MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, FEBRUARY 3, 1998 (1)
U.S. stocks continued their ascent as investors loaded up on technology issues. Bay Street ended the session flat as gains in the banking group were offset by falling golds
The Dow Jones industrial average rose 52.57 points, or 0.7%, to 8160.35.
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The Standard & Poor's 500 composite index set its second record high in a row, rising 4.72 points, or 0.5%, to 1005.99.
The Nasdaq composite index, which is laced with technology stocks, rose 13.45 points, or 0.8%, to 1666.34.
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About 697.5 million shares changed hands on the New York Stock Exchange, compared with 730 million shares traded on Monday.
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Bank and semiconductor shares rallied on expectations that their profits will weather an economic slowdown in Asia.
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Intel Corp. and J.P. Morgan & Co., which had slumped in recent months, led the advance.
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"A lot of people feel that the Asian crisis is behind them," said Kenneth Ducey, the chief trader at BT Brokerage in New York.
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The rally in bank shares gained momentum as the session wore on, boosting the major stock averages.
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J.P. Morgan (JPM/NYSE) rose US$3 15/16 to US$108 7/8 and Chase Manhattan Corp. (CMB/NYSE) rose US$3 to US$114 3/16.
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Business for semiconductor companies has held up well, and the stocks are now bargains, analysts said. "Now is the time to buy these stocks because unit demand is good and once they start seeing these companies reporting consistent earnings, I think the stocks will move up," said Prudential Securities Inc. analyst Hans Mosesmann.
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Intel (INTC/Nasdaq) gained US$3 1/4 to US$86 5/16, Motorola Corp. (MOT/NYSE) gained US$2 1/2 to US$64 5/8. Personal computer makers also rose. Dell Computer Inc. (DELL/Nasdaq) climbed US$1 1/2 to US$106 1/16 and Compaq Computer Corp. (CPQ/Nyse) jumped US$2 to US$32 7/16.
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PepsiCo Inc. (PEP/NYSE) slumped US$1 1/16 to US$35 3/8 after the company reported a drop in U.S. beverage operating profit and Lehman Brothers Inc. analyst Michael Branca cut his rating on the stock to "outperform" from "buy". The soft drink company said fourth-quarter profit from continuing operations rose 27%, meeting analysts' expectations.
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The Toronto Stock Exchange's 300 composite index edged up 2.07 points to 6773.45. Trading volume was 136.3 million shares, up from Monday's total of 104.3 million shares.
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The benchmark index was held back by a US$7.60 drop in the price of gold on the Comex division of the New York Mercantile Exchange, to US$295.80 an ounce. Toronto's gold subgroup responded with a fall of 5%.
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Alastair McIntyre, director of ScotiaMocatta, a unit of Scotia Capital Markets, said the drop in the gold price could have represented a reaction to news that South Korea has collected 161 tonnes of gold under its gold collection plan, up from the 117 tonnes reported in January.
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The gold is being collected from individuals and then sold to help alleviate the country's shortage of hard currency.
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Investors are worried South Korea will sell its gold at "fire sale prices," said another trader.
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In the gold group, Barrick Gold Corp. (ABX/TSE) fell $1.70 to $26.70.
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Newbridge Networks Corp. (NNC/TSE) also weighed heavily on the market. The company's shares fell $8.75 to $28.75 on heavy volume of 11.4 million shares. Several brokerage firms lowered their ratings on the stock after the company warned third-quarter earnings would come in sharply below expectations. This will be the third quarter in a row Newbridge has disappointed.
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Major banks advanced again. Royal Bank of Canada (RY/TSE) gained $1.95 to $79.75, Canadian Imperial Bank of Commerce (CM/TSE) rose $1.45 to $42 and Bank of Montreal (BMO/TSE) climbed $1.15 to $70.15.
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Other Canadian markets were mixed.
The Montreal Exchange portfolio rose 10.86 points, or 0.3%, to 3489.45.
The Vancouver Stock Exchange index fell 1.87 points, or 0.3%, to 613.47.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to:
quote.yahoo.com .
The major overseas markets closed mixed.
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London: Britain's leading share index edged up to a fifth successive record close on hopes for no rise in interest rates at this week's policy meeting. The FT-SE 100 index closed at 5612.8, up 13.8 points or 0.3%.
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Frankfurt: Germany's blue-chip share index finished the session relatively flat. The Dax index closed at 4532.52, up 9.71 points or 0.2%.
