Much Anticipated – Long Overdue

Market Buzz – Seacliff Proves to be Another KeyStone Winner – Bought out at
$17.14, up 114%!

The much anticipated and long overdue (in our opinion) sell-off continuedthis week as the S&P/TSX Composite hit new 14-week lows at one point, before recovering somewhat, Friday to close down just over 4% on the week.

In the US, The Dow Jones industrial average rose 125 points by the close on Friday, after falling below 10,000 in morning trading.

The volatility comes after major indexes entered “correction” mode, having dropped more than 10% from their 2010 highs set last month. The gains on Friday technically pulled the Dow back out of correction territory and left it down 9% from its peak. The volatility stems in part from worries about how Europe is handling its debt crisis.

Fear will continue to rule the day as the markets are uncertain as to their next move.

But from fear comes opportunity. We expect these opportunities to present
themselves in the form of good companies that have or will sell-off in
sympathy with the broader market and present great long-term entry points. In fact, we have a number of companies on our radar screen at the moment and are looking for appropriate entry points over the coming months.

However, all was not negative this past week. We are happy to report that one of our top selections from 2009, Seacliff Construction Corp. (SDC:TSX), announced it was being bought out in an all-friendly takeover.

Early Monday morning, Vancouver-based Seacliff announced that The Churchill Corporation and Seacliff had entered into an arrangement agreement whereby Churchill will acquire, pursuant to an arrangement under the Business Corporations Act, all of the issued and outstanding common shares of Seacliff for total cash consideration, on a fully diluted basis, of approximately $390 million, which includes approximately $10 million of indebtedness. Under the terms of the arrangement, Seacliff shareholders will receive $17.14 in cash for each Seacliff common share.

Seacliff was recommended to our clients in April 2009, when the stock traded at $8.00. The takeover price represents a tremendous gain of over 114% (excluding dividends) in one year’s time.

Seacliff is one of the largest and most diversified construction companies
in Western Canada providing general contracting construction services and
electrical contracting services to a wide array of clients in both the
public and private sectors, including government agencies, municipalities,
corporations, property managers and developers.The much anticipated and long overdue (in our opinion) sell-off continued this week as the S&P/TSX Composite hit new 14-week lows at one point, before recovering somewhat, Friday to close down just over 4% on the week.

In the US, The Dow Jones industrial average rose 125 points by the close on Friday, after falling below 10,000 in morning trading.

Fear will continue to rule the day as the markets are uncertain as to their next move.

But from fear comes opportunity. We expect these opportunities to present themselves in the form of good companies that have or will sell-off in sympathy with the broader market and present great long-term entry points. In fact, we have a number of companies on our radar screen at the moment and are looking for appropriate entry points over the coming months.

Seacliff was recommended to our clients in April 2009, when the stock traded at $8.00. The takeover price represents a tremendous gain of over 114% (excluding dividends) in one year’s time.

Looniversity – Insider Trading

In the markets, there are two types of insider trading: legal and illegal. Because it’s no fun hearing about what you can do, let’s talk about what you can’t. Essentially, this is the buying or selling of a security by insiders who possess material, non-public information about the security. The act puts insiders in breach of a fiduciary duty or other relationship of trust and confidence.

A common misconception is that only directors and upper management can be convicted of insider trading. However, anybody who has material and non-public information can commit insider trading. This means that almost everybody can be considered an insider, including brokers, family, friends, employees, and yes, even you.

Having said this, there is an important thing to distinguish here: insiders don’t always have their hands tied. In fact, insiders can and do buy and sell stock in their own companies all the time, but they are restricted as to when they can execute their buy and sell orders.

In terms of legal trading, the OSC considers insiders to be company directors, officials, or any individual with a 10% or more stake in the company. Canadian company insider trading statistics can be found on the web at www.stockwatch.com (subscription), while U.S. company data is available for free on Yahoo! Finance.

Put it to Us?

Q. What do I do when a “disaster” befalls a stock I own?

– Erika Bernard; Toronto, Ontario

A. Through the course of normal business operations, companies can be stricken by extraordinary events-natural disasters, product recalls, andspecific product liability suits, for example. The common response of investors to such events is to sell without taking a rational look at what has really happened. This forces stock prices down-often significantly-in a short period of time.

When confronted by this type of reactionary selling, investors need to look past the noise and address a singular issue: Are the fundamentals of the company different than they were before the event? If the answer is no, meaning there is no indication that the company will be unable to generate earnings and operate in the same manner as it has been, there is no reason to sell. In fact, the fall in price may represent an opportunity to buy more of the stock at a discount. However, if management negligence led to the disaster, or if the earnings-generating potential of the firm has been impaired, the prudent move might be to sell.

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