MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, FEBRUARY 1, 1998 (1)
Tuesday, February 3, 1998
U.S. stocks had their biggest gains in two months and Canadian stocks surged as markets from Hong Kong to London soared on optimism that the worst of Asia's financial crisis is over
The Dow Jones industrial average soared 201.28 points, or 2.6%, to an eight-week high of 8107.78, while the Standard & Poor's 500 composite index topped 1000 for the first time, jumping 20.99 points, or 2.1%, to 1001.27. It was the biggest rally for both barometers since Nov. 3, also when overseas markets rallied.
The Nasdaq composite index rose 33.53 points, or 2.1%, to 1652.89.
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The surge was sparked by a 14.3% gain in Hong Kong's Hang Seng index, which rocketed to its second biggest point gain in history, closing at 10,578.60, up 1326.24 points.
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Financial companies like J.P. Morgan & Co. (JPM/NYSE), up US$3 3/4 to US$104 15/16, and Citicorp (CCI/NYSE), up US$5 1/2 to US$124 1/2, were buoyed by gains in Asian markets as stabilizing local currencies increased the likelihood local companies will be able to repay their US$-denominated debts.
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Computer-related companies gained as concern about the impact of Asia's financial crisis eased.
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Larry Ellison, chairman of Oracle Corp., told the World Economic Forum in Davos, Switzerland, that the company does not expect profit to be hurt by the Asian turmoil this quarter. Oracle shares (ORCL/NASDAQ) rose US$1 3/8 to US$24 5/8.
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The Morgan Stanley high-tech index climbed 3%. The index, which fell 5% in the first six sessions of 1998, is now up 8% for the year. EMC Corp. (EMC/NYSE) gained US$3 3/16 to US$353 1/84, Peoplesoft Inc. (PSFT/NASDAQ) rose US$2 11/16 to US$37 11/16 and Dell Computer Corp. (DELL/NASDAQ) rose US$5 1/8 to US$104 9/16.
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About 730 million shares changed hands on the Big Board, up from 613.4 million shares on Friday and making yesterday the sixth heaviest day in exchange history.
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Drugmakers rose as merger talks between SmithKline Beecham PLC and Glaxo Wellcome PLC fanned speculation that more alliances are on the way, although most of the gains evaporated by the close of trading. The merger would create the world's largest drug company.
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SmithKline Beecham and Glaxo Wellcome disclosed late Friday that they are in talks. SmithKline's (SBH/NYSE) American depositary receipts rose US$4 7/16 to US$67 1/2, while Glaxo (GLX/NYSE) gained US$8 7/8 to US$62 11/16.
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Schering-Plough Corp. (SGP/NYSE) closed up US$2 7/16 at US$74 13/16 after earlier soaring as high as US$78. Pfizer Inc. (PFE/NYSE) rose 11/16 to US$825 1/88, pushing its 12-month gain to 81%. Pharmacia & Upjohn Inc. (PNU/NYSE) rose 15/16 to US$39 3/8, Eli Lilly & Co. (LLY/NYSE) jumped US$17 1/88 to US$69 13/16 and Johnson & Johnson (JNJ/NYSE) gained US$17 1/8 to US$68 13/16.
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Rallying Asian markets helped send Canadian stocks higher, as did growing expectations that the Bank of Canada would not have to raise domestic interest rates again soon.
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Banks led the advance, with a stronger C$ providing an added boost.
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The Toronto Stock Exchange 300 composite index rose 71.18 points, or 1.1%, to 6771.38, with Canadian Imperial Bank of Commerce, Royal Bank of Canada and Bank of Montreal contributing most to the rise.
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In the broader market, about 104.3 million shares changed hands compared with 109.3 million shares on Friday.
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Royal Bank (RY/TSE) rose $1.45 to $77.80, CIBC (CM/TSE) jumped 95› to $40.55, Bank of Montreal (BMO/TSE) rose $1.90 to $69 and Bank of Nova Scotia (BNS/TSE) gained 90› to $64.75.
