Canadian Small-Cap Universe rewarded

Market Buzz – Deficit Shrinking, No Need to Celebrate “Cashing” in Again Just Yet

In a relatively jittery week, Toronto’s main index fought back from what looked like significant losses mid-week to end the five day session only 28.94 points or just 0.24 per cent.

Gold stocks supported the index this past week, handily outperforming the rest of the market with a 7 per cent rise. The price of gold hit a 2010 high (above $1,180 per ounce) on Friday in a flight to safety bid spurred by concern over whether a rescue plan for Greece will emerge and news that Goldman Sachs faces a criminal investigation.

Federally, there was some relatively good news on the debt front as Canadians may incur a smaller deficit for the current fiscal year than previously feared, thanks to a quicker and stronger than expected recovery in economic activity. Ottawa reported Friday that its deficit increased by a “modest” $902 million in February compared to an $800-million surplus the year before. The trend is improving as Ottawa had reported monthly shortfalls of $5 billion and more from last June to October. The data has steadily improved to the point that the last two months have both seen deficits of under $1 billion.

For the fiscal year, which has one more month to run, Ottawa’s shortfall has now risen to $40.5 billion. But that is still well below the record $53.8 billion deficit Finance Minister Jim Flaherty had projected in the March budget.

Before you all run out in the streets and party like the good times are here once again, remember that the year-to-date $40.5 billion deficit is a sharp contrast to the $1.3 billion surplus Ottawa enjoyed at this time last year, with $18 billion of the shortfall attributed to stimulus spending intended to arrest the economic slide. There still remains some tough sledding ahead my friends.

This past week, our Canadian Small-Cap Universe was rewarded with another set of strong quarterly results from The Cash Store Financial Services Inc. (CSF:TSX). Cash Store Financial is the largest provider of alternative financial products and other financial services in Canada with a rapidly growing network of branches in over 200 communities nationwide. The company operates two of the most recognizable brands in Canada’s expanding payday loan services market – The Cash Store and Instaloans.

This past week, the company’s shares jumped to $18.00 (recommended last year at $7.12) after reporting results for the three and nine months ended March 31, 2010. Quarterly revenue rose 12.4 per cent to $40.8 million from $36.3 million in the same quarter last year. Earnings per share (diluted) before non-recurring class action settlement costs rose 27.8 per cent to $0.23 from $0.18 in the same quarter last year. Net income before non-recurring class action settlement costs and related taxes were up 29.0 per cent to $4.0 million from $3.1 million for the same quarter last year.

Branch count was 489, up 66 net new branches from 423 at March 31, 2009. 20 new branches opened in the quarter. Subsequent to quarter-end, The Cash Store announced that its branch count surpassed 500 in operation.

Finally, the company reported a dividend of $0.10 payable May 26, 2010, to shareholders of record on May 11, 2010.

Looniversity –Understand Your Tolerance for Risk

In the wonderful world of investing there is a direct relationship between expected returns and risk – the higher the expected payback from your investment, the higher the risk. Before you can decide on a personal investment strategy, you must consider how much or how little risk you are prepared to take with your hard earned dollars.

Your risk tolerance can be affected by:

Time horizons
The amount of time you have to meet your financial goals and to make up for any losses you might experience. People with long-term horizons may be more willing to endure periodic fluctuations in the value of their investments.

Cash requirements
The extent to which you depend on your investments to meet day-to-day expenses. Investors who rely on their investments to meet daily living expenses will be much less comfortable with the risk of losses.

Emotional factors
Your emotional response to risk and to changes in the value of your investments. Some people are quite comfortable with the ups and downs of the market, while others find it difficult to sleep at night when their investments fluctuate in value.

There is no ‘right’ answer to the question, “How much risk should I take?” Risk tolerance is a personal issue. You should never feel obliged or pressured to take more investment risk than you are comfortable with. Remember, though, that there is no such thing as a high-return risk-free investment. You cannot expect to be rewarded with high returns on your investments if you are not prepared to accept the risks that go with them.

Put it to Us?

Q. A friend of mine trades often on the AMEX exchange in the U.S. Can you give me a brief rundown on it?

– Jamie Hughes; Calgary, Alberta

A. With a rich history that dates back to the late 1700s, when outdoor brokers made markets in securities (i.e. stocks) in what became known as The New York Curb Market, the American Stock Exchange (AMEX) has evolved dramatically over the past century. Now located at 86 Trinity Place in downtown Manhattan, today’s AMEX boasts the third highest volume of all exchanges trading in the U.S.

The bulk of trading on the AMEX consists of index options (computer technology index, institutional index, and major market index) and shares of small to medium-sized companies. The exchange also hosts an unrivaled listing of more than 100 exchange traded funds (ETFs), a securities category it helped pioneer.

In 1998, the AMEX merged with the National Association of Securities Dealers (NASD), but continues to operate as an independent entity within the NASD family of companies.

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