MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 16, 1998 (1)
Saturday, January 17, 1998
Golds inspire Bay Street - By THE FINANCIAL POST
Improving markets across Asia and Europe combined with positive high-tech corporate earnings reports and the strongest gold rally in a decade to boost stock prices on Bay and Wall streets
The Dow Jones industrial average rose 61.78 points, or 0.8%, to 7753.55. For the week the Dow rose 2.3%, recouping about half of last week's decline - its worst in eight years.
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The Standard & Poor's 500 composite index rose 10.78 points, or 1.1%, to 961.51, a 3.6% gain for the week. The Nasdaq composite index rose 15.82 points, or 1%, to 1562.88, and rise of 4% for the week.
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About 672 million shares changed hands on the Big Board, up from 573 million shares traded Thursday.
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Sun Microsystems joined Intel Corp. and Motorola Inc. among large computer-related companies to report this week that profits were largely unaffected by the Asian economic crisis.
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Sun Microsystems shares (SUNW/NASDAQ) rose US$2 1/16 to US$451 1/88.
Analysts at PaineWebber Inc. and Merrill Lynch & Co. boosted their ratings on the stock to "buy."
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Sun said its fiscal second-quarter profit rose 25%, spurred by strong sales of its high-performance servers and storage devices.
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The Morgan Stanley high-tech index rose 1.36 points to 443.81 and gained 5% for the week. The index of computer-related shares is up 98% in the past three years.
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Microsoft Corp. (MSFT/NASDAQ) jumped US$2 15/16 to US$1351 1/84 and International Business Machines Corp. (IBM/NYSE) gained US$1 9/16 to US$1051 1/88.
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Canadian stocks rose, sent higher by gold producers like Barrick Gold Corp. as bullion prices rebounded on robust demand.
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The demand surge was fuelled by the US$'s slide to a one-month low against the Japanese yen, making it cheaper for Japanese investors to buy the precious metal.
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The Toronto Stock Exchange 300 composite index rose 91.67 points, or 1.5%, to 6418.68. The benchmark index gained 2.3% on the week, but is down 4.2% so far this year.
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More than 133.5 million shares changed hands, up from 96.5 million shares traded on Thursday.
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"The big jump early was on gold and the focus is on earnings," said John Kinsey, a portfolio manager with Caldwell Securities Ltd.
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The TSE's gold & precious metals subindex gained almost 15% on the week, its biggest weekly advance in a decade.
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Barrick Gold (ABX/TSE) rose 80› to $26.70.
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Reassuring statements from the International Monetary Fund that countries like South Korea, Thailand and Indonesia are taking steps needed to improve their economies helped lift metals issues on expectations commodity prices and producer profits will rise.
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Alcan Aluminium Ltd. (AL/TSE) gained $1.30 to $39, Noranda Inc. (NOR/TSE)
rose 85› to $23.70 and Inco Ltd. (N/TSE) gained $1.35 to $23.20.
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Newcourt Credit Group (NCT/TSE) gained $4 to $53.40 and Canadian Pacific Ltd. (CP/TSE) rose $1.20 to $35.70.
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Major Canadian indexes closed higher.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to:
quote.yahoo.com .
The Montreal Exchange market portfolio rose 43.8 points, or 1.4%, to 3299, for a 2% rise on the week.
The Vancouver Stock Exchange climbed 9.72 points, or 1.7%, to 593.88, up 0.5% on the week.
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Major international markets closed broadly higher.
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London: British stocks rose for a fourth straight session amid an influx of cash from U.S. fund managers. The FT-SE 100 index closed at 5263.1, up 97.3 points, or 1.9%, for a gain of 2.4% on the week.
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Frankfurt: After an early boost by overnight Asian gains, German shares were carried to a firmer finish by a sustained rally on Wall Street. The Dax index closed at 4184.46, up 36.12 points, or 0.9%. However, the benchmark fell 1.2% from last week.
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Tokyo: Japanese stocks soared, with the key Nikkei average gaining more than 6% and ending above the 16,000 level on speculation that the Japanese government would announce more measures to boost the economy. The 225-stock
Nikkei closed at 16,046.45, up 924.47 points, or 6.1%. It rose 7% on the week.
