Canadian Stocks: How to Spot a Growth Winner
(Ed.'s note: Canadians, we love 'em. Good anthem, hockey, the works. And we hear from members that you'd like more Canadian stock information. This week, Greg Guichon and Michael Soni begin a weekly column that will analyze stocks they are buying for clients. The column focus exclusively on Canadian companies and will appear every Monday. If you have questions or feedback on this new column, feel free to email me at dkansas@thestreet.com.)
Looking for good growth stocks in this kind of bull market is never easy. But let us show you one method we've used successfully in finding winners -- and avoiding losers.
One of our favorite stocks is
Air Canada
(AC:Toronto). I randomly picked the day Jan. 22 of this year, and what a surprise, Air Canada is priced at C$8.05 and is on the new high list. Actually this is not a surprise. One of our philosophies is that we only buy stocks when they hit new highs. And we bought Air Canada right around this time. And, luckily, we still own it.
An important bullish indicator came in the March 7 to April 18 period. During that time the
Toronto Stock Exchange
went through a 12% correction as Air Canada moved sideways. Air Canada's strength -- holding the line as the market corrected -- demonstrated the kind of staying power that investors should look for when sifting through a tough market for good deals. As
this graph
indicates, once the TSE resumed its upward move, Air Canada followed.
Since that spring correction, the TSE has gained 23%. At the same time, Air Canada has soared 93%, moving from C$7 to C$13.50. (Click
here
.)
Using the same correction time period, let's look at a different example:
Nova Corp.
(NVA:Toronto). (Click
here
.)
In this case, the TSE corrected about 12% and NVA did more than follow suit, dropping 18% from $12.75 to $10.50. Shortly thereafter, as
this graph
shows, the TSE resumed its upward move and NVA barely recovered. NVA is now at $11.50, an increase of 10% compared with the TSE's gain of 23%.
NVA goes down in a down market and ends up 10% higher -- but the stock is underperforming the broader market. Air Canada goes sideways in a down market and is up 93% higher today. We probably don't have to mention that we did not have a position in NVA.
The moral of this story is that good stocks get better and bad stocks get worse. If you want to ride the best growth stocks during the bull market, find the ones that go sideways or are leaders in the bear market and then watch 'em go.
Canadian Notes
A look at last week's major developments:
TrizecHahn
beat out competition to buy
JBG Cos.
, one of Washington's oldest real estate companies, in a deal worth several hundred million.
In a deal valued at US$250 million,
Canada Life Assurance Co.
is poised to purchase the British holdings of
Metropolitan Life Insurance Co.
of New York.
Aetna Life Insurance Co. of Canada
has bought
Financial Life Assurance Co. of Canada
. Terms weren't disclosed.
Cineplex Odeon
(CPX)
and
Sony
(SNE) - Get Report
increased its stake in the U.S. post-hospital services market with a US$325 million friendly takeover of
Arbor Health Care
(AHCC)
of Ohio. Extendicare will pay US$45/share for Arbor's 7.2 million shares and will also assume US$107 million of its debt.
Chartered banks raised their prime lending rate by half a point to 5.25%. Fixed rates, such as posted mortgage rates, are not immediately affected.
Talisman Energy
won the bid for
Pembina Resources
, the oil and gas assets of Calgary's Mannix family, for $501 million.
IPOs are at a record pace. They totaled 255 through Sept. 24, up 61% from a year earlier and just two deals short of the full-year tally for 1996.
Greg Guichon and Michael Soni manage money for high-net-worth individuals and institutions in Toronto. They invest exclusively in Canadian stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stock. Greg Guichon and Michael Soni are currently long Air Canada. Your email is welcome and may be sent to michael_soni@scotia-mcleod.com.
