Market Buzz

Market Buzz – Need Work? Look to Canada! Mosaid Technologies

Toronto’s main index appears poised to end the week up just under 3 per cent, stemming the tide of sharp losses over the prior two weeks (sell-off of more than 4 per cent last week). The gains were driven by a strong up-tick in oil prices and a solid jobs report.

Statistics Canada reported that the economy created 93,200 jobs last month, much higher than the 20,000 that economists had expected. The unemployment rate dropped to 7.9 per cent from 8.1 per cent in May. The jobs picture appears to show that the Canadian recovery hasn’t stalled yet, despite signs of slowing momentum in the U.S. and other economies.

The report even prompted The Huffington Post, a U.S. political and pop-culture website, to post the following; “Stubbornly high unemployment rates got you down? Not sold on the economic recovery? Look no further than America’s polite neighbor to the north, where jobs numbers are surging and home prices have been rising steadily for nearly a year.”

The Post also put up a poll asking its users if they would consider moving to Canada for a job. 58 per cent are currently saying yes, they would follow the money north.

That said, we caution extrapolating too far ahead based on the jobs report as the numbers tend to lag current activity.

This past week, MOSAID Technologies Incorporated (MSD:TSX), a company we follow closely in our Canadian Small-Cap Coverage Universe (www.keystocks.com), posted a strong set of annual results. Founded in 1975 and based in Ottawa, Ontario, MOSAID Technologies Incorporated core business is the licensing of patented semiconductor and telecommunications intellectual property (IP), complemented by the development of innovative memory and other technologies.

For the full fiscal year revenues were up 14 per cent to $71.1 million from $62.5 million in fiscal 2009. 2010 pro forma net income jumped 44 per cent to $30.5 million, or $2.87 per diluted share, from $21.2 million, or $2.05 per diluted share, in fiscal year 2009. Fiscal year 2010 GAAP net income of $21.8 million increased 272 per cent from $5.8 million in fiscal year 2009. GAAP diluted EPS of $2.04 per diluted share, based on 10.6 million diluted shares, compared to $0.57 per diluted share in fiscal year 2009, based on 10.3 million diluted shares.

At the end of Q4 fiscal 2010, the company had cash and marketable securities of $100.83 million, or $8.75 per share, compared to $51.8 million at the end of fiscal 2009.

Looniversity – Debt Vs. Equity Analysts

In investing circles, there are two broad categories of analysts – debt and equity analysts. Debt analysts are known to take a fine-toothed comb to company financials, poring over balance sheets and profit-loss statements. Since they are paid to warn clients whether a company has adequate cash to make its debt payments, they are often ahead of the pack in predicting trouble.

Equity analysts, on the other hand, are more focused on a company’s growth outlook. What are the catalysts that will help earnings? Does the company boast product-line changes that will translate into revenue increases? Most important, will the market reward those trends by bidding up the stock’s price? While it is oversimplification, equities analysts tend to look at the upside, whereas debt analysts tend to look at the downside.

Now the question becomes – which group should investors heed? Experts say each can provide value, but together, they can give a much fuller picture of a company. However, each can have their biases in regards to the company they are assessing (corporate financing). So read each group’s comments, compare them, and take them with a solid grain of salt.

Put it to Us?

Q. When analysts or accountant types talk about “book value,” what are they referring to?

– Mark Saunders; Montreal, Quebec

A. Outside of the financial world, “book value” can probably be looked at as that little red tag in the corner of your paperback, but within the wonderful world of finance, it has two other distinct meanings.

1. The value at which an asset is carried on a balance sheet (example: a car for a cab company). In other words, the cost of an asset minus accumulated depreciation.

2. The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.

Book value is the accounting value of a firm. It has two main uses:

A. It is the total value of the company’s assets that shareholders would theoretically receive if a company were liquidated.

B. By being compared to the company’s market value (price-to-book ratio), the book value can indicate whether a stock is under or over-priced.

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