to $10, on volume of 156,560 shares.
The entertainment company said it had agreed to buy Ironstar Communications Inc., a Toronto television programming sales and distribution business, for an undisclosed sum.
Atlantis also said it raised
$20 million through a bought deal by selling 2.2 million special warrants, exercisable into subordinate voting shares for $9 each. Yorkton Securities Inc. and RBC Dominion Securities Inc. are leading the underwriting group.
The stock hit a new 52-week intraday high of $10.75.
Cobre Mining (CBU/TSE), down 10› to $5.15, on volume of 1.1 million shares. Cobre's board rejected a $5.42-a-share offer from Phelps Dodge Corp.
Aber Resources Ltd. (ABZ/TSE), up $1 to $14, on volume of 117,115 shares.
The company said it has lots of money and is making progress on the 40% owned Diavik Diamond Project at Lac de Gras, NWT. Diavik expects to file a project description early next year. That will start the environmental assessment process which will lead to regulatory approval for production.
A formal feasibility study will begin early in 1998. The exploration budget will be $9 million next year, compared with its $3.1-million budget for 1997.
Daily Morning Market Update for Wed., Dec 17, 1997
Moved to this Web site at: 17/12/97 at 09:25:01 EST
TODAY'S EXPECTATIONS
Canadian dollar - Mildly stronger, 1.4180 - 1.4240
Canadian money market - Stronger, mild flattening bias
Canadian bond market - Slightly weaker, steepening bias
US bond market - Sideways trading
Canada - US spreads - Canada underperforms
TODAY'S MARKETS
Bond Market: With no significant economic releases scheduled today, the US Treasury market is likely to retain its cautious tone. The weakness in the USD - triggered by the unexpectedly comprehensive Japanese fiscal stimulus package - will likely undermine sentiment in the Treasury market throughout the session. While the slightly stronger tone in the Canadian dollar is expected to help the short end of the Canadian bond market, the mid to longer terms will underperform modestly today.
Money Market: The much stronger tone that developed last night in the Canadian money market is likely to remain intact today. Strength in the currency will push some of the more aggressive players back out the curve despite lingering expectations of another rate move. Relatively expensive cost of carry will make the very short end less attractive and will provide the basis for further flattening.
Foreign Exchange: With the momentum built up in overseas trading, the Canadian dollar is expected to move stronger today. From an international player's perspective, Yen trading will take centre stage. The Canadian dollar is poised to test the strong side of the 1.4200 level some time during the session as some speculators continue to anticipate another hike by the Bank of Canada.
OVERNIGHT ACTIVITY:
The Japanese Yen gapped stronger versus the US dollar overnight, following the release of a better than expected Japanese fiscal stimulus package and confirmed selling of USD by the Bank of Japan. Surprisingly, the fiscal stimulus package included Yen 2 trillion of Personal and Yen 850 billion of Corporate Tax cuts, in addition to the
well publicized plan to raise Yen 10 trillion to backstop thecountry's financial system. The US Treasury market weakened overnight, on the back of the fall in the USD. The US long bond broke back above the 6 percent level. The Canadian bond curve steepened overnight, as swap related buying took the front end stronger while the long end suffered on reported unwinding of flattener trades. The Canadian money market improved sharply overnight on light buying interest, while the Canadian dollar traded in a range of 1.4210 - 1.4253.
YESTERDAY:
The US bond market improved on Tuesday as the FOMC concluded with no change in rates. Benign CPI data also helped long Treasuries to a gain of little more than a quarter point on the day with yields falling to 5.96%. The Canadian dollar and bond market, particularly the short end of the curve, came under attack amid perceptions that the Bank will be forced to raise rates as early as this week. The curve flattened dramatically with the 2-30 spread narrowing by more than 20 basis points on the day. The Canadian dollar closed the day at 1.4257, while Treasury Bill yields rose more than 20 basis points in both the 3 and 12 month terms.
Inside the Market
Setting the rules for disciplined stock picking
By PATRICK BLOOMFIELD
For a change, Wall Street responded favorably to favorable news yesterday, the lower than predicted inflation numbers implicit in the latest consumer and core consumer price data.
