MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, JANUARY 29, 1998 (1)
Friday, January 30, 1998
U.S. stocks rose after Federal Reserve chairman Alan Greenspan said growth would slow and interest rates would likely not rise as a result of the Asian downturn. Weak gold and bank stocks sent Bay Street lower
The Dow Jones industrial average rose 57.55 points, or 0.7%, to 7973.02.
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The Standard & Poor's 500 index climbed into record territory with a gain of 8.03 points, or 0.8%, to 985.49, eclipsing its Dec. 5 closing high of 983.79.
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The Nasdaq composite index rose 8.67 points, or 0.5%, to 1619.49.
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About 757 million shares changed hands on the New York Stock Exchange, the fourth-busiest day in history and well up from the 713.5 million shares traded on Wednesday.
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Stocks staged a broad advance, sending oil, software, banking, health-care and drug issues higher, as bonds had their best day in three weeks. Falling yields make returns on stocks more attractive and let companies borrow money at lower rates.
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J.P. Morgan (JPM/NYSE) rose US$2 to US$103 7/16, Citicorp (CCI/NYSE) added US$1 9/16 to US$118 7/16, and Republic New York (RNB/NYSE) climbed US$2 5/16 to US$109 3/4.
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The Dow got a big boost from Aluminum Co. of America, (AA/NYSE), which jumped US$33 1/88, or 5%, to US$75 1/2 - its highest finish since before the market's meltdown last Oct. 27.
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Computer-related shares rallied after Intel Corp. chief financial officer Andrew Bryant repeated late Wednesday the semiconductor company's forecast for 17% growth in personal computer shipments in 1998.
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Intel shares (INTC/NASDAQ) rose US$11 1/88 to US$82, Cisco Systems Inc. (CSCO/NASDAQ) gained US$17 1/88 to US$633 1/84 and Oracle Corp. (ORCL/NASDAQ) climbed US$1 5/32 to US$22 11/32.
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Canadian stocks fell as concern grew that Royal Bank of Canada's planned merger with Bank of Montreal will not receive government approval. The speculation clouded the outlook for additional banking group consolidation.
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Gold issues also helped push the market lower while oil issues tempered the decline.
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The Toronto Stock Exchange 300 composite index fell 12.09 points, or 0.2%, to 6718.98 after paring a loss of 38.6 points intraday.
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More than 127 million shares changed hands, valued at $2.23 billion, down
from 134 million shares traded on Wednesday.
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Bank of Montreal (BMO/TSE) slipped $1 to $68.05, Royal Bank of Canada (RY/TSE) fell 80› to $77, Canadian Imperial Bank of Commerce (CM/TSE) slid 30› to $40.60 and Toronto-Dominion Bank (TD/TSE) fell $1.10 to $54.30.
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BCE Inc. (BCE/TSE), parent of Bell Canada, fell 50› to $46 after Canada's major long-distance phone companies began cutting rates for business and residential customers in an effort to boost market share.
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Gold issues lost ground after the price of bullion tumbled US$3.10 to US$302.80 an ounce on the Comex division of the New York Mercantile Exchange.
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Barrick Gold Corp. (ABX/TSE) fell $1.10 to $28.40, Franco-Nevada Mining Corp. (FN/TSE) slipped $1.45 to $31.80 and Placer Dome Inc. (PDG/TSE) tumbled 75› to $19.80.
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Oil issues continued their strong advance on the back of another surge in crude oil prices.
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West Texas crude climbed US51› to US$17.82 a barrel.
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The price of oil has climbed more than 13% so far this week as the U.S. draws ever closer to military action against Iraq in the Middle East.
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Alberta Energy Corp. (AEC/TSE) gained $1.25 to $29.45, Crestar Energy Inc. (CRS/TSE) gained $2.25 to $24 and Talisman Energy Inc. (TLM/TSE) rose $1.35 to $41.50.
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Other Canadian markets finished mixed.
The Montreal Exchange portfolio fell 20.18 points, or 0.6%, to 3469.96. The Vancouver Stock Exchange rose 1.76 points, or 0.3%, to 602.60.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to:
quote.yahoo.com .
Major international markets ended higher.
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London: The FT-SE 100 pushed to a record close for a second straight session, ending at 5422.4, up 49.8 points or 0.9%.
