Market Buzz

Market Buzz – China Slows, Boyuan Still Grows

Toronto’s main index closed up 31.07 points to 11,666.92 this past Friday and posted a rebound week, despite the fact the U.S. Commerce Department reported that retail sales for May were down 1.2 per cent – the largest amount in eight months – against expectations for a gain of 0.2 per cent.

The data is key because U.S. consumer spending accounts for three quarters of the country’s economy and a fifth of global economic activity. It added to disappointment over U.S. job creation in May and worry about how Europe’s fiscal crisis could impact the global economic rebound.

But stateside, the Dow Jones industrial average logged its first winning week in a month.

The Dow rose 39 points Friday and ended the week with a gain of 2.8 per cent, its best weekly advance since mid-February. The market slid in morning trading on disappointing retail sales numbers but started to pare its losses after a report found consumers are gaining confidence in the economy. The market climbed in the last hour of trading to end near the highs of the day.

In the face of the retail sales data, the market found confidence in the preliminary Reuters/University of Michigan consumer sentiment index for June, which showed consumer confidence rose to its highest level since January 2008 and came in well ahead of forecasts. This was a bit of a surprise in our view.

Switching gears, we look to the East where, despite fears of China’s infrastructure build coming to a screaming halt, Canadian-listed Boyuan Construction Group Inc. (BOY:TSX), which is based in Jiaxing City, China and in the business of commercial and residential building construction, municipal infrastructure, and engineering, recently posted a strong set of quarterly growth.

Recently, Boyuan announced that its total contract revenue earned jumped 71.24 per cent to $103.6 million for the nine month period ended March 31, 2010, from contract revenue of $60.5 million for the same period last year. Q3 net income rose 86 per cent to $2.1 million, or $0.08 per share, from $1.16 million, or $0.05 per share, in the same period last year.

While we agree that the pace of growth is rightfully being slowed, the long term (three to ten years and beyond) continues to look bright for companies supporting this infrastructure build.

Finally, see the “Put it to Us” section below for further positive news from one of last year’s top recommendation’s from our Canadian Small-Cap Universe (www.keystocks.com), The Cash Store Financial Services Inc. (CSF:TSX).

Looniversity – Dollar Cost Averaging

Dollar Cost Averaging (DCA) — purported to cure the sick, feed the hungry, make Paris Hilton tolerable, and, of course, produce tremendous investment returns. While claims of its all-encompassing power tend to be exaggerated, DCA can help reduce your risk, which is no small feat.

Essentially, DCA is a systematic investment plan under which investors make predetermined periodic purchases of a fixed amount on a monthly, quarterly, or even yearly basis. The strategy protects your portfolio by forcing you to buy more shares when the market is falling and fewer shares when the market is rising. In the end (assuming markets increase over time), your cost per share is lower than the average price per share.

The true beauty of DCA can be found in its stone cold, emotion free structure and is often realized during a down market. When the market is falling, investors tend to believe it may fall indefinitely, and find it difficult to make purchases. Conversely, when the market is rising, investors tend to believe it will go up forever, and go on a buying spree. In most cases, this is exactly the opposite of what should be done. A DCA strategy forces you to put aside your “gut reaction” and continue investing periodically no matter what the current market psychology.

Caveat – If your plan to use the DCA method, make sure to look at that stock you are investing in and ensure that the basic reason you originally bought the stock (i.e. It is a great business, profitable, growing at above average rates or with a solid yield, limited debt, and trading at reasonable valuations) remains in place. If it does not, consider selling rather than dollar cost averaging.

Put it to Us?

Q. I am a long-time subscriber (client) of yours (www.keystocks.com) and bought The Cash Store Financial Services Inc. (CSF:TSX) on your recommendation at $7.00 last summer. We are very happy with it now trading at $16.75 and it keeps paying us dividends! This week I heard it was to list on the New York Exchange. How will this affect my stock and will I have to trade it on the NYSE now?

– Roy Arnold; Toronto, Ontario

A. Roy, you are correct. We are happy to report that on June 3, 2010, one of our Focus BUYs from 2009, The Cash Store Financial Services Inc. (CSF:TSX), Canada’s largest alternative financial services company, announced that its common shares have been authorized for listing on the New York Stock Exchange (NYSE). The company shares began trading on the NYSE on June 8, 2010, under the symbol “CSFS.” You may continue trading it on the TSX as well as the company has retained its primary listing on the Toronto Stock Exchange. As far as the impact on the stock, there is nothing really business wise (with respect to earnings or revenues) that the NYSE listing creates. However, the listing does represent an opportunity for the company to reach a broader investment base in the United States and will help to gain greater exposure in this critical investing market. Ultimately, its continued success will continue to come down to management’s execution on its growth strategy and continued efforts to growth cash flow, earnings, and your dividend.

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