But the response was, to say the least, muted, and spoke largely of bargain hunting in the technology sector.
The bellwether Standard & Poor's 500-stock composite has to break well above 986 - and stay up there - to prove that we have been looking at something more than a rally in a mini-bear market. And this is its third attempt.
As an old friend of this column, chartered financial analyst Picton Davies, argues in his December issue of The Polymetric Report, there was a time when market-savvy people could provide a reasonably assured answer.
But these days of huge international money flows have pushed any such assurance out the window. An investor's life raft has to be disciplined stock picking.
Davies's own discipline is twofold. His broad indicators suggest how heavily his readers should be into equities (his current Canadian market recommendation is 65%). He also ranks more than 1,500 Canadian and U.S. stocks, on earnings growth, price growth, trading activity and price risk. He then has his computer come up with an average of the individual ratings, which he re-ranks in numerical order from one to 99 - one for the strongest candidate and 99 for the weakest.
Davies urges his readers to formulate their own data implementation rules based on their preferences. That gave me an idea.
How about my trying a purely paper-based stock-ranking exercise, without resort to any electronic helping hands? Computers can be extremely useful draught animals in any stock selection exercise. But what if you don't like the beasts?
I confined my research to Davies's numbers and to the printed corporate numbers published by another old friend of this column, Marcel Longpr‚, under the simple name of Stock Guide. Sure, Stock Guide itself is computer-generated, but all one needs to use it is the reading skill learned in grade one.
I based my search on Davies's first ranking criterion (earnings growth), picking 17 stocks with an earnings growth rank of 10 or lower. I then turned to Longpr‚'s Stock Guide to check consistency of earnings growth, scanning the years from 1993 to the most recent four quarters.
That cut my list to seven companies. My next criterion was at least a half-decent return on equity. That reduced my final choice to four stocks - Canadian Pacific Ltd. (CP/TSE), Hollinger Inc. (HLG/TSE), Magellan Aerospace Corp. (MAL/TSE) and Newfoundland Capital Corp. Ltd. (NCC/TSE).
In terms of five-year earnings growth, Conrad Black's newspaper empire, Hollinger, and Dartmouth, N.S.-based transportation and communications company Newfoundland Capital came out tops.
But when it came to return on equity (a shareholder's current bang for the buck), Magellan was way ahead, with an ROE of 45.4%. This Toronto-based aircraft repair and aerospace component manufacturer has had a good rise in the past two years, but still looks as if it should hold its own in dud markets and do better in the rising variety. It happened to be the one pick that is also in Davies's model account.
When I combined five-year earnings growth and ROE, however, the honors went to the venerable CP. Longpr‚'s Stock Guide lists CP's ROE at 13.6%. Whether it can maintain that quite respectable number (for a conglomerate) in the face of Asian economic mayhem is one of the market questions of the day.
Baird Asset Management's Buy & Sell
Money manager targets domestic issues
By SONITA HORVITCH The Financial Post
Jonathan Baird, president of Toronto-based Baird Asset Management Inc., is focusing on companies that are influenced by the domestic Canadian economy in his more defensive approach to the market.
"There will clearly be fallout in 1998 from the turmoil in Southeast Asia," he said.
This does not augur well for the resource sector, but the domestic economy should continue to be buoyant.
Whether the long-lived North American bull market continues will depend on the strength of corporate earnings in 1998.
"The market will be vulnerable to a correction if there are widespread earnings disappointments."
The money manager expects interest rates to remain "relatively benign" - particularly at the long end of the yield curve.
Baird underscores the importance of investors reducing their expectations for equity investment returns for the next several years.
"They will not be in the same league as in the past three to five years."
His top stock picks are:
Imasco Ltd. (IMS/TSE), which closed recently at $50.90 and has a 52-week trading range of $54.25 to $30.75.
The Montreal-based company fits his domestic focus theme. Imasco has strong business franchises in its holdings in Imperial Tobacco Ltd., CT Financial Services Inc. and Shoppers Drug Mart/Pharmaprix.
