=DJ CANADA TIP SHEET: Altamira's Ainsworth Likes Nortel
By Scott Adams
TORONTO (Dow Jones)--Altamira Management Ltd. portfolio manager Ian Ainsworth is
positive about the outlook for the Canadian market, given that prospects are good for
Nortel Networks Corp. (T.NT), banks and resource companies.
Ainsworth points out that Nortel and its parent, communications conglomerate BCE Inc.
(BCE), represent about 14.6% of the Toronto Stock Exchange's 300 index, while all of the
TSE 300's oil, gold, mining and forestry companies combine for about 19.5%, and Canadian
financial services stocks, including Canada's big-five banks, make up 19.8%. "Right now,
it looks like a lot of things are in favor for the Canadian market," Ainsworth said.
Earnings growth is accelerating for resource companies because of a recovery in commodity
prices, and Canadian banks and Nortel should have a good second half to the year as well.
"We're looking at better earnings through a number of sectors that can drive the
market," said Ainsworth, who manages the C$1.25 billion Altamira Equity Fund.
Nortel Trades At Discount To Lucent, Cisco
Among his individual Canadian picks are Nortel because it trades at a sharp
revenue-to-price discount to rival communications equipment providers Lucent Technologies
Inc. (LU) and Cisco Systems Inc. (CSCO). Nortel can narrow that discount as it improves
its margins and its growth accelerates. "We think that can happen because of Nortel's
leading position in optics," he said, noting that Nortel's enterprise and switching
businesses are doing well also.
In other high-tech stocks, Ainsworth picks electronic manufacturing services company
Celestica Inc. (CLS) and computer graphics chip company ATI Technologies Inc. (ATYT).
Revenue for Celestica in the latest quarter was US$1.1 billion, and the company expects
to improve revenue to US$10 billion by 2001. Ainsworth expects Celestica to reach that
target as more companies such as Nortel and Lucent outsource manufacturing. Celestica
also trades at a steep revenue-to-price discount to competitors Solectron Corp. (SLR) and
Flextronics International Ltd. (FLEX), Ainsworth said.
As for ATI, Ainsworth expects it to tighten its grip on the graphics chip industry for
desktop computers and said ATI is gaining market share in the laptop market. It has made
strong inroads into the discount personal computer market and has also diversified into
making chips for the growing market of television set-top boxes, he added. "We think this
company is well positioned and has the critical mass to survive the typically aggressive
cycles in this industry," Ainsworth said.
Grocery store company Loblaw Cos. (T.L) is a top pick because of its recent
acquisition of Provigo Inc., consolidating Loblaw's position in eastern Canada, he said.
Loblaw has a strong mix of discount grocery stores and upscale stores and is also doing
well with its strategy of offering private-label goods and banking services in its
stories through its partnership with Canadian Imperial Bank of Commerce (BCM), Ainsworth
said.
Air Canada (ACNAF) is another pick, despite the stock being a disaster the past year,
falling from its 52-week high of 12.95 in Toronto to its current level of 6.50. But
before the end of the year, he expects to see a restructuring in the Canadian airline
industry, with the Canadian government relaxing foreign-ownership restrictions in order
to have new capital injected into the sector or Air Canada and rival Canadian Airlines
Corp. (T.CA) dividing domestic air routes to reduce competition, especially in eastern
Canada.
Likes TD Bank Because Of TD Waterhouse Unit
Among Canadian banks, Ainsworth likes Toronto Dominion Bank (TD) for its newly spun
off discount brokerage TD Waterhouse Group Inc. (TWE). If the value of Waterhouse is
removed from TD Bank's market capitalization, then TD Bank is trading at a discount to
its Canadian rivals, he said.
In the energy sector, his favorite picks are Talisman Energy Inc. (TLM), for its
Canadian assets and its international assets in Indonesia, Sudan and the North Sea, and
Rio Alto Exploration Ltd. (T.RAX), for its exposure to natural gas in Canada. "With the
expansion of the Canadian pipelines over the next year and with the shutdown in gas
development earlier in the year because of inventory excesses and price weakness, we
think we could see a pretty tight gas market next year and Rio Alto is well positioned
for that," he said.
Among small-cap stocks, a favorite of Ainsworth is Architel Systems Corp. (ASYCF). The
company provides telecommunications software and had gone through a rough stretch this
year, after it lost its biggest customer, causing a proposed takeover of Architel to fall
apart. In the highly competitive telephone service sector, one way a big phone company
can gain market share is through improved service and to do this it needs the latest
network software. "We also think they will possibly be integrated into another company,"
he said, noting that other similar companies have been acquired.
-Scott Adams; 416-306-2026; scott.adams@dowjones.com
(END) DOW JONES NEWS 07-15-99
12:00 PM
|
