MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, DECEMBER 9, 1997 (2)
HOT STOCKS, con't
Shares in Novopharm Biotech Inc. (NVO/TSE) closed yesterday at 80›, up 3›. The company has started clinical trials of its antisense therapy for AIDS, the first such drug to be tested on humans in Canada. Toronto-based Novopharm Biotech is the publicly traded subsidiary of privately held generic drug manufacturer Novopharm Ltd. Fifty people will participate in the Phase 1 trial, designed to establish the safety of the GPI-2A drug.
Canadian Western Bank shares (CWB/TSE) closed yesterday up 45› at $19.50. Profit rose 23% to $15.8 million ($1.70 a share) in the fiscal year ended Oct. 31, from $12.8 million ($1.58) a year ago. The strong earnings spurred the bank to increase its annual dividend to 30› a share, to be paid on Jan. 12, up from 25›. Chief executive Larry Pollock attributed the gain to strong loan growth, improved credit quality and higher deposit levels. Return on equity for the year was 13.1%, down slightly from 13.3% in fiscal 1996. Edmonton-based CWB is the only schedule I bank based in Western Canada. It has 22 branches in the four western provinces.
Barrick Gold Corp. (ABX/TSE), down 85› to $21.70, on volume of 1.8 million shares. Placer Dome Inc. (PDG/TSE), down 60› to $15, on volume of two million shares. The price of bullion yesterday sagged US$5.10 to US$282.80 an ounce, driving down the share prices of major gold producers. Analysts say gold no longer has the lustre it once had for investors seeking a safe haven in turbulent markets and many now invest in the US$ instead.
Cognos Inc. (CSN/TSE), down 95› to $31.85, on volume of 202,376 shares. The firm released its DataMerchant software. The product is useful to companies that use or generate large amounts of data and want to distribute it on the Internet.
Westmin Resources Limited (WMI/TSE), up 25› to $5.80, on volume of 3.5 million shares. Westmin said the separation time under its shareholders' rights protection plan has been deferred until Dec.15. The company says the move is being taken as a procedural step only.
The shareholders' rights plan was adopted to block a hostile bid by Boliden Ltd. In the meantime, Westin officials are talking to other potential bidders.
Seagram Co. Ltd. (VO/TSE), down 20› to $45.60, on volume of 332,381 shares and (VO/NYSE), down 3 1/816 to US$32 1/8, on volume of 329,700 shares. Seagram Dominion Bond Rating Service said it had downgraded Seagram's debentures to A from A (high) and its commercial paper to R-1 (low) from R-1 (middle), both with stable trends. DBRS said it made the move because earnings from Seagram's entertainment division have proven to be volatile and heavily dependent upon the success of new film and music releases.
Also, the recently announced merger of Grand Metropolitan PLC and Guinness PLC will pose a strong challenge to Seagram's liquor business.
Marleau Lemire Inc. (MRM/TSE), up 20› to $4.45, on volume of 84,065 shares. The security firm's co-founder Hubert Marleau unexpectedly resigned this week and the board warned fourth-quarter profit will be disappointing because of trading losses.
Kingsway Financial Services Inc. (KFS/TSE), up $3 to $25.50, on volume of 175,590 shares. The auto insurer, which caters for drivers who have difficulty obtaining coverage, bought two U.S. auto insurance companies that do similar business.
Newbridge Networks Corp. (NNC/TSE), down $4.55 to $56.20, on volume of 1.2 million shares. Newbridge and Timestep Corp. announced an agreement that would see Timestep distribute its Internet security software through Newbridge's world-wide distribution channels.