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Hong Kong: Stocks rallied to a sharply higher close as investors returned to hunt for bargains, with fears easing of increasing debt financing problems. The Hang Seng index closed at 8900.04, up 321.06 points, or 3.7%, a rise of 0.1% on the week.
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Sydney: Australian stocks bounced off early lows to post a strong finish after the Japanese market rocketed. The all ordinaries index closed at 2614, up 29.5 points, or 1.1%, a gain of 0.4% from seven days ago.
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HOT STOCKS
BARRICK GOLD CORP. (ABX/TSE), up 80› to $26.70, on volume of 2.8 million shares. PLACER DOME INC. . (PDG/TSE), up 80› to $18.50, on volume of 2.6 million shares. TVX GOLD INC. (TVX/TSE), up 15› to $3.90 on volume of 1.5 million shares. TECK CORP. (TEKb/TSE), up 95› to $20.45, on volume of 729,006 shares. Gold stocks started to move on the back of a solid move in the price of bullion. The price of gold on the Comex division of the New York Mercantile Exchange closed at US$290.60 an ounce Friday, up $4.70 for the day and $12.10 for the week. The Toronto Stock Exchange gold & precious metals subindex jumped almost 15% on the week, including a 232-points, or 3.8%, gain Friday to 6299.58. ÿ"The incessant selling has stopped from the central banks and hedge funds," said John Ing, a bullish gold analyst at Maison Placements Canada Inc. Ing still predicts the average price of gold in 1998 will be more than US$375 an ounce. "The strong US$ put a lid on gold in 1997 but the US$ has now peaked and we're due for a correction," he said.ÿ"Gold is sowing the seeds of its own recovery in terms of producers reversing their hedge positions ... capturing profits and adding to the buying of bullion." ÿBut Larry Strauss, analyst at Canaccord Capital Corp. said: "I don't believe this is the beginning of a turnaround for bullion." ÿ"The strength of the US$ and lack of a comprehensive statement from the European Union central bank over gold reserves limits a sustained rally in gold," said Strauss. ÿStrauss does not see a major downside in the price of gold but predicts it still might slip below its 52-week low of US$278.30 reached on Jan. 12.
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ALCAN ALUMINUM LTD. (Al/TSE), up $1.30 to $39, on volume of 1.1 million shares. "The price of aluminum has held up quite well compared to other metals and the consensus is that it will go up," said Stephen Bonnyman of CIBC Wood Gundy Securities Inc.
PRECISION DRILLING CORP. (PD/TSE), up $1 to $26.50, on volume of 162,204 shares. The market responded favorably to the oil and gas service company's plans to repurchase up to two million of its common shares over the next 12 months. The repurchase of up to 4.8% of its outstanding stock will take place through open market transactions from Monday.
FANTOM TECHNOLOGIES INC. (FTM/TSE), up $1 to $13, on volume of 714,105
shares. ÿThe Welland, Ont., vacuum cleaner manufacturer, formerly Iona Appliances Inc., has sucked up more than 40% of the upright vacuum cleaner market in the U.S, said Peter Quitzau of Brink Hudson & Lefever Ltd. in Vancouver. ÿ"This is a real Canadian success story because of its unique technology and increasing share of the U.S market," Quitzau said. He recommends Fantom as a "buy," with a 52-week target of $16.
HUMMINGBIRD COMMUNICATIONS LTD. (hum/tse), up $1.30 to $46.45, on volume of 168,441 shares, and (humcf/nasdaq), up 7 1/88 to 32 1 1/84, on volume of 161,400 shares. The stock rose after the company released strong first-quarter results Thursday.ÿIn the quarter ended Dec. 31, Hummingbird's profit rose 27% to US$8.6 million (US59›), compared with US$6.8 million (US48›) a year before. Sales jumped 23% to US$27.4 million in the quarter, not including revenue from recently acquired Andyne Computing Ltd. The company expects revenue this fiscal year to top US$150 million.