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Frankfurt: The Dax vaulted over the 4400-point level to end trade near the day's highs, tracking a rebound on the Dow and buoyed by a stronger US$. The Dax closed at 4419.38, up 28.36 points or 0.7%.
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Tokyo: Japanese stocks ended marginally higher. The 225-stock Nikkei average closed at 17,014.59, up 40.76 points or 0.2%.
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Hong Kong: The market will remain closed for the rest of the week for the Chinese New Year holiday.
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Sydney: Australia's stock market firmed to close near its highs on the back of another 100-point gain on Wall Street. The all ordinaries index closed up 21.6 points, or 0.8%, at 2642.7.
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Uncle Al gets the market going -- By WILLIAM HANLEY -- The Financial Post
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Less than a year ago, Wall Street was telling Alan Greenspan to butt out after the U.S. Federal Reserve chairman issued his second warning in three months that excessive optimism was driving financial asset inflation.
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"The market is bigger than Alan Greenspan," huffed one analyst.
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Yesterday, Greenspan the stern headmaster was replaced by the avuncular Greenspan, reassuring, calming and, heck, welcome to butt in any time he likes.
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In testimony to the Senate Budget Committee, Uncle Al, the Street's pal, allowed as how the Asian thing might be good news for the U.S. economy.
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The resulting drag on growth from Asia might weigh against the inflationary pressures abuilding, achieving a balance that was okay, if not exactly fined and dandy.
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Wire reports of the testimony began flowing at 10 a.m. EST and the effect on the markets was instantaneous and unambiguous: stocks up after an indifferent opening; ditto bonds, the US$, the Commodities Research Bureau index, even gold.
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Stocks and bonds tailed off toward the end of the trading sessions, but Greenspan had delivered the goods.
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Meantime, he was careful not to use the Big D word - deflation - preferring instead to use the Little D - disinflation - to talk about the opposite of inflation.
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This was a reasoned "on one hand, on the other" performance that many people chose to interpret as the best of all worlds for now.
Greenspan did point out that a cut in exports to Asia and a corresponding flow of cheap imports will begin to have an effect by the end of the first quarter. But what that might mean is by no means clear now.
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What was clear to the Street is that the Fed, which holds a policy-making meeting next Tuesday and Wednesday, is going to keep rates where they are until the picture becomes less cloudy.
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This is taken as good news for both stocks and bonds, though the weight of opinion favors bonds over stocks this year.
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Greenspan, ever careful, also said he could not rule out the economy falling into recession again, that the economic cycle was extinct.
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While recession does not appear to be a threat any time soon, lower earnings from Asian fallout could prove to be the stock market's Achilles' heel.
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But many people agree with Deutsche Morgan Grenfell Inc. chief economist Ed Yardeni, who says: "Stock prices could soon move into record territory. Concerns about Asia, profits and Monica [Lewinsky] are likely to diminish for the next month or two. However, all three have the potential to become important issues again during the second quarter."
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The Dow Jones industrial average climbed above 8000 yesterday for the first time since Dec. 9, but failed to hold that level, closing at 7973 with a 57-point gain.
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After two straight 100-point advances, the profit-takers could not resist grabbing something off the table.
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The feeling is that 8000 is a strong resistance level. Traders will use this morning's advance fourth-quarter U.S. gross domestic product numbers for further guidance.
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Watching the loonie tick downward to new lows through most of yesterday, we were struck by the fact that the mathematics behind the fall reveals a situation even worse than it appears.
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When the C$ falls, say, 20 basis points at US70›, it is not as much as when it falls 20 basis points at US69›. To illustrate the point, a penny fall at US72› is 1.4%, while a penny fall at US68› is 1.5%.
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Indeed, the loonie's fall is accelerating even when it does not appear to be.
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With the close at US68.25› yesterday after a record low of US68.1› was hit, the big guessing - and betting - game is at what level will the Bank of Canada decide enough is enough and raise interest rates.
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The betting here is, having smoothed the currency's fall through the old barriers, the bank will not move for a while yet.
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We still think US66.67› - a buck-fifty to a greenback - might be a powerful entry point for bargain-hunters. The bank would almost have to make a move below that level.
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No panic in market as C$ continues slide -- By DAVID THOMAS -- The Financial Post
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The C$ continued to post new lows yesterday, losing nearly half a cent at one point before rallying on a round of profit taking at the end of the day's trading session.
