1880 DJ 30-Mar-00 at 12:00:00 14:41
DJN =DJ CANADA TIP SHEET: Stewart Sees TSE Biotech Weight Rising
Symbol: BLDP CADAY QLTI C/CRC C/DPS C/IEX C/LTV C/TKX C/BLD C/QLT
Industry: BTC CMT CPR DRG ELQ ITC MTC PRF SOF TEL
Subject: DJN DJWI DJS TSH CDY WEI
Market Sector: IDU NCY NND TEC
Geographic Region: CN BRC NME ONT QBC
Product/Service: DCA DCO DCS DEL DIG DPH DTE
By Mary Weil
TORONTO (Dow Jones)--Duncan Stewart, portfolio manager of the Canadian
Navigator Technology Fund, expects biotechnology stocks to become a larger
part of the Toronto market over the next few years.
Stewart sees the weighting of the biotech group rising to 10% of the
Toronto
Stock Exchange's 300 composite index over the next decade, up from its
current
2% weighting.
And despite the rise in biotech stock prices since the beginning of the
year, Stewart said there are still values to be found. Several biotech
stocks
have doubled or tripled since late 1999, in spite of some profit-taking in
high-tech and biotechnology stocks the past few days.
The TSE 300 gave up 341 points, or about 3.4%, on Tuesday and Wednesday
after Abbey Joseph Cohen, Goldman Sachs' famed equity strategist, cut her
recommended equity weighting to 65% from 70%. Thursday, the TSE 300 is down
231 points, or about 2.4%. But even with the recent selling, the TSE 300 is
up
13% on the year.
QLT PhotoTherapeutics Inc. (QLTI) is one company Stewart thinks still has
value. The stock was trading around 65.00 in Toronto at the beginning of
December and is now around 76.85, having come down from a high of 121.30 in
January.
QLT is waiting for U.S. Food & Drug Administration approval for its
Visudyne
therapy to treat the wet form of age-related macular degneration, the
leading
cause of blindness in people over 50. QLT has already received an
"approvable"
letter from the FDA and investors have shown some impatience in waiting for
the final approval.
Sees QLT Photo Returning To January Heights
Stewart believes the stock will "go back to those highs and through them
when it receives an approval."
He said the pattern of "buy on mystery, sell on history" has become less
pervasive in the biotechnology sector. Previously, investors used to sell on
approval on the theory that the outlook was "glitteringly optimistic" and
there was no way the company could meet the expectations, but companies have
continued to show growth after products have been approved, Stewart said.
Inex Pharmaceuticals Inc. (T.IEX), along with most biotech companies, has
also come off its highs, trading recently at 7.45, which is down from the
March high of 14.35 but up from 6.50 a the beginning of the year.
Stewart said he tries to keep biotechnology stocks at about 30% of his
C$216
million portfolio. The fund has a one-year return of 191% as of the end of
February, a lot of which is due to the good performance of biotech stocks,
Stewart said.
Although that high rate of return isn't sustainable, Stewart said
investing
in high-tech and biotech stocks should bring more rewards than simply
investing in Canadian equities. Stewart said normal funds should rise by
about
10-12% a year, with small-cap funds averaging a return of about 15% and
high-tech/biotech funds returning about 25% on average.
Stewart likes the prospects for the biotech industry because the work is
very lucrative.
"Biotechnology is one of the best business models out there. It's a little
known fact that biotech companies, if they started selling cocaine or heroin
on the streets, would lower their profit margins - it is widely lucrative to
sell the drugs that they're currently working on," Stewart said.
Although it has been said before, Stewart agrees that biotech is the
Internet of the 21st Century.
The feast-or-famine cycle of biotechs isn't frustrating to Stewart. He
likens the volatility to that in the high-tech sector in the 1980s. The
sector
would be on fire, then would pull back rapidly, but over time, investors
realized the weighting of the sector was increasing.
"People realized you can't go away from high tech, you may go away from
e-tailing, or hardware or software or semiconductors but the sector itself
remains a continual source of ideas and a place to put your money. That will
happen with biotech, too, and we will get rid of this feast or famine," he
said.
Likes Ballard, Leitch, Teklogix, Coreco
Stewart still thinks technology stocks will continue to do well because
the
market is in a period of hyper growth due to the trend of disintermediation,
or eliminating the middleman.
In the high-tech group, Stewart likes Ballard Power Systems Inc. (BLDP),
Digital Processing Systems Inc. (T.DPS), Leitch Technology Corp. (T.LTV),
Teklogix International Inc. (T.TKX) and Coreco Inc. (T.CRC).
Stewart said many Canadian technology stocks are cheap because Canada has
an
inefficient technology market, in part due to too many Canadians looking to
oil and gas stocks when they want to invest.
"We have way too many people with geology degrees who know an awful lot
about looking at oil and gas stocks...the part of the economy that hasn't
mattered for a decade and is going to matter a whole lot less a decade from
now," he said.
Stewart said he would rather invest in Canadian stocks than U.S. stocks
because "our companies are just as good as U.S. ones and they haven't been
discovered yet." |