"Imasco could well restructure to surface value," said Baird. His estimate is that the sum of its parts is worth more than $60 a share.
Loblaw Cos. Ltd.(L/TSE) $25.65 ($26.25-$13.25). Toronto-based Loblaw is "one of the best run grocery chains in North America." It has strong growth potential in that it is opening new stores. Baird's earnings per share estimates are 87› for 1997 (price-earnings ratio of 29) and $1.07 for 1998 (24). "The stock carries a premium multiple, but it is a premium company," he said.
Potash Corp. of Saskat-chewan Inc. (POT/TSE) $115.50 ($122.70-$98.50). The Saskatoon-based company is engaged in the mining, production and sale of potash and phosphate fertilizer and a range of related products. Baird said the company has strong earnings and cash flow growth. "Potash prices should be stronger in 1998 and 1999." Potash Corp. "is the holder of the world's incremental supply of the commodity," he said His earnings per share estimates are $5.70 for 1997 (P/E of 21) and $6.70 for 1998 (17). "It represents solid value and a good defensive holding."
Baird is selecting two utilities stocks:
Westcoast Energy Inc. (W/TSE) $32.90 ($33.45-$22.65), with a dividend yield of 3.8%. The Vancouver-based company owns and operates the mainline natural gas transportation system in British Columbia.
TransCanada PipeLines Ltd. (TRP/TSE) $30.75 ($31.25-$22.90), with a dividend yield of 4%. The Calgary based company is engaged in natural gas and energy transmission and electric power generation.
Both utilities companies are solid defensive plays, Baird said, in that they have dividend yields that are attractively priced relative to bonds.
Baird has no gold stock holdings. "The low inflation environment coupled with actual and expected bullion sales by central banks will make for a lower price in the precious metal," he said.
He has also sold his base metal stocks on concerns about these commodity prices, given the prospects for slower Asian growth. Baird said these commodities are priced in US$s and the U.S. currency's strength makes them more expensive to non-U.S. buyers.
Baird has sold nickel producer Inco Ltd. (N/TSE) $24.50 ($51.45-$24.25). "Nickel prices are likely to remain lacklustre," he said
INSIDER INFORMATION
Seagram Co. Ltd. spent US$226.2 million in October buying back its own stock, the Ontario Securities Commission insider trading report shows. The Montreal-based beverage and entertainment company bought more than 6.3 million shares at prices between US$33.27 and US$37.18 each.
In September, Seagram's board approved a repurchase program of up to 23 million shares.
Other transactions, after August unless noted, include:
Indochina Goldfields Ltd. - Bayview Holdings Inc., which owns more than 10%, bought almost 730,000 shares for US$4.76 to US$5.13 each to hold more than 10.4 million indirectly.
Promis Systems Corp. Ltd. - Quorum Growth Partners I LP, which holds more than 10%, sold 251,000 shares for $5.95 each to hold more than 753,000.
Renaissance Energy Ltd. - FMR Corp., which holds more than 10%, bought and sold the stock actively for prices between US$22.46 and US$26.10 a share, eventually cutting its indirect stake by 330,600 shares to almost 12.4 million.
Sherritt International Corp. - Caisse de d‚p“t et placement du Qu‚bec, which holds more than 10%, sold almost 305,000 shares for $6.08 to $6.73 each to hold more than 4.2 million. It bought $3-million worth of convertible debentures for 43› for each dollar of face value to hold $56.3-million worth of debentures
Synsorb Biotech Inc. - Erin Mills Development Corp., which holds more than 10%, exercised one million warrants for $5 each and sold one million shares privately for $9.50 each and 50,000 privately for $5 each to hold almost 2.5 million shares. 1019373 Ontario Inc. bought 500,000 shares privately for $7.50 each and sold them all privately for $9.50 each to
hold none.
Tesma International Inc. - Frank Stronach, who holds more than 10%, sold 110,400 shares for $21.75 to $23.50 each to hold almost 109,400 indirectly.
Trimark Financial Corp. - AIC Ltd., which holds more than 10%, bought nearly 405,000 shares for $70.09 to $75.87 each to hold almost 4.4 million shares indirectly.
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