Market Buzz

Posted by Ryan Irvine - Keystone Financial

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Market Buzz K-Bro Continues to K-Gro

Taking its queue from U.S. markets, the TSX closed lower this past week reversing its beak out from what was a three month trading range below the 11,800 level.

The Dow Jones industrial average had its first triple-digit drop of 2010 as loan losses at JPMorgan Chase & Co. and a disappointing consumer sentiment reading sent investors rushing from stocks. JPMorgan, regarded in the wake of the financial crisis as one of the strongest U.S. banks, warned investors it was too soon to say that losses on mortgages and other loans have peaked.

The warning should serve as a cautionary note that the U.S. and North America in general, is not yet out of the woods economically and a strong recovery is by no means a certainty. Again, we caution investors to review their portfolios with their financial advisors and take profits where appropriate in individual companies if their valuations have gotten well ahead of themselves.

Switching gears, we take a brief look at a positive announcement from one stock in our Canadian Small-Cap Universe (

The announcement came from K-Bro Linen Income Fund (KBL.UN:TSX), the largest owner and operator of laundry and linen processing facilities in Canada. This past week, the company announced that it has reached an agreement to acquire an existing linen business located in Burnaby, B.C. The acquired business consists of Vancouver healthcare institutions and hospitality customers in both the greater Vancouver area and Whistler, British Columbia. K-Bro will acquire all assets of the owner’s Vancouver linen business, including the processing plant that operates from a leased facility.

The purchase price is $11.5 million, with additional amounts paid for working capital above a normalized level. Annual revenues from the acquired business were $14.4 million in its most recent fiscal year ended June 30, 2009. Management estimates that adjusted EBITDA was approximately $1.7 million for that fiscal year. These operating results, combined with potential synergies, results in an acquisition that management believes will be immediately accretive to the Fund.

Looniversity Stop Orders 101

Stop orders are a type of order placed with a broker to buy or sell a security when its price surpasses a particular point, thus ensuring a greater probability of achieving a predetermined entry or exit price, limiting the investor’s loss or locking in his or her profit. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order.

Investors can use a stop order before leaving for holidays or entering a situation where they are unable to monitor their portfolio for an extended period. Stops are not a 100 per cent guarantee of getting the desired entry/exit points. For instance, if a stock gaps down, the trader’s stop order will be triggered (or filled) at a price significantly lower than expected.

Traders who use technical analysis will place stop orders below major moving averages, trendlines, swing highs, swing lows or other key support or resistance levels.

Put it to Us?

Q. If I buy a stock at $30 and I put a stop limit in to sell at $27, will I be guaranteed a sell once the stock has reached this price?

– Randal Paulson; Calgary, Alberta

A. Not necessarily. This is unfortunately one of the problems with orders. If a stop order is established, it means that the stock will be sold at or beneath a certain price. If you own 500 shares of a company trading for $30 and you put a stop order in at $27, it could be executed at $27 on the dot; but if the market is dropping fast, it may be executed at $26.50 or a range of lower prices as your shares are being sold off.

With a stop-limit order, you shrink the downward range by saying you only want those shares to sell at $27. For this to work, another person in the market has to bid $27 for all 500 of your shares. However, if there isn’t a bid, or a combination of several bids, for 500 shares at $27, then your order won’t be executed. In widely traded stocks with high volume, this is usually not a problem. But it can be a problem in smaller or mid-cap issues with less liquidity, so keep this in mind. Broadly speaking, it is not often wise to actively “trade” in and out of illiquid stocks.

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