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The C$ closed at US68.25›, down US0.32›, after falling as low as US68.10›.
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"The market at this stage seems to be probing to find out how low it can take the C$ before the Bank of Canada raises interest rates," said Reid Farrill, managing director of foreign exchange at CIBC Wood Gundy Securities Inc.
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While the C$ has continued to slide against the US$, the currencies of other resource economies that were similarly beaten up have been recovering.
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The Australian dollar lost nearly 15% between October and Jan. 8, when it hit US63.38›. It has since rebounded, touching US68› earlier this week to reduce the slide to 8%. It closed yesterday at US67.48›.
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The New Zealand dollar took a similar hit and has followed the A$ in its recovery path in the past two weeks.
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Sherry Cooper, chief economist at Nesbitt Burns Inc., said this week the C$'s inability to rally on a rebound in commodity prices shows resource prices are not the problem plaguing the C$.
She argued for a rate increase to close the gap between Canadian and U.S. interest rates to make Canadian treasury bill yields comparable. A hike of 100 basis points would close that gap.
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Farrill said there was widespread buying of US$s and selling of C$s yesterday, with activity dominated by U.S. sellers' program trading.
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Some traders and economists are expecting the central bank to raise rates to defend the currency, while others believe it will restrict its defence to open market intervention with foreign reserves.
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"At some point the bank may decide the C$ has fallen far enough," said Peter Drake, deputy chief economist at Toronto Dominion Bank.
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"I think if the bank sees a rapid movement, then they might think twice [but] they've got reserves and that's what they're there for."
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Meantime, the bank is more interested in inflation, which remains dormant, than a slide in the C$, he said.
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U.S. Federal Reserve chairman Alan Greenspan told the U.S. Congress yesterday both inflation and disinflation were concerns.
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The market took his comments as a sign U.S. interest rates would remain unchanged for the near future. Higher rates in the U.S. would put added pressure on the Bank of Canada to follow suit.
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Both Drake and Farrill characterized the C$'s continuing slide as orderly and said there was no panic in the market. "The sentiment remains negative but there is not a sense of crisis," Farrill said.
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HOT STOCKS
Plaintree Systems Inc. (LAN/TSE), up 30› to $3.10, on volume of 80,600
shares.ÿThe shares of the computer networking product manufacturer have risen 77% since sliding to a mid-January low of $1.75. Analysts are speculating that the company is either a takeover target or is on the verge of signing a partnership agreement with a major equipment manufacturer. ÿ"Plaintree's best bet is to get acquired ... they have promising new technology but they need to fast-track their distribution," said Adam Adamou, partner at Taurus Capital Markets.
Barrick Gold Corp. (ABX/TSE), down $1.10 to $28.40, on volume of 3.9 million shares. Placer Dome Inc. (PDG/TSE), down 75› to $19.80, on volume of one million shares. ÿGold stocks fell in tandem with the price of bullion, which slipped US$3.10 to US$302.80 an ounce. ÿU.S. Federal Reserve chairman Alan Greenspan said in testimony to the Senate Budget Committee that U.S. inflation and interest rates will not creep higher. This was bad news for gold, which is traditionally used as a hedge against inflation.
BCE Inc. (BCE/TSE), down 50› to $46, on volume of 1.2 million shares. Fonorola Inc. (FON/TSE), down 75› to $23.50, on volume of 920,180 shares. Call-Net Enterprises Inc. (CNb/TSE), down 75› to $18.50, on volume of 660,612 shares. ÿShares of Canada's long-distance telephone providers took another hit after several major players announced rate cuts. Call-Net's Sprint Canada and AT&T Long Distance Services Co. revealed cuts on Wednesday and BCE's Bell Canada followed yesterday.
Bank of Montreal (BMO/TSE), down $1 to $68.05, on volume of 1.3 million shares. Royal Bank of Canada (RY/TSE), down 80› to $77, on volume of 1.2 million shares. Toronto-Dominion Bank (TD/ TSE), down $1.10 to $54.30, on volume of 956,599 shares. Bank of Nova Scotia (BNS/TSE), down $1.10 to $65.25, on volume of 1.3 million shares. ÿAnalysts said bank stocks fell on profit-taking, mixed with growing sentiment that the planned mega-merger between Royal and Bank of Montreal will not proceed because of federal government intervention. ÿThe Toronto Stock Exchange financial services subindex fell 77.82 points, or 1%, to 8294.69.
