Market Buzz – Long-Term Favourites Continue to Pay Off
The TSX Composite started the week off above the 12,000 level for the first time since September, 2008, but sovereign debt worries and a late week decline in metal prices did not allow Toronto’s main index to hold that level. For the week, the TSX ended down 65.84 to close at 11,947.98.
The decline in the TSX base metals sector followed strong gains earlier in the week, which added to the solid rally from the previous five day session.
The Loonie had run up strongly to above the $0.99 level early Friday after Statistics Canada said consumer prices rose 1.6 per cent last month, following a 1.9 per cent increase the previous month. Economists had been expecting prices to rise at an annualized rate of 1.4 per cent.
Among other factors, including strong commodity prices and the powering Canadian Dollar’s steady run towards parity with the U.S. dollar this year, is the expectation that the Bank of Canada will raise interest rates, likely as soon as this summer. The inflation numbers give further credence to this expectation as core inflation, which excludes volatile items such as energy and food, was higher than most forecasts. It rose one percentage point to 2 per cent; the first time it has been above the closely watched target of 2 per cent since December 2008.
Two long-time favourites from our Canadian Small-Cap Universe (www.keystocks.com) rewarded us once again with their monthly distributions this past week.
The first came from K-Bro Linen Income Fund (KBL.UN:TSX), which announced on Thursday that it will pay another cash distribution of 9.167 cents per unit of the Fund for the period from March 1, 2010, to March 31, 2010, to be paid on April 15, 2010, to holders of record of Units on March 31, 2010.
K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada. The company provides a comprehensive range of general linen and operating room linen processing, management, and distribution services to large healthcare institutions, hotels, and other commercial accounts. Not the sexiest story on the street, but the strong unit appreciation and solid yield has provided our clients with an approximate 100 per cent return over the past 17 months – not bad for a company that cleans dirty laundry.
The second company, The Boyd Group Income Fund (BYD.UN:TSX), announced on Wednesday that it declared a cash distribution for the month of March 2010 of 2.5 cents per trust unit. The distribution will be payable on April 28, 2010, to unitholders of record at the close of business on March 31, 2010.
Boyd has jumped over 150 per cent over the past 16 months for our clients.
The Boyd Group Inc. is the largest operator of collision repair centres in Canada and among the largest in North America. The company operates locations in four Western Canadian Provinces under the trade name Boyd Autobody & Glass, as well as in seven U.S. states under the trade name Gerber Collision & Glass. The company also operates Gerber National Glass Services, an auto glass repair and replacement referral business with approximately 3,000 affiliated service providers throughout the United States.
Please note, the company will release its fiscal 2009 fourth quarter financial results on Friday, March 26, 2010 before markets open.
KeyStone will release a full update along with our updated rating on the stock next Friday afternoon to clients only.
Looniversity – Corporate Bling!
A simple question — If a company reports earnings of one million dollars, does their bank account swell by the same amount? Not necessarily. Why not, you ask? Well, in the wild and wacky world of public companies, financial statements are based on accrual accounting, which, in an effort to best reflect the financial health of a company, takes into account non-cash items such as depreciation. Sometimes, however, it can be valuable to strip off all the “accounting noise” and look at how much “actual cash” a company is generating. The statement of cash flow provides us with this information.
What is Cash Flow?
Cash flow is the constant flow of money in and out of a company. The outflow of cash is the money paid every month to pay salaries, suppliers, and creditors. The inflow is the money received from customers, lenders, and investors. All companies provide the cash flow statements as part of their financial statements, but cash flow can also be calculated as net income plus depreciation and other non-cash items.
Why is a look at the cash flow statement important? A company not generating the same amount of cash as competitors is bound to lose out when times get rough (can anyone say now?). Even a profitable company (by accounting standards) can go under if there isn’t enough cash on hand to pay bills. Unlike reported earnings, a company can do little to manipulate their cash situation. Unless tainted by outright fraud (which is apparently a consideration), this statement tells the whole story: either the company has the cash or it doesn’t.
Put it to Us?
Q. Lately, I have begun frequenting several stock-related chat forums on the Internet to help pick up little tidbits on the stocks I own. My broker recently warned me about “bashers” on the forums. Can you give me a run down on these characters?
– M Benoit; Winnipeg, Manitoba
A. The advent of the Internet has created a plethora of investment-related chat rooms and forums – enter the basher. A basher is a person who lurks in the shadows of investment chat rooms spreading calculated and, almost always, unfounded confidence-shaking news about a stock. The basher’s purpose is to instigate a sell-off that will in turn drive the stock price down, either for his or her own benefit or that of his or her employer.
So, how do you handle them?
First off, simply ignore them because they want and feed off attention. If they aren’t getting any, they’ll likely slink away and attempt to prey on more receptive victims. Secondly, do your due diligence. The phrase, “knowledge is power” is no more true than in this instance. Try to post a number of well-researched messages that confound the premise of a basher’s arguments.
Finally, try NOT to take your financial advice from those posting on a blog, bulletin board, or chat forum – your financial future far too important.
KeyStone’s Latest Reports Section
- Healthcare/Hospitality Service Trust Posts Sold 2009, Total Return Approaching 100%, Yield Remains Solid at 7% – Rating Updated (Flash Update)
- Reiterate our SELL HALF Recommendation, HOLD Remaining Position for our Top 2009 Canadian Wireless Software Pick After Shares Jump over 260% (Flash Update)
- IP Company Post Solid Q3, Solid Fundamentals, Strong Cash Position & Yields 4.17%, But 50% Share Gains Prompt Near-Term Rating Change (Flash Update)
- Canadian Infrastructure Stock Posts Strong 2009, Shares up Over 71%, But Strong Cash Position & Relative Fundamental (PE of 10) Allow Us to Maintain BUY Rating Long term (Flash Update)
- Canada’s Largest Facilities Maintenance Company Posts Strong 2009 Results, 25% Gain Prompts Near-term Ratings Change, Long-term Remains the Same (Flash Update)