An interesting read for technology followers:
CANADA TIP SHEET: Caldwell Reluctant To Dump Techs
By ANDY GEORGIADES
Of DOW JONES NEWSWIRES
TORONTO -- Brendan Caldwell has come to one conclusion about the big-name technology stocks he loaded up on last year: dumping them isn't the answer.
Caldwell, co-manager of Caldwell Investment Management's C$2 million Canada fund, said he was "early into the technology sector" in anticipation of a turnaround - but the turn has yet to materialize.
However, he's reluctant to abandon the sector outright, and last week's pop by networking giant Cisco Systems Inc. (CSCO) explains why. Cisco reported better-than-expected third-quarter profits and spoke of seeing early signs of a rebound in technology spending. It was exactly what the market wanted to hear, and investors gobbled up tech stocks across the board.
Although the rally didn't prove sustainable, last week's reaction shows that, when the sector does rebound, these stocks have plenty of room to move, he said. And he would hate to miss out.
Therefore, the fund will continue to hold such technology bellwethers as Nortel Networks Corp. (NT), JDS Uniphase Corp. (JDSU), Intel Corp. (INTC), Dell Computer Corp. (DELL) and Cisco, companies which "aren't going anywhere," Caldwell said.
"With the markets the way they are and the pessimism about technology at an all-time high, listening to people talk you'd think we're all going back to smoke signals," Caldwell told Dow Jones. Obviously that's not the case, and these companies, which have been around for a long time and dominate their industries, stand to benefit when business currents run in their favor again, he said.
Indeed, Cisco is one technology holding that has actually performed well for the fund, he noted.
Caldwell's strategy is simple: he looks for big, well-known companies that are undervalued. While the results were mixed with technology stocks, the fund has found success in the financial-services sector, which has a weighting of about 36%. He owns Bank of Montreal (BMO), Royal Bank of Canada (RY), Toronto Dominion Bank (TD), Bank of Nova Scotia (T.BNS) and Canadian Imperial Bank of Commerce (BCM).
Banks In 'Perfect Environment'
Caldwell said the banks are in a "perfect environment" right now because of the steep yield curve between short- and long-term interest rates. To visualize the curve, Caldwell suggested comparing five-year mortgage rates with what a typical savings account pays.
Further, while talk of consolidation between the banks has simmered down, the reality is that it will happen eventually, Caldwell said. "Sooner or later, they will be the subject of mergers. Whether that happens this year or next year, or how it comes about, it's patently obvious that our banks aren't big enough to compete on the world scale," he said.
But he admitted that the banks have had a nice run, and now he's shifted his attention to financial-services company Manulife Financial Corp. (MFC). What particularly excites Caldwell about this company is its business in the Far East, which he described as its "fastest-growing component." He also noted that the stock's price-earnings ratio is about 15, while management anticipates year-over-year earnings growth of 15%. That gives Manulife a PEG ratio of one, something not many other companies can boast.
In terms of energy stocks, Caldwell has taken some profits in his oil and gas exposure, which is down to 14% from 20% in recent weeks. The current weighting consists of four main positions: EnCana Corp. (ECA), Petro Canada (PCZ), Pengrowth Energy Turst (T.PGF) and Primewest Energy Trust (T.PWI). He thinks oil has "peaked out," and is emphasizing upstream operations, particularly gas. On the other hand, he owns the trust units for the steady income distribution.
The fund also has a 5% weight in Inco Ltd. (N), a big nickel producer. Not only does Caldwell like the nickel market, but he said Inco itself, with new mines coming on stream, is looking more like a "growth story" than a cyclical play these days.
The two development projects he's following are Goro, in New Caledonia, and Labrador's Voisey's Bay. With respect to the latter, Caldwell said that, with the environmental negotiations ongoing, the underground exploration of the site has yet to take place. "It could be even larger than what appears on the surface," he said.
Company Web Site: caldwellmutualfunds.com |
