2010 in review: Canadian stocks

Benj Gallander and Ben Stadelmann
Thursday, December 23, 2010

Once again, it’s time to look back at how we did with our Canadian choices. As usual, a bit of a mixed bag, but overall, mighty fine returns.

In February, Torstar was our choice while it sat just north of $6. This was a truly contrarian play, as the company retains a firm foothold in old media, primarily newspapers. While many have written off this arena as soon to be deader than a doornail, our feeling was different. Plus, the online presence and book divisions were compelling. And the dividend was pretty fat, offering us happy quarterly returns, assuming it would be maintained.

When the company agreed to sell its position in CTVglobemedia, investors found the combination of the sale of this money pit and the $345 million or so that would come Torstar’s way rich. That, plus improving earnings, have doubled this stock since our write-up. Our target price is $23.49.

Fairborne Energy was trading around $4.35 when we focused on it in June. Since then, the stock price has drifted a tad downwards. The primary reason for that is the price of natural gas. While commodities generally have been exciting, natural gas has been a major laggard. At some point, our feeling is that this will change, as the historical oil-gas pricing ratio is way out of whack, weighted to the former’s side. We think that there will be some transitioning to the much cheaper, cleaner fuel, and once again the supply-demand balance will shift. That should bode well for FEL, which rests as a buy in the Vice-President’s Portfolio.

Cangene has been having major trouble. Less than five years ago, it was an $11 stock, but declining revenues and problems with WinRho SDF, its first and most successful product, have seen the stock price move below $3.00. It was around the $3.50 level when highlighted in July.

One of Canada’s largest and oldest biopharmaceutical outfits, the company has to find, or buy, another product or two to augment revenues, at the same time it looks to rein in expenses.The latter will not be easy, as the enterprise has moved the sales team in house, with all of the setup costs such actions entail. This became a must-do when the distribution deal with Baxter Healthcare was terminated.

Revenue in the most recent quarter tumbled 43 percent year over year, leading to a $5.4 million loss. President/CEO John Langstaff said the company should be profitable for the year. It has recovered from difficult times before.

One that has turned into a beauty was our pick last summer of Consumers Waterheater Income Fund, which was then trading in the $4.75 range. Since then, the price jumped to $6.75, with a fat monthly payout of 5.4 cents. If only this would happen all the time!

A primary reason for the hot upside has been quite straightforward: better results. Last year, the loss in the first quarter was just north of $6 million; this year, there were earnings approaching $1.3 million. The market responded.

Part of this upside is because the company reduced the rate of customer attrition. Plus, the acquisition of Enbridge Electric Connections certainly helped. This doubled the number of billing units in the sub-metering division, which boosted revenues. The payout ratio also dropped to a much more manageable 58 percent, as compared to 107 percent one year ago. As of the New Year, CWI will become another of the income trusts that transitioned to a corporation.

Algonquin Power and Utilities was a recent pick in October, when sitting around $4.75. Since then, it has seen a major quarterly drop in earnings to the $1.5 million level, as the enterprise was negatively impacted by hydraulic conditions well below the long-term average. It is currently above our buy limit of $4.25, with a target range of $6.50-$7.50. The lovely dividend will fill the trough, and even with marginal results, the stock price is now above $5.00.

As usual, our next column will review our American picks.