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Hong Kong: Blue chips finished lower in choppy trading as investors took profits after Monday's steep market rise. The Hang Seng index closed at 10,525.51, down 53.09 points or 0.5%.
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Tokyo: Japan's key stock average closed a languid session higher. The 225-stock Nikkei average closed at 17,022.98, up 246.16 points or 1.5%.
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Sydney: The Australian stock market closed lower in futures-led selling. The all ordinaries index closed at 2654.4, down 15.7 points or 0.6%.
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Loonie closes above US69›
TORONTO (CP) - The Canadian dollar closed above 69 cents US for the first time in two weeks Tuesday, gaining more than a quarter of a cent in active trading.
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The loonie ended trading at 69.08 cents US, up .26 of a cent from Monday's close.
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The last time the currency ended the trading day above 69 cents on North American markets was Jan. 21, when it closed at 69.20 cents US.
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Analysts said traders may be buying the loonie because they expect Canadian interest rates will continue to rise. As well, commodity prices have recovered a bit in recent weeks from three-year lows prompted by the weak economies in Asia.
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Weak commodity prices have hurt the prospects for Canadian companies in the forestry, mining and gold sectors and led traders to worry about the impact on the Canadian economy.
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The Bank of Canada raised interest rates half a point last week, the fifth rate hike since last summer, in a bid to defend the currency and attract investors to Canadian dollar-denominated assets.
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Revival reflects flight to quality -- By PATRICK BLOOMFIELD
Markets take sadistic pleasure in making fools of all of us.ÿI would relish rewriting some of my columns in the recent past, particularly those that suggested that a big, bad bear was stalking Wall Street.
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A hypothesis that a market looks more likely to stagnate than advance (which is what a bear market is all about) becomes difficult to maintain when a major market indicator such as the Standard & Poor's 500-stock composite roars past its relatively recent record high and establishes a new high.
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One can only abandon any bearish theories and suggest that, barring a new outbreak of bad news, the S&P 500 has yet higher heights to scale in the next few weeks, whatever may happen after that.
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So, why this sudden burst of strength?
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I believe Richard McCabe, the respected chief market analyst of Merrill Lynch & Co., Inc., had his finger on the right button when he spoke of "pent-up demand" in a CNBC television interview yesterday.
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It was a buildup of spare cash looking for bargains that propelled Asian markets after the Chinese New Year festivities. In turn, the impatient folk on Wall Street, sitting uncomfortably with stockpiles of cash, read the Asian market message as a go-go signal and began putting their spare cash into their favorite North American bargains. Once that kind of thing starts, nobody wants to get left out.
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Wall Street's market breadth on Monday was very, very impressive.
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McCabe cited other factors that may have contributed to the strength. For starters, market sentiment, as measured by surveys of what professional investors feel, has been relatively gloomy, building the necessary wall of worry that bull markets are always expected to climb.
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In addition, he could envisage some kind of lag effect on stocks from the recent decline in long-term bond rates. Certainly, all the commentators I heard were agog with portfolio managers switching back from bonds to stocks.
Please note, however, that all the above applies to Wall Street's two most senior market indicators - the Dow Jones industrial average and the S&P 500.
Those eager-beaver portfolio managers were not taking any chances with the more thinly traded smaller-cap stocks. They were plumping for the better margin of trading safety in the much more heavily traded Dow and S&P stocks.
Therein can be found the two faces of what recently looked oh so much like a bear market in Wall Street - and still looks relatively bearish in our much more battered Canadian markets.
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The big global players, whether they hail from North America, Britain, Europe or from the decimated fortunates of Asia, still seek top quality. The home of that quality is perceived to be the top tier of Wall Street.
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By contrast, look at the state of some of Wall Street's smaller-cap indicators. While the S&P 500 has been making new highs and the Dow wound up yesterday barely 100 points from its record high, the Wilshire small-cap index was still down some 6% from its peak, as was the Russell 2000.
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On Bay Street, the differences between the rich stocks (in terms of market cap) and the poor was even wider.
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Start with the most senior indicator of them all, the TSE 35. This composite of 35 of Canada's mightiest corporate stocks ended yesterday down no more than 2% from its peak. By contrast, the much broader TSE 300 composite index is still down about 6% from its high.
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That, however, is but an illustration of the extraordinary diversity of the TSE 300. Quite apart from the split between its broad swathe of economically sensitive sectors like natural resources and its equally well represented interest-sensitive sectors, there is a broad division between larger and smaller.