Wednesday, December 10, 1997
Mining trio investigated
Alberta, Vancouver exchanges launch probe as Donner, Northern Abitibi and Cypress shares take a wild ride on rumors of a big find near Voisey's Bay
The Financial Post
Two stock exchanges are investigating recent trading in the shares of Northern Abitibi Mining Corp. and Donner Minerals Ltd., which continued their wild ride yesterday. Also targeted in one of the probes is Cypress Minerals Corp., a 32.5% partner with Donner in several exploration sites in the South Voisey area of Labrador. Regulators halted trading in Donner and Northern Abitibi on Friday after trading volumes leaped before the release of news about drilling activity. The prices of Donner and Northern Abitibi shares doubled after trading resumed Monday following the distribution of a news release, then plummeted on massive volumes yesterday. Donner (DML/VSE) fell yesterday to $1.72, down 78›, on volume of 4.7 million shares. Northern (NAI/ASE) closed at $1.15, down 47›, on trading of 2.3 million shares. Cypress shares rocketed from 22› Friday to 50› Monday. The shares (CYP/VSE), which were not halted from trading, closed yesterday at 29›, down 8›. Donner and Northern Abitibi said in their Monday news release they have found "massive mineralization" in a drill hole on a property about 90 kilometres south of Inco Ltd.'s Voisey's Bay nickel deposits.
The Alberta Stock Exchange is probing Northern Abitibi, while the Vancouver Stock Exchange is examining trading in shares of Donner and Cypress. Tim Daly, vice-president of market surveillance at the ASE, said ASE staff are searching the Internet for a source for Friday's rumors of a big nickel find on the companies' claims. The Techstocks.com Web page was active on Friday with discussions about the drilling. "It is a concern to us. We might pursue that, but we don't comment much about current investigations," Daly said. Under insider trading rules, companies are required to immediately disseminate any news that could affect a stock's price. Angela Huxham, VSE director of surveillance, said the exchange will comb Friday's trading records for Donner, operator of the 50-50 Labrador exploration partnership with Northern Abitibi.
"The market seems to have gotten ahead of itself," she said. Friday, one minute after the VSE halted Donner, an Internet user identified as "Mr. Metals" posted this message to "Jimsy": "I just spoke to Donny, the president of CYP and he said to hang on to my seat. I hope he's right. I just bought 50,000 shares at 31›." Cypress president Donald Huston said yesterday: "I have no idea who those people [on the Internet] are, nor do I recall saying that. "I had [VSE market] surveillance call me on Friday wanting to know my part in this thing because my stock was trading like crazy. What am I supposed to say? 'Stop trading, boys?'" Also yesterday, Cypress appointed Donner CEO David Patterson to its board. Huxham would only say that "Any stocks that are active prior to any announcement are being looked at." Rory O'Byrne, a spokesman at Vancouver-based Donner, insisted no one at the company leaked news about the find. "This is not your typical junior play where the insiders pound the stock for two days before it gets to a press release," he said. "If it was a normal Howe St. group, you would have heard people on top of the building screaming that it's the next Kubla Khan." The parent company of Northern Abitibi is Golden Rule Resources Ltd., which owns 32% of its shares. Golden Rule stock soared and then plummeted last spring after an independent audit concluded tampering was the "probable cause" of its spectacular gold assay results in Africa. Company insiders reaped millions on trades of Golden Rule shares.
INSIDE THE MARKET
Canadian Markets Likely To Lag Rather Than Lead
Financial Post
It may sound treasonable, but my view is that Canadian stock markets, as measured by the Toronto Stock Exchange 300 composite index, are more likely to prove the laggards than the North American leaders in the months ahead.
That view not only bucks popular wisdom (including my own), but also the traditional order in which great bull markets have ended in the past.
I am talking of the TSE 300 composite index as a whole. Individual stocks and stock groups are another matter. In fact, the TSE 300 speaks for three different market sectors.
The business of extracting raw materials (base and precious metals, oil and gas, paper and forest products) accounts for close to 30% of the benchmark. Manufacturing (consumer and industrial products) accounts for about 23% and interest rate-sensitives (pipelines, utilities and financial services) for 32%. All three march to different drummers and, in the space of a just a few months, the global drumbeat has changed dramatically.
Throughout our lifetimes, interest rate-sensitive stocks, merchandisers and consumer product makers have led the dance in each recurring economic and market recovery. Then, in the latter stages of each bull market, natural resource stocks took the lead, as mounting consumer demand and rising product price levels worked back up the supply chain.
