Market Buzz – Stock Pickers Market

Market Buzz – Cautious Stock Pickers Market – Sino-Forest’s Q2 Beats

The S&P TSX Composite index closed this Friday marginally higher in a week that was largely negative and saw the exchange take a 2.3 per cent haircut. The drop was the biggest five-day decline since the week ended July 2.

The battle in the market continues to be where the broader economy is headed. There are those that believe a double dip recession may rear its ugly head, others who believe the recovery should continue, and everything in between.

So, who is winning so far? Well, with Toronto’s main index declining 1.9 per cent this year, the bears have a slight lead, but it has really been a bit of a stalemate – with U.S. unemployment above 9 per cent offsetting optimism about stronger-than-forecast corporate earnings.

We continue to be cautious on the broader economy and believe that the de-leveraging process remains in its initial stages. It is a process which is painful and leads to low to minimal growth, but it is necessary for the long-term health of the economy. It remains a stock pickers market.

Fortunately, not all the news was negative. Sino-Forest Corp. (TRE:TSX), the largest commercial forestry plantation operator located in the People’s Republic of China and a long-time favourite of KeyStone’s, reported better-than-expected Q2 earnings and saw its shares gain as a result.

Q2 2010 revenue increased 36.2 per cent to $305.8 million from $224.42 million in the same period of the prior year, with the largest contribution coming from an increase in the trading of wood logs; specifically, revenue from trading of imported/domestic wood products and logs increased 76.9 per cent to $100.4 million compared to $56.8 million in the same period in 2009.

Net income for the period increased 41.4 per cent to $63.7 million, or $0.26 per share, in Q2 2010 compared to $45.0 million, or $0.23 per share, in the same period in 2009.Slowing Growth Trend Continues, North and South

Looniversity – Top Down vs. Bottom Up Investing

Let’s see, “top down,” “bottom up,” kinda sounds like terms you’d hear at a frat party. But, in the investment world, both refer to specific styles of fundamental analysis. A “bottom up” approach de-emphasizes the significance of economic and market cycles and instead focuses on the analysis of individual companies (stocks). This approach assumes that individual companies can perform well despite being in an industry that is not performing well. Proponents of this strategy might try to identify undervalued stocks by focusing on companies with low price-earnings and/or market-to-book ratios.

“Top down” investing involves careful analysis of a region’s economic health before considering a sector to invest in. Proponents of this approach determine what industries or sectors will return well based on overall economic conditions, then buy stocks that are attractive within that industry.

While both hold merit, you are probably better off using a combination of each approach. Often, the most compelling investment opportunities possess both positive external (macro and industry) and internal fundamentals. So relax, keep your “top down” and we say “bottoms up” to your investment future.

Put it to Us?

A friend of mine recently told me that securities (stocks, bonds) are held “in street name.” What does this mean and why are securities held this way?

– Steve Hamilton; Halifax, Nova Scotia

A. In almost every instance, when you buy or sell securities with a broker, your name is not actually represented on the stock or bond certificate. The name that is represented on the certificate is that of your broker. Typically, the broker doesn’t even hold the physical certificates, they hold them in electronic form, in a large series of computers. This occurs for many different reasons; however, here are the two main ones: convenience and safety.

Convenience – It is much more practical for a broker to carry securities in their name as they can be easily and readily transferred between parties. If they were held in your own name, every time you needed to sell, the broker would have to find the exact stocks you own and deliver them to the buying party, who would then have to send the stocks back to the company to have the name changed on the certificates into their own names.

Safety – If brokers were to hold the physical securities, there would be a possibility of physical damage, loss, and theft of the certificates.

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