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At last sighting, the TSE 100, which consists of the top 100 stocks in the TSE 300, was down about 4% from its high. By contrast, the bottom 200, represented by the TSE 200, was down about 13%.
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Curiously, the Financial Post All-Canadian junior stock index, which speaks for an even lower tier of about 120 truly junior stocks, has shed no more than 5% from its peak.
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So what is happening?
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First, as suggested above, U.S. portfolio managers, particularly those with profit-seeking mutual fund holders snapping at their heels, have been unloading some of the cash they built up as they nervously watched Asian markets crash. And they have concentrated on the market heavyweights.
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In Canada, I surmise that this same genre of professional investors have been lightening up on the bottom 200 stocks in the TSE 300 and focusing on the big and strong.
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And those real little 'uns? Well, so far, the individual investors, who are the main players in the junior stock game, appear to have kept their cool and stayed invested.
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Barrick Corp says meets 1997 targets
CAPE TOWN, Feb 3 (Reuters) -- Barrick Gold Corp , North America's largest gold producer, said on Tuesday that it had met its 1997 targets and was confident of the future despite slumping gold prices.
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The Toronto-based gold producer is due to release its year-end results next week.
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"I can tell you we met all our 1997 targets and we feel very confident of our future," Alan Hill, Barrick's vice-president of corporate development, told a mining conference in Cape Town.
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Hill later told Reuters the company had met its targets on costs and production, forecast at about three million ounces of gold in 1997.
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Barrick posted a net loss of $315 million in the third quarter of 1997, which included a $385 million charge to cover restructuring costs.
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Barrick was the first major North American producer to concede the gold price doldrums would last longer than expected.
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Last September it announced plans to close half its 10 mines under a two-year plan aimed at boosting production from its lower-cost properties.
Roughly 10 million ounces of production has been hedged at $400 an ounce until 2000.
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Hill said the company's plan to produce 3.5 million ounces of gold at a cash cost of $150 per ounce by 1999 was on track.
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He said the company would continue to focus on a three-pronged strategy for growth through acquisitions, exploration of existing properties and joint ventures.
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The Canadian miner is not part of any joint ventures in Africa, but Hill said it is an area of interest.
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"Though gold is weak, Barrick is strong. Our actions are not constrained by the gold price," he said.
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Selling pressure provides opportunities -- By SONITA HORVITCH
Mid-cap specialist Jim Goar, vice-president of investments at O'Donnell Management Investment Corp., is finding good opportunities in his principal areas of interest - industrial companies, oil and gas producers and non-bank financials.
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Toronto-based Goar, who manages the O'Donnell Group Fund, noted that his universe - small and mid caps - has come under some selling pressure of late.
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"When the market comes under pressure, this segment tends to suffer more. Conversely, when the market does very well, these stocks can do better."
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In stock selection, Goar emphasizes companies with sustainable earnings growth that trade at earnings multiples below their prospective growth rates. His style is to buy and hold. Stocks he is picking are:
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Office Specialty Inc. (OSXb/TSE), which closed recently at $17.75 and has a 52-week trading range of $17.75 to $13.85. ÿBased in Holland Landing, Ont., the company designs and makes office systems and furniture and sells its products in North America. ÿThe company is very profitable, said Goar. Its net margins (earnings divided by sales) are double that of its competitors. Office Specialty is having considerable success with its Platform product line, a flexible office furniture system. With about 78% of its sales to the U.S., Office Specialty is benefiting from the weak C$. ÿGoar's earnings per share estimates are 96› for fiscal 1998, ending April, and $1.15 for fiscal 1999. This means the stock is trading at about 14 times estimated earnings for fiscal 1999, whereas earnings should grow at about 20% a year.
Dundee Bancorp Inc. (DBCa/TSE) $29.50 ($42.75-$23.25) and (DBCb/TSE) $29.25 ($45-$25.75). ÿThe Toronto-based company manages investment portfolios on behalf of its mutual fund division, Dynamic Mutual Funds, and it has a range of principal investments. ÿIts two biggest holdings are Dundee Realty Corp. (D/TSE) $2.75 ($4.30-$2.20), a real estate development company, and Breakwater Resources Ltd. (BWR/TSE) $3.55 ($9.50-$2.50), which owns and operates zinc mines in Canada and Honduras. "Dundee Bancorp has been very active in building up value in these two companies," Goar said. ÿIts investment portfolio accounts for about $18 of the stock price. Subtracting the $18, the investor gets the mutual fund business for about $11.50. "This is at a very reasonable price relative to its ability to generate cash flow," said Goar.