It was this final joyous excess of demand over supply that traditionally pushed the TSE 300 and its predecessor index into the leading role on the North American financial stage.
Now, the old order is being turned upside down. Had you been holding metal and mineral stocks from Jan. 1, in the hope of that customary late cycle upsurge of product prices, you would be a very disappointed investor. Had you been holding gold and precious metals, you would be crying in your bank manager's arms.
But had you put your faith in an interest rate-sensitive laggard such as BCE Inc., or in one of the Big Five boring banks, you would be a very happy camper. And had you held only the banks, you would be hastening to hug your bank manager.
The crucial difference between the final phases of the recent and past bull markets is that those happy days of yore were all about inflation. This time, the order of the day is disinflation (consumer prices rising at a snail's pace), with a distinct whiff of
deflation.
As the First Marathon Securities Ltd. mining team of John Lydall, Tanya Jakusconek and Kerry Smith noted in their November roundup, this is the time of the year when Canadian mining share markets should begin looking their best.
It would be nice if they were. But a yearend show of strength does not look likely unless and until base and precious metals prices stop their descent down the tubes (the whiff of deflation I referred to) and stage a half-decent recovery.
With Asian users of these products looking a financial mess in the face, chances are slim. The paper and forest sector is another victim of Asian woes. And world oil prices do not look as if they are going anywhere fast. That leaves what has traditionally been regarded as the humdrum side of the latter phases of a bull market - secondary industry, communications, real estate, utilities and financial services, aided by a handful of high-tech stars - to carry the TSE 300 to what traditionally should have been another of its finest hours.
My guess is that this bellwether index has already seen its best. Those investors and mutual funds who correctly spotted the start of a new ball game, and shifted their focus to the traditional late bull market laggards that are its current stars, have no cause for regret. Those who did the traditional thing have been the losers, and, on current indications, look likely to remain so.
Mawer Investment's Buy & Sell
Time for a defensive approach
By SONITA HORVITCH The Financial Post
William MacLachlan, partner at Calgary's Mawer Investment Management, is emphasizing more defensive stocks that have strong dividend support and/or good valuation characteristics.
"The North American equity market has responded to the deflationary blast from Asia and will continue to be influenced as events unfold there," MacLachlan said.
Before the "economic meltdown" in Asia, the North American equity market "was priced for perfection and was in no shape to withstand negative surprises," he said. The Asian problems are depressing world commodity prices and this is affecting the Canadian equity market. "Our market is clearly more resource-based than that of the U.S., which is why the U.S. market bounced back more quickly after the October selloff."
On a positive note, the deflationary draft from Asia could help to prolong the North American economic cycle by reducing inflationary pressures in the U.S. MacLachlan is not in the camp that believes Asian deflation will lead to "an extended, pervasive, global deflation."
His asset mix calls for 6% in cash, 40% in bonds, 37% in Canadian stocks, 7.5% in U.S. stocks and 9.5% in Europe, Asia and the Far East. "We have very modest weighting in Japan and Asia." MacLachlan is highlighting two big caps with good dividend support:
Manitoba Telecom Services Inc. (MBT/TSE), which closed recently at $16.55 and has a 52-week trading range of $16.85 to $13.15.
The Winnipeg-based company offers an integrated communications system in Manitoba, offering telecommunications services in local, long-distance, wireless and multimedia markets.
It was privatized by the Manitoba government at the beginning of the year at $13 a share.
There is growth potential in the company through its wireless subsidiary, MTS Mobility Inc.
The stock is trading at 12 times expected 1998 earnings compared with an average 19.4 times earnings for the stocks that make up the Toronto Stock Exchange 300 composite index. It has a good dividend yield of 4.1%. The dividend yield for the TSE 300 is about 1.6%.