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Utilities also benefited from hopes the central bank will not raise interest rates. BCE Inc. (BCE/TSE) rose $1.10 to $46.70, Fonorola Inc. (FON/TSE) rose $2 to $25.20 and B.C. Telecom Inc. (BCT/TSE) rose $1.55 to $42.45.
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BioChem Pharma Inc. (BCH/mE) jumped $1.45 to $31.30.
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Other major Canadian markets ended higher.
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The Montreal Exchange portfolio rose 34.15 points, or 1%, to 3478.59.
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The Vancouver Stock Exchange rose 7.29 points, or 1.2%, to 615.34.
For a scorecard of trading activity on all Canadian Stock Exchanges, go to: quote.yahoo.com .
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Major international markets ended higher.
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London: The FT-SE 100 index climbed to a fourth consecutive record closing high of 5599, up 140.5 points or 2.6%.
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Frankfurt: German stocks ended at a new record closing level. The Dax closed at 4522.81, up 82.43 points, or 1.9%.
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Tokyo: Japanese stocks ended a volatile session firmer at 16,776.82, up 148.35 points or 0.9%.
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Sydney: Rallying Hong Kong stocks and a firm local currency spurred overseas buying in Australian stocks. The all ordinaries index closed at 2670.1, up 13.4 points, or 0.5%.
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Stock markets buoyed by Asian rally -- By DAVID THOMAS -- Economics Reporter The Financial Post
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A dramatic rebound in Asian markets set the tone for a global rally in shares yesterday, with several record highs posted by stock indexes in North America and Europe.
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Stock markets in London and Germany continued their recent run of new highs, while the Standard & Poor's 500 index broke past the 1000 level for the first time. In Canada, the Toronto Stock Exchange joined the party, but the celebration was muted, with declines in gold and oil stocks cutting the gains.
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The TSE 300 composite index gained 71.18 points, or 1.1%, to close at 6771.38, well behind the Dow Jones industrial average's gain of 201.28 points, or 2.6%, to 8107.78. The S&P 500 closed up 20.99 points, or 2.1%, at 1001.27.
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The rallies were "a knee-jerk reaction to [U.S. federal reserve chairman Alan] Greenspan's comments last week that downplayed the impact of upheaval in Asia on North American markets," said John Ing, president of Maison Placements Canada Ltd.
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Traders betting that Asia's woes are in retreat took heart from stellar one-day stock market advances ranging from 12% in Thailand to 14.3% on Hong Kong's Hang Seng index.
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Ing said market volatility will continue as investors try to grapple with the long-term effects of the Asian flu.
Yesterday's rally indicates some traders are betting the worst is over, but Ing cautioned that more shocks are likely on the way. "We haven't even had a temperature yet," he quipped, dismissing any talk of a complete recovery from the flu on this side of the Pacific Ocean.
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The public impression that U.S. President Bill Clinton's term is more secure also helped the U.S. market, said Ed Yardeni, chief economist at Deutsche Morgan Grenfell Inc. in New York.
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With calm at the White House, resurgent markets in Asia and widespread expectations Greenspan will not raise interest rates in the near term, the Dow will surpass its record high of 8259.31 in a matter of a few days, Yardeni predicted.
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We could be back "in a phase where all the issues of concern are on hold for a while," he said.
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He believes the "Asian relief rally" will endure for about six months before the market gives back most of its gains when the reality of slower earnings growth sinks in.
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The Dow hit its peak last August but has clawed back to within 151 points of the top after tumbling to 7161.15 in a widespread selloff on Oct. 27.
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Unlike the Dow, the TSE 300 went on to new lows after its Oct. 27 correction, eventually bouncing off 6239.96 on Jan. 12. Its close yesterday left it 438.55 points, or 6.1%, below its Oct. 7 record high of 7209.93.
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The Canadian exchange has had a tougher time regaining ground because of its heavy weighting in resource stocks, which have slumped along with commodity prices.
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Although gold edged up US50› to close at US$303.40 yesterday, the gold and precious metals index retreated on a round of profit taking, said Ing.