Canadian 88 Energy Inc. (EEE/TSE) $5.30 ($7.05-$3.95). ÿThe Calgary-based company "is very good at oil and gas exploration," said Goar. The company has two fields in Western Canada which it is seeking to bring on stream. Once they start operating, they will double Canadian 88 Energy's total production, "which is a major leap in production." The company is awaiting regulatory approval to go ahead with the wells, he said, and he is "fairly certain that this will be forthcoming." ÿAnother energy producer that Goar favors because of its "excellent exploration track record" is Berkley Petroleum Corp. (BKP/TSE) $14.50 ($18.35-$10.33), which is engaged in oil and gas production in Alberta, British Columbia, Saskatchewan and the Northwest Territories.
The money manager continues to champion Canadian Medical Laboratories Ltd. (CLC/TSE) $7.20 ($8.75-$4.60), which operates licensed medical diagnostic laboratories. It was his selection in this column Nov. 1 at $7.85.
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Goar sold health-care services company Extendicare Inc. (EXE/TSE) $16.40 ($23.75-$15) toward the end of last year. "The stock was trading at a price-earnings multiple higher than the company's earnings growth rate, which meant that it did not fit my investment criteria."
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HOT STOCKS
Air Canada (AC/TSE), down 90› to $13.50, on volume of 3.5 million shares. ÿThe shares were downgraded to "buy" from "strong buy" by analyst Nick Morton at RBC Dominion Securities Inc. ÿ"The overall picture remains bright for Air Canada, however there are some clouds on the horizon," Morton said in a report. ÿHe said the stock has made excellent gains over the past few months but a greater degree of economic uncertainty and potentially higher employment expenses will lower 1998 earnings to $1.45 a share from $1.66. ÿJames David, of HSBC James Capel Canada Inc., said his earnings estimates were already at $1.21 a share. He expected the stock to fall because some estimates on the Street were too high.
Barrick Gold Corp. (ABX/TSE), down $1.70 to $26.70, on volume of 1.6 million shares. Placer Dome Inc. (PDG/TSE), down $1.05 to $17.55, on volume of 825,006 shares. Teck Corp. (TEKb/TSE), down $1.30 to $19.20, on volume of 239,971 shares. Shares in Canada's major gold producers slid in tandem with the price of bullion, which fell US$7.60 to US$295.80 an ounce on the Comex division of the New York Mercantile Exchange. ÿThe Toronto Stock Exchange gold and precious minerals subindex fell 340.1 points, or 5%, to 6402.21.
Epic Data International Inc. (EKD/TSE), up 15› to $10.65, on volume of 206,507 shares. ÿShares in the Richmond, B.C.-based manufacturer of data collection and analysis systems touched new highs. They have risen 113% since slipping to a low of $5 in July. ÿ"The company is profitable for the first time since 1993 and I suspect the increase in volume over the past few weeks is institution- driven," said Adam Adamou, partner at Taurus Capital Markets.
Fonorola Inc. (FON/TSE), up $2.20 to $27.70, on volume of 326,360 shares. Shares of the long-distance telephone service reseller have risen 18% this week. The stock is not very liquid and the price spike is a factor of large investors wanting back in, said John Henderson of Scotia Capital Markets. "The shares are at an extremely compelling value level," Henderson said.
Western Star Trucks Holdings Ltd. (WS/TSE), down $2.20 to $27.75, on volume of 12,282 shares. ÿShares in the thinly traded heavy-duty truck designer and builder fell after the firm reported second-quarter income of 20› a share, down 67% from 66› a year earlier. The Kelowna, B.C.-based company said earnings fell because of losses at its Orion Bus Industries Ltd. unit and increased interest expenses.
Newcourt Credit Group Inc. (NCT/TSE), up 95› to $56.80, on volume of 427,204 shares. ÿNorth America's second largest finance and leasing company releases fourth-quarter earnings today. Profit before a charge is expected to rise 77% to 55› a share from 31› in the year earlier period, according to the mean estimate of four analysts surveyed by IBES International Inc. Newcourt split its stock two-for-one in April.
Dell Computer Corp. (DELL/Nasdaq), up US$1 1/2 to US$106 1/16, on volume of 10.9 million shares. ÿThe computer company's shares hit a record high of US$108 in intraday trading. ÿThe shares were upgraded to "buy" from "weak buy" by Gerard Klauer Mattison & Co. analyst Louis Mazzacchelli, who said the company is going to have "a strong yearend."
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