Philip Services Corp. (PHV/TSE), up 15› to $11.35, on volume of 2.6 million shares. ÿThe shares of the integrated metals and industrial services company came out of a nosedive yesterday in heavy trading, after having lost about 40% of their value since Monday. ÿThe firm said it will take an after-tax charge of US$200 million.
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Mergers and acquisitions offer fresh opportunities -- By SONITA HORVITCH
Irwin Michael, manager of ABC Funds, is highlighting Canadian companies which are fundamentally cheap and could be takeover candidates.
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"It is likely to be a bumpy ride on the Toronto Stock Exchange this year, but mergers and acquisition activity will provide all sorts of opportunities," he said.
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Michael, a value manager, noted that the upside from nervousness about the market is that there are a lot of cheap stocks to [Scott's] choose from.
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His call is that 1998 could surprise investors on the upside with the TSE 300 composite index rising to between 7500 and 8000. The low C$ and undervalued stocks could make Canadian equities attractive to foreign investors, he said. ÿThe economic underpinnings of the market remain intact. Inflation is not a problem, interest rates are still relatively low and government is going from fiscal deficit to surplus. ÿAcross the TSE, Michael said, sectors that could offer a number of takeover targets are oil and gas, paper and forestry products, precious and base metals and steel companies. His top stock picks include:
Stelco Inc. (STE/TSE), which closed recently at $11.70 and has a 52-week trading range of $13.35 to $7.20. ÿThis major integrated steel producer is based in Hamilton, Ont. ÿMichael said the company has a book value of $12.25 a share, a strong balance sheet with cash that should reach about $550 million by yearend and no major shareholder. Its management is focused and flexible in altering its product mix according to changes in the market. His earnings per share estimates are $1.15 to $1.20 for 1997 and $1.30 to $1.35 for 1998. "This is a value play and a potential takeover target," he said.
Scott's Restaurants Inc. (SRG/TSE) $5 ($6.75-$4.20).ÿThe Markham, Ont.-based food service company is a franchisee of restaurants, primarily its 370 Kentucky Fried Chicken restaurants. ÿScott's, said Michael, has a book value of $6.20 a share, plus hidden real estate assets of about $1 a share. It has a solid balance sheet with no debt and about $1.25 per share in cash. ÿThe company is appealing against a court judgment that gave franchiser Tricon Global Restaurants Inc. (the food division spun off by soft drink giant PepsiCo Inc.) the right to end a franchise agreement with Scott's for its
KFC franchises. If Scott's loses this appeal it will still be in reasonable shape, said Michael, as it owns the retail outlets and can link up with another fast-food franchisor.
First Marathon Inc. (FMSa/TSE) $19.20 ($26.25-$16.75). The Toronto-based investment dealer has a book value of $15.50 a share after the sale of its derivatives division. This means the stock is trading at around 1.3 times book value, which is "extremely undervalued" for investment dealers. "The company is profitable, has good management and a terrific franchise."
Alliance Forest Products Inc. (ALP/TSE) $26 ($37.10-$21.50). ÿThe Montreal-based integrated forest products company has a net asset value of $32 to $34 a share, which includes some hidden value of $10 a share pre-tax for its Alabama timberlands. These holdings are the result of its purchase of Coosa Pines lands and paper mill in Alabama, from Kimberly-Clark Corp. in March 1997. ÿAlliance has no controlling shareholder and a good balance sheet, said Michael. It is trading at about 10 times his 1998 earnings estimates of $2.35 to $2.45 a share.
Crestar Energy Inc. (CRS/TSE) $21.75 ($29.90-$18). ÿThe Calgary-based senior Canadian energy producer is "fundamentally cheap in a sector that is out of favor." Its net asset value is $23 to $24 a share. It is a touch heavy on the debt side, said Michael, as a result of its acquisition of Grad & Walker Energy Corp. last year. The stock is trading at around 3.5 times expected 1998 cash flow per share. "There is no controlling shareholder and it could be a takeover candidate." ÿMichael has sold Polyair Inter Pack Inc. (PPK/TSE) $4.40 ($6-$3.80), which makes and markets packaging and swimming pool products. The company has been growing its revenue and earnings at a slower pace than the money manager expected.
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