More accustomed to cuddling and snuggling than she is to the cold, cruel world of business, Sam the red and pink stuffed dog was ready to sniff out bargains on the Toronto Stock Exchange.
With the newspaper spread out on the kitchen floor, the favourite and faithful companion of five-year-old Emilia Loewen was guided up and down the columns of stock market listings. Her nose (for Sam is a girl) came to rest near the top of the page. "What is it?" asked Emilia, the daughter of Report on Business Deputy Editor Cathryn Motherwell.
Shell Canada had just been selected as the wild card entry in the Report on Business's ninth-annual stock-picking contest, pitting Emilia and Sam against some of Canada's best and brightest market pros. The Calgary-based integrated oil company rode high energy prices to profitability and strong stock market performance last year. Shell shares began this year at $79.99, up from the low $60-range one year ago.
Emilia and Sam join eight other contestants in this year's My One and Only stock-picking contest, in which entrants are allowed to pick a stock trading at $1 or more on the TSX.
Our current champion, Moshe Milevsky, has decided to retire undefeated after an unprecedented three-year string of victories.
Marco den Ouden, who finished second in last year's contest with Peyto Energy's strong finish, has opted for Sherritt International, which started the year at $9.94.
The Toronto-based company has "a wide range of interests in energy, metals and coal. The wild card with Sherritt is that a lot of their operations are in Cuba. Political unrest if Castro dies could create some upheaval. But I think there is huge upside because their extensive coal interests have not yet started contributing to the bottom line because of forward contracts yet to unwind. Coal could be a big payoff for them next year," said Mr. den Ouden, publisher of The Break Out Report, a twice-monthly investment advisory.
Michael Smedley, president of closed-end fund Canadian General Investments, came third in last year's contest with TSX Group.
This year Mr. Smedley has picked Centurion Energy International, an oil and gas company that has wells in Egypt and Tunisia. Centurion rocketed up 539 percent in 2004, making it the year's top stock.
"Centurion is going to produce 20,000 barrels a day of oil by the end of this year... A month ago, it raised its target from 16,000 barrels a day to 18,000. It's a fast-growing company with not many shares outstanding," Mr. Smedley said. The stock began the year at $14.70.
Veronika Hirsch, winner of our 2001 contest, has chosen oil services company West Energy. Ms. Hirsch, chief investment officer of hedge fund marketer BluMont Capital, lamented that "picking stocks in December is tough. I'd have much rather done it in September when prices were lower."
She chose West Energy because "it has good management, but I picked it mainly because it is drilling high-impact wells. I'm hoping its production will offset volatile oil prices." Ms. Hirsch said she expects oil prices to correct this year. West Energy began 2005 at $5.72.
We welcome five new contestants, including a new house player, to our 2005 competition.
Robert Callander, vice-president and portfolio manager at Toronto-based Caldwell Securities, has picked CGI Group, which began the year at $8. The Montreal-based information technology service company is a specialist in outsourcing information technology and business processing. He noted that CGI is 31 percent owned by BCE, but is no longer so reliant on having it as a customer as CGI expands its U.S. client base.
Mr. Callander said CGI was a $30 stock at the height of the tech boom in 2000. Since that time, he said, it has boosted revenue by about 228 percent, earnings from continuing operations have jumped 286 percent, cash flow has soared 583 percent, and the order backlog has almost doubled.
Robert McWhirter, portfolio manager of the Northwest Specialty Innovations Fund, says the outlook for 2005 carries the "strong possibility" of a U.S. recession and lower equity prices. "Against this backdrop, I'm selecting a company with a substantial ($657 million) visible backlog, a 12-times estimated price-to-earnings multiple and a 2.2 percent current dividend yield. Calian Technology recently announced a $400 million outsourcing contract over five years with Canada's Department of National Defence to provide medical professionals to DND." Calian began the year at $14.98.
Also joining this year's contest are Benj Gallander and Ben Stadelmann, co-editors of the Contra the Heard investment letter and contributors to GlobeinvestorGOLD.com. Their pick, Cygnal Technologies, provides specialized technical services to the broadband communications industry.
True to their contrarian nature, the Contra Guys have chosen a stock that has been having difficulties. They note that president and chief executive officer Kieron Dowling left in August, the firm has been losing money, and cash flow has been negative.
"This is another company that boomed during the tech heyday and tanked with the bust. But we sense that Cygnal is gradually regaining its footing. The company is quite focused on controlling their debt load, which is critical at this juncture." Cygnal began 2005 at $1.50.
Al Budai, president and publisher of the Buy Low, Sell High advisory, chose Xceed Mortgage Corp. The mortgage lender began the year at $4.56. The firm provides financing to Canadian borrowers whom the banks won't touch.
Xceed's shares began trading on the TSX in June and the company raised about $24.3 million from its initial public offering. Mr. Budai said the firm reported revenue of about $11.1 million for the third quarter ended July 31, 2004, a 62.1 percent increase from $6.9 million in the same period in 2003. The company generated profit of $4.2 million for the quarter, up about 50 percent from $2.8 million in the previous year.
"Xceed has generated tremendous growth in revenues and earnings per share during the past three years, and I expect that it will continue to do so in the foreseeable future," Mr. Budai said. "At the same time, the company has managed to reduce credit losses and increase its return on equity. It has also been rapidly expanding the number and value of mortgages administered."
Our house player this year, Michael Vaughan of Report on Business Television, has chosen Ondine Biopharma, which began the year at $3.25.
"This is a contest and I'm swinging for the fences," said the host of Michael Vaughan Live, which airs weekdays from 6 to 7 p.m. "There's definitely home run potential in Canadian biotechs, but picking one is like seeing only one pitch... I'll take my cut at Ondine Biopharma, a Vancouver-based biotechnology working on laser-activated, broad-spectrum disinfection. Their product isn't a drug, but a medical device for dentists, so approvals are easier and I hope they can generate some decent revenue."