Market Buzz – Excellent news

Market Buzz – Seacliff Jumps On Strong 2009 Results

After a strong February, March kicked off with a bang as Toronto’s main index jumped 3 per cent for the first week of the month as earnings season stepped into high gear with strong earnings results from TD Bank (TD:TSX) and Bank of Montreal (BMO:TSX), which drove the heavily influential financial sector.

The gains were punctuated by a strong 150.17 point gain Friday to close at 11,975.14, about 229 points higher than where it started the year.

News on the jobs front in the U.S. helped keep the market in a rosy mood as the U.S. Labor Department’s monthly report, seen as the most important measure of the economy’s health, showed fewer jobs were cut in February than expected. Employers cut 36,000 jobs last month, better than the 50,000 to be cut forecast by economists polled by Thomson Reuters. The unemployment rate held steady at 9.7 per cent. Economists were expecting it to rise to 9.8 per cent.

We caution investors to not get too excited about these numbers as they still show the U.S. is shedding jobs. A drop in unemployment is necessary for the economy to make a sustained rebound.

Switching gears a bit, we got some excellent news from two stocks we follow closely in our Canadian Small-Cap Universe (www.keystocks.com). Both Seacliff Construction Corp. (SDC:TSX) and MOSAID Technologies Incorporated (MSD:TSX) posted strong quarterly numbers this past week and have seen their share prices and have seen their share prices rise 71 per cent and 54 per cent, respectively, from our recent recommendations.

Seacliff Construction, a diversified infrastructure and construction company, reported solid 2009 year end results. Revenues rose 14.5 per cent to $578.1 million from $504.9 million in 2008. 2009 adjusted net income rose 20.8 per cent to $28.6 million, or $1.38 per share, from $23.7 million, or $1.24 per share, in 2008.

The stock jumped $1.19 to $13.75; a new all time high on the news and our fully updated report and rating has been released to our clients.

Looniversity – Why Do Companies Care About Their Stock Prices?

Here’s the irony of the situation: companies live and die by their stock price; yet for the most part, they don’t actively participate in trading their shares within the market. Companies receive money from the securities market only when they first sell a security to the public in the primary market, which is commonly referred to as an initial public offering (IPO).

The original company that issues the stock does not participate in any profits or losses resulting from these transactions because this company has no vested monetary interest. This is what confuses many people; why does a company, or more specifically its management, care about a stock’s performance in the secondary market when this company has already received its money in the IPO?

Well, there are a number of good reasons public companies care about their stock price. Below are some of the more important factors.

Management are often Shareholders – They have a vested interest: shares go up, they win too.
Secondary Financing – The stock market acts as a barometer for financial health. The better a company’s stock performs, the cheaper it will receive debt financing and the better a position it is in to use its share price as currency to raise further cash if necessary.
The Hunters and the Hunted – Unlike private companies, publicly traded companies, if they allow their share price to decline substantially, stand vulnerable to takeover by another company.
Wrath of the Shareholders – In extreme cases, shareholders can band together and try to oust current management in a proxy fight.

Put it to Us?

Q. Should I pay special attention to a company’s “whisper number” around earnings time?

– Shawn Brow; Toronto, Ontario

A. For those unfamiliar with the term, whisper numbers are unofficial and unpublished earnings per share forecasts that circulate among the professionals and “elite investors” on Wall Street. What affects bearing whispers has on you depends first on the type of investor you are. If you are a longer-term investor, the price action around earnings season will over time be merely a small blip, so the whisper number can be trivial. If you are a short-term or momentum trader, the whisper may be followed more closely.

Having said this, we believe you should view whisper numbers with a fair bit of suspicion. Why, you ask? Well, if a true insider knew that a company was going to beat earning expectations, why would he or she tell the world and have it published for everyone to see?

Just remember that while whisper numbers might sound important, in the end, they’re just a fancy name for a rumour and we are never partial to basing our investment decisions on rumour.

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