Big Pay Day!

Market Buzz – Seacliff’s Big Pay Day!

Toronto’s main index took it on the chin this Friday, as weak U.S. economic data and earnings results heightened worries about a slow recovery and pushed down heavily weighted resource issues.

Toronto’s slide tracked a sharp decline by U.S. stocks, which tumbled in part after consumer sentiment nearly fell to a one-year low, highlighting the sluggishness of the economic recovery.

With the acceleration of the European debt crisis worries, a renewed focus on U.S. debt, and concerns about the removal of government stimulus over the next several months, the risk aversion trade has produced jittery markets over the past two months. For a number of Toronto-listed China-based stocks we cover including big names like forestry plantation giant, Sino-Forest Corporation (TRE:TSX) (a company we have recommended since 2002 when it traded at $1.15), these jitters have been compounded by questions of a home grown housing bubble and slack export demand.

The concerns are not without merit. While the government is slowly shifting its focus from an export-based economy to focus on domestic growth (which the company’s next five year plan to be released later this year should shed further light on), there is no question growth is impaired by weak global demand. Indeed, in certain segments and regions it appears China’s housing market has hit bubblicious levels.

But, we have heard similar criticism and skepticism on China since we began looking at the region (via North American listed companies) as a viable segment to uncover growth stocks just over a decade ago. Each time, over the long term, the skeptics have been proven wrong and we have been very pleased with our returns from buying a basket of profitable companies operating in this market.

From our Canadian Small-Cap Coverage Universe (www.keystocks.com), we are very happy to report that Seacliff Construction Corp. (SDC:TSX) announced this past week that Churchill Corp. (CUQ:TSX) had completed its previously announced acquisition of the company pursuant to an arrangement under the Business Corporations Act (British Columbia). Seacliff was recommended in April 2009 to our clients at $8.00.

Under the terms of the arrangement, Seacliff shareholders received $17.14 in cash for each Seacliff common share, for a return of 114.25 per cent (excluding dividends) in just over a year since our recommendation. The total purchase price for the acquisition was approximately $394 million, including the assumption of Seacliff’s indebtedness.

For its part, The Churchill Corporation provides building construction, commercial and industrial electrical contracting, heavy construction, and industrial insulation services to an array of public and private sector clients. Churchill operates 39 locations in British Columbia, Alberta, Saskatchewan, and Manitoba.

We are happy to take the cash payout and will deploy the funds in new value with growth related situations in the current pull-back over the next one to six months.

Looniversity – 5 Ways to Invest in Gold

With the price of bullion flying high over the past few years, we get a number of questions on how to invest in the little yellow metal. Below are five of the most common ways to do so.

Physical Gold – Bars
Taking physical delivery of your gold is a very safe way of investing in gold. Gold bars are one method of achieving this.

Physical Gold – Coins
Gold coins are often more convenient than bars and can often be bought for lower premiums than bars – weight for weight.

Gold Mining Shares
Essentially, this is an investment in a public company (stock) that mines and produces gold. There is a simple theory that, when gold bullion prices and demand increase, then gold mining share prices will follow. Some mines fully hedge their future production, however, so the theory does not always hold true for all producers. Most gold mining equities tend to be three to four times as volatile as the gold price.

Gold – ETFs
ETFs are funds whose units can be traded on the stock exchanges, just like the shares of companies. Through a gold ETF, an investor can own gold in the demat form, thereby eliminating the cost and risk associated with physical gold investments. In North America, there are a number of gold ETFs that trade at approximately one-tenth of the price of gold. The first, and the most actively traded gold ETF, is streetTRACKS Gold Trust shares (GLD:NYSE). Another U.S. listed gold ETF is iShares on Comex Gold Trust (IAU:AMEX). Comex Gold Trust units also trade on the Toronto Exchange in Canadian dollars under the symbol (IGT:TSX).

Gold Futures
This is a highly professional market, but is more for the speculator than the investor. Gold futures contracts are firm commitments to make or take delivery of a specified quantity and quality of gold on a prescribed date at an agreed price.

Bottom line – While it may be a “hot investment” right now, experts suggest you don’t go overboard; gold should only constitute a small part of your portfolio, say 10 per cent.

Put it to Us?

Q. My broker recently told me to “back up the truck” on a certain stock. This may sound a little naïve, but was he telling me to “load up” or ?

– Rachael Robert; Calgary, Alberta

A. In the wacky world of finance, “backing up the truck” is slang and refers to the purchase of a large position in a stock, or other financial asset, by an investor or trader. Typically, when someone is willing to back up the truck on a financial asset, this implies that they’re extremely bullish on that asset’s performance.

For example, if an analyst recommends that it is time to start backing up the truck on XYZ stock, this means that he or she is extremely confident and upbeat about how well XYZ stock will be doing in the foreseeable future.

The term refers to the imagery derived from a truck backing up to a warehouse or some other commercial building to load up goods.

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