NORANDA INC. (NOR/TSE), up 85› to $23.70, on volume of 2.2 million shares. The firm said in November it would implement a restructuring plan to dispose of its non-metals assets in 1998, and the markets are now responding, said Wood Gundy's Bonnyman.
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BUY & SELL
Opportunities among overlooked small caps -- By SONITA HORVITCH (The Financial Post)
Opportunities remain in the small-cap sector with a number of companies generating good earnings or cash flow growth that the market is not giving them full credit for,
said Gene Vollendorf, portfolio manager at Calgary-based Bissett & Associates.
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"The stock market is often inefficient in pricing these companies, many of which are 'under-followed' by the investment community," he said.
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Vollendorf co-manages the Bissett Microcap Fund ($6 million) and the Bissett Small Cap Fund ($118 million) with chief executive David Bissett.
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For the microcap fund, made up of companies with market caps under $75 million, Vollendorf is highlighting companies that are "consolidation plays." ÿArmed with a strong balance sheet and strong management, they are able to acquire firms and reduce administration costs. ÿHis top stock picks include:
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DC DIAGNOSTICARE INC. (DCE/TSE), which closed recently at $3 and has a 52-week trading range of $3.25 to $1.90. The Edmonton-based company owns and operates diagnostic imaging clinics. At the end of 1997, it had acquired 53 clinics over two years "which is testimony to the company's growth.ÿIt has a dominant position in some of the cities in which it operates, said Vollendorf. The company recently undertook a $15-million financing to fund further acquisitions. It also began to turn a profit in the third quarter of fiscal 1997, ended September, and Vollendorf expects it to break even for the fiscal year as a whole. He estimates earnings per share will be 15› for fiscal 1998 and 27› for fiscal 1999.
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RAILINK LTD. (RLKa/TSE) $11.70 ($12.50-$7). The Edmonton-based regional railway company operates short-line routes throughout Canada. It buys them from the major railway companies which are, in turn, concentrating on their principal routes. RaiLink has been hard on the acquisition trail. Vollendorf said it has been able to negotiate advantageous labor contracts, with employees enjoying profit sharing plans. His earnings per share estimates are 32› for 1997, 70› for 1998 and $1.12 for 1999.
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For his small-cap picks, Vollendorf is focusing on the oil services sector which "has fallen out of favor and is versold." He likes:
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STELLARTON ENERGY CORP. (SRTa/aSE) $4.50 ($6-$2.50). The Calgary-based company is in oil and gas production and in oilfield services. ÿBissett & Associates particularly likes the company for its ability to make innovative equipment that enhances the recovery of oil reserves, said Vollendorf. Stellarton has "been very successful in its operations and acquisitions as an energy producer." ÿHe estimates that the company should earn 15› a share for 1997, 30› for 1998 and 40› for 1999.
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RESERVE ROYALTY CORP. (ROI/TSE) $4.15 ($5.35-$1.85). The Calgary-based company is a source of financing for junior exploration and producing companies. It has royalty interests in Canada and the U.S. Vollendorf's cash flow per share estimates are 18› for 1997, 57› for 1998 and 77› for 1999.
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Bissett & Associates continues to like KELMAN TECHNOLOGIES. (KTI/TSE) $1.70
($3.25-$1.10), which was a pick in this column Dec. 4 at $2.15. The Calgary-based company provides seismic data processing and data storage and retrieval services.
Another theme for the small-cap portfolio is companies that trade at low multiples but are steady earnings growers. Here Vollendorf's pick is:
EAGLE PRECISION TECHNOLOGIES INC. (EGL/TSE) $14.50 ($18.50-$7.20). The Brantford, Ont.-based company designs and makes tube-bending and tube-forming machines, mainly for the automotive industry. Eagle, which "is an under-followed company," dominates its segment. Vollendorf's earnings per share estimates are $1 for fiscal 1998, ending February, and $1.30 for fiscal 1999.
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His "sell" is RE-CON BUILDING PRODUCTS INC. (REC/TSE) 28› ($4.50-10›), which makes a range of roofing products. ÿ"The company is having problems with its profitability."
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