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Gold stocks were the TSE 300's weak spot on the day, but they have been one of the stronger performers so far in 1998. The TSE 300 has returned 1.1% to date this year and three of the top four subindexes are resource related.
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The C$ briefly managed to rally above US69› but the strong dose of monetary medicine administered Friday by the Bank of Canada was largely ineffective in rallying the currency.
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Despite the bank's interest rate hike of 50 basis points, the C$ gained just US0.12› to close at US68.82› yesterday. Last Thursday, the C$ hit a record closing low of US68.25› and traded as low as US68.10›.
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HOT STOCKS
AGF Management Ltd.(AGFb/TSE), up $3.80 to $56.75, on volume of 45,120 shares. Mackenzie Financial Corp. (MKF/TSE), up $1.05 to $17.75, on volume of 322,919 shares. Shares in mutual fund companies contributed to the 2.2% rise in the Toronto Stock Exchange financial services subindex, which climbed 182.14 points to 8387.54. ÿTom Jarmai, of Scotia Capital Markets, said AGF and Mackenzie eachreported strong investment flows into their funds in their latest quarterly results. ÿ"There has been a fair correction in the past three months and we think, given the fundamentals and the growth characteristics, that these [stocks] were oversold," he Jarmai.
Royal Group Technologies Ltd. (RYG/TSE), up $2.25 to $38.25, on volume of 52,468 shares. ÿThe shares in the Woodbridge, Ont.-based building product manufacturer continued their rise after Credit Suisse First Boston analyst Ivy Schneider rated them a "strong buy". ÿ"Royal is ramping up a more profitable product into their building system and they should see 25% to 30% earnings growth," Schneider said. ÿThe firm's soon to be announced first-quarter earnings are expected to meet expectations of US16› a share, compared with US11› a share in the same period a year earlier, said Schneider.
Glaxo Wellcome PLC (GLX/NYSE), up US$8 7/8 to US$62 11/16, on volume of 4.5 million shares. SmithKline Beecham American depository receipts (SBH/NYSE), up US$4 7/16 to US$67 1/2, on volume of 8.3 million shares. BioChem Pharma Inc. (BCH/ME), up $1.45 to $31.30, on volume of 217,204 shares. Montreal-based BioChem's shares rose after Britain's Glaxo Wellcome and SmithKline Beecham announced a tentative merger, initiating speculation that U.S. drug companies may also be looking for acquisitions. ÿThe proposed $240-billion merger would create the world's largest pharmaceuticals company.
Gaming Lottery Corp. (GLH/TSE), up 45› to $6.65, on volume of 67,910 shares. ÿShares in the soon to be casino operator's shares continued to rise from their Dec.31 low of $4.30 ÿThe firm said its subsidiary, Glaxiworld Ltd., secured a license to operate an Internet casino in St. Kitts. ÿThe cyber-casino is expected to open in April and will profit from a "vast" potential market, said David Dvorchik, vice-president at Taurus Capital Markets in Toronto. ÿ"This will not replace 'land-based' gambling but there is a paradigm shift in how you get services and products to customers, and gambling is just another service," Dvorchik said.
MDC Communications Corp. (MDZa/TSE), up $1 to $11, on volume of one million shares. ÿShares in the Toronto-based security printing and marketing company have gained 42% since they slipped to a 52-week low of $7.75 on Dec. 15. ÿThe firm has attracted attention from U.S brokerage firms, including a "buy" rating from Salomon Smith Barney analyst Michael Millman. ÿMDC president Miles Nadal said earlier this month that the firm will divest itself of Regal Greetings & Gift operations, which analysts say has been a drag on the company's earnings. Instead, the firm will focus on security printing.
Oxford Properties Group Inc. (OXG/TSE), up $2.50 to $36.50, on volume of 31,640 shares. ÿThe real estate group said it increased its ownership in Montreal's IBM-Tower to 50% from 25%, but this was not significant enough news to move the stock, said Mike Hough at HSBC James Capel Canada. ÿThe share price rise was more likely a bounce back in reaction to low volume, said Hough. ÿIn a Dec. report HSBC raised its 12-month target price on Oxford stock to $55. ÿHough said the shares slid to a Jan 30. low of $34 because of investor uncertainty surrounding Oxford's purchase of BurCon Properties Ltd. for $603.9 million. ÿ"We are convinced the merger is positive for Oxford and an office recovery is clearly underway for the Canadian marketplace, which means strong growth prospects," said Hough.