EdperBrascan Corp. (EBCa/TSE) $26.20 ($26.80-$19.65). The Toronto based company is the result of a recent merger between Brascan Ltd. and the Edper Group Ltd. It has merchant banking, real estate and some resource interests. "It is well diversified; I view it as a proxy for the Canadian economy and the stock is cheap," MacLachlan said. It trades at 14 times expected 1998 earnings and has a dividend yield of 3.7%.
In the "relatively weak"oil and gas sector, MacLachlan finds value and good growth prospects in: Petro-Canada (PCA/TSE) $27.80 ($29.85-$18.80).
The Calgary-based integrated oil and gas company's interests in the Hibernia and Terra Nova projects in Eastern Canada offer "tremendous potential." The stock is trading at six times 1998 cash flow per share estimates, but becomes cheaper on 1999 and 2000 cash flow estimates, which will reflect the benefits from these two projects. Also, MacLachlan expects the federal government to sell its holding in the company in 1998, thereby eliminating an uncertainty surrounding the stock.
Mawer is picking two small-cap stocks: Caribbean Utilities Co. Ltd. (CUP/TSE) $9.50 ($10-$7.03). Based in Georgetown, Cayman Islands, the company generates and distributes electricity for the island. It has a dividend yield of 7.6% and is trading at about 16 times expected 1998 earnings. "There is a building boom on the island, which is good for earnings growth," MacLachlan said.
International Properties Group Ltd. (IPX/TSE) $2.05 ($2.07-$1.25). The Calgary-based company acquires and manages multi-family residential buildings. Italso converts apartment buildings into condominiums. The stock is cheap relative to its peers, using the standard measure of operating cash flow and book value, said MacLachlan.
The money manager is reiterating his sell on software company Corel Corp. (COS/TSE) $3.25 ($11.10-$2.80). "The company is having difficulty meeting its targets." MacLachlan first mentioned it as a sell in this column Oct. 30, 1996, when it was trading at $11.10.
CANADIAN DOLLAR
Canadian dollar could fall to 11-year low - brokerage The Canadian dollar could fall to an 11-year low of C$1.4388 (US$0.6950) by year end unless the Bank of Canada aggressively hikes interest rates soon, a Canadian brokerage predicted on Tuesday.
Nesbitt Burns, a unit of Bank of Montreal , said Canada's dollar would likely remain seriously undervalued as long as Canadian interest rates were well below U.S. rates.
Nesbitt chief economist Sherry Cooper criticized the Bank of Canada's handling of the recent Canadian dollar weakness. The dollar traded near 11-year lows, hurt by financial turmoil in Asia and a decline in world commodity prices.
"The Bank of Canada's latest response was too little, too late," Cooper said in a statement. "The dollar could fall as low as 69.5 (U.S.) cents, if the bank does not act aggressively soon to raise short-term interest rates."
The central bank hiked interest rates by 25 points on November 25, citing the need to offset the stimulative effect of the weak currency. The move failed to halt the dollar's slide and the Bank of Canada spent US$1.05 billion in November supporting the currency.
Nesbitt also forecast that Canada's economy would grow by more than four percent in the last half of 1997 and lead the G7 industrial nations in growth next year.
"Domestic spending has been very strong, at the expense of the trade balance," Cooper said. "A falling trade surplus has exacerbated the current account deficit and weakened the Canadian dollar."
The decline in Canadian interest rates last year to 40-year lows had spurred domestic spending and consumer confidence would continue its upward trend as labor income accelerated, Cooper predicted.
The brokerage forecast that Canada's unemployment rate would fall to 7.5 percent in the next 12 to 18 months from the current 9 percent.
RINGING UP ADVICE
TORONTO (Sun Media) -- Investors did not panic after the stock market drop on "grey Monday," a new survey shows. According to a poll by Toronto-based Marketing Solutions yesterday, only 3% of mutual fund investors sold any of their funds following the Oct. 27 market correction, which saw the TSE 300 fall 6.2% in a day.
Instead, most asked a lot of questions. The telephone survey of 650 mutual fund owners showed 46% called a professional about the volatility, 25% contacted their adviser and 21% called a financial institution. A further 25% called a knowledgeable pal.
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