Market Buzz – Value Investing and the Bargain Hunter

Posted by Ryan Irvine - Keystone Financial

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Market BuzzJobs Data Paints Picture of a Fragile Recovery

This past week, Toronto’s main index closed the holiday shortened week up 0.7 per cent as gold stocks moved higher after a resurgence concern about the strength of the North American economy and the sustainability of the recovery.

The major economic news on Friday was focused squarely where it should be for once – directly jobs or the lack thereof. Statistics Canada said the economy shed 139,000 full-time jobs in July and unemployment rose for the first time in nearly a year. Though part-time jobs grew almost as much, the net loss was still a greater than expected 9,300 jobs.

Unemployment crept up 0.1 per cent to 8 per cent last month, raising fears Canada’s remarkable recovery may have stalled. Stepping back a bit, from a Canadian perspective, after one of the strongest quarters on record for Canadian job gains (Q1 2010), the labour market was due for a cool down.

South of the border, the U.S. Labor Department said the news was not much better as U.S. non-farm payrolls fell by 131,000 last month, more than twice economists’ projections. The department also revised its June data downward to 221,000 job losses from the previously reported 125,000 loss.

For its part, the U.S. unemployment rate remained steady at 9.5 per cent, though many fear that may be due to more discouraged workers leaving the workforce.

Broadly speaking, the job numbers confirm what we have been saying for some time now, the global recovery remains fragile.

Looking ahead to next week, we expect a flurry of earnings releases from our Canadian Small-Cap Universe ( and updated reports and ratings in light of the results.

Of note, we expect our top pick from January 2010, Fortress Paper Ltd. (FTP:TSX), to report its second quarter financial results for the period ended June 30th, 2010, after the close of the market on Monday, August 9th, 2010. In connection with the release of its results, Fortress Paper will host a conference call Tuesday, August 10th, 2010 at 9:30 a.m. (PST) to discuss the financial results and the corporation’s operations.

Shares in Fortress Paper, which KeyStone Financial upgraded to a Focus BUY in January of this year at $11.01, have jumped 164 per cent to close at $29.05 in just seven short months.

LooniversityValue Investing and the Bargain Hunter

Dating back to the dirty 30s, value investing and looking for a bargain is one of the oldest ways to pick stocks. The concept is similar to shopping for the product that is most reasonably priced for its quality. Unfortunately, for value investors, they often take a back seat to emerging trends in the market. As the market moves through boom and bust periods, value stocks come in and out of favour.


A value company is one that is relatively cheap compared to its earnings and book value. In most cases, value stocks tend to outperform during bear markets and are therefore considered a defensive investment. Value stocks tend to have a low P/E ratio and their book value (or tangible assets) is much closer to the stock price. Value investing is founded on looking for companies with a solid history of earnings and sales, so there is less uncertainty about their operations or future performance.

Things to Remember:

  1. Value is relative. Manias exist from time to time, whether they are over tulips, gold, or Internet stocks. You usually only get a bargain when something is out of favour.
  2. Enormously under-valued stocks are usually that way for a reason – they stink. Be wary!
  3. Avoid investing in a stock that has significant uncertainty. It could go from a value stock to a bankruptcy stock faster than you think.
  4. Value stocks may take some time to prove their worth, sometimes over 15 years! Be patient.

Put it to Us?

Q. Ok, this may sound like a dumb question, but what is a stock?

– May Sandberg; Edmonton, Alberta

A. First off, May, like I always say, there are no stupid questions. A common stock is a security that represents your (as a shareholder) ownership stake within a particular company, subject to the right of preferred shareholders. Typically, a common share gives the holder the right to vote on the selection of management and directors and entitles him/her to a proportionate, but undefined, claim on company profits. Indeed, many established companies pay what are known as dividends (usually quarterly cash payments on a per share basis) out of earnings to common shareholders, subject to the discretion of the company’s Board of Directors.

Having said this, the vast majority of today’s investors purchase common shares because of their potential for capital appreciation.

For many years, common shareholders were issued a share certificate. Today, the certificates are in theory held by your brokerage.

Below are some of the rights and benefits of owning common shares:

  • The right to receive common share dividends paid by the company
  • Potential for capital appreciation (capital gains)
  • Voting privileges
  • Favourable tax treatment of dividend income and capital gains
  • Relatively liquid (common shares in most public companies can be sold within a reasonably short period of time)


KeyStone’s Latest Reports Section

Wireless Phone Retailer Posted Unexpectedly Strong Q2 Growth & Holds Solid Cash Position – Maintain Long-Term BUY Rating (Flash Update)
Micro-Cap Environmental Company Announces Expansion into Chinese Environmental Remediation Market – Company Remains Attractive with Cash Balance of $4.8 Million, No Debt, and Shares Trading at Less than 4 Times Earnings (Flash Update)
Alternative Financial Services Provider Posts Record Q4 and Fiscal 2010 Revenue & EPS, Aggressive Growth Plan Intact – Stock Rating Upgraded (Flash Update)
Junior Gold/Copper Producer Sees Shares Surge on Positive Mine Report & Strategic Debt Financing– Maintain Rating (Flash Update)
Canada’s Leading Industrial Services Firm Posts Solid Q2 – Rating Maintained (Flash Update)