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This is a stock-picker's market -- By SONITA HORVITCH -- The Financial Post
Montreal-based investment strategist Bill Ram is choosing U.S. and Canadian stocks that are cheap, but offer considerable upside potential. "It is a stock-picker's market," he said. The Toronto Stock Exchange 300 composite index could end this year only slightly higher than it did 1997, he said.
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"There could be some earnings disappointments and the average portfolio should adopt a defensive stance," he said. The economy is likely to be slower on both sides of the border.
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There is some "bottom fishing" under way among the cyclical stocks - mines and minerals, paper and forest products and steels. The rebound in the bullion price to more than US$300 an ounce is also reviving interest in gold stocks. Ram sees this as "a trading opportunity." The indications are, he said, there will be no major increase in the demand for commodities on the horizon.
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In the U.S., Ram is choosing:
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Pharmacia & Upjohn Inc. (PNU/NYSE), which closed recently at US$38 3/8 and has a 52-week trading range of US$40 1/4 and US$27 1/2. This is an international pharmaceutical and biotechnology company. "It is a restructuring and turnaround story," said Ram. The company was formed through a merger of Pharmacia AB of Sweden and U.S.-based The Upjohn Co. in November 1995. The company will consolidate its headquarters in New Jersey by April. There have been some recent changes in the senior management which should have a positive impact, he said. Furthermore, its cost-cutting initiatives could save the company about US$250 million by 2000. ÿRam's earnings per share estimates are US$1.40 for 1997 and US$1.65 for 1998. The stock is trading at 22 times estimated 1998 earnings, whereas the group as a whole trades at 30 times. Its dividend yield of 2.8% is almost double that of the Standard & Poor's 500 index.
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Pittston Burlington Group (PZX/NYSE) US$223 1/88 (US$31-US$18 1/2). ÿThe Glen Allen, Va.-based firm provides global freight transportation services. There has been a substantial upturn in the air freight business and Pittston has been landing some major contracts, Ram said. ÿThe company recently reported net income (fully diluted) for the fourth quarter ended Dec. 31, 1997, of US66› a share, compared with US53› a share in the fourth quarter of 1996. "This was a surprisingly good quarter," Ram said. Net income for the year was US$2.01 a share (excluding special second-quarter consulting expenses of US39›). After this expense it was US$1.62 a share, compared with US$1.72 a year ago. Ram's per share estimates are US$2.25 to US$2.40 for 1998. The company has a book value per share of US$16. Relative to its peers, the stock is cheap, Ram said. His target price is US$28 to US$30 within a year. ÿ
Ram's top Canadian pick is:
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MDC Communications Corp. (MDZa/TSE) $10 ($14-$7.60). ÿThis Toronto-based communication and marketing services company operates three divisions - specialty printing, direct marketing and communications and marketing consulting. "It is one of the major printers of cheques in Canada and the U.S.," Ram said. The company recently announced a number of major contracts in this area of its business. MDC's earnings have been volatile. Ram is looking for earnings per share of 70› to 80› in 1998, compared with an expected loss of 15› to 25› for 1997. A plus for the stock, said Ram, is that president and chief executive Miles Nadal purchased an additional 578,333 class A shares in January. Of these, 370,000 were bought through the market and 208,333 were acquired through the exercise of options. Another plus, Ram said, is that the stock is starting to enjoy U.S. brokerage coverage.
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Ram has sold U.S. biotechnology stock Biomet Inc. (BMET/Nasdaq) US$285 1/88 (US$29-US$14 1/4), which makes products used by orthopedic medical specialists. "The stock reached my target and there are better opportunities elsewhere," he said.ÿThe stock was his top pick in this column July 12, 1996 at US$15 1/8. Investment strategist Bill Ram may hold positions in the securities mentioned.
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