Payday

Market Buzz – Payday for Shareholders of this Aussies Cash Provider

Toronto’s main index kicked off the second quarter with a solid showing this Thursday, as new manufacturing data helped support the prospects for a continuing economic recovery. For the day, the S&P/TSX composite index climbed 108 points, or 0.9 per cent, to 12,146 – levels not seen in 18 months, giving it a fourth weekly gain in five.

For the week, shortened because of the Good Friday holiday, the TSX was up about 1.6 per cent.

The Institute for Supply Management said its U.S. manufacturing index for March came in at 59.6, better than the 57.5 reading that had been expected.

Other manufacturing surveys for the eurozone, Britain, and China also outperformed expectations. In the case of the eurozone, manufacturing activity was at a 40 month high in March. The reports suggested international trade was on the mend and contributed to a growing belief the global economy can avoid slipping back into recession.

That being said, we caution the sustainability of the numbers given the fact that each of these economies have been injected with steroids over the past year, primarily in the form of government stimulus and record-low interest rates. The question now becomes whether or not these numbers will level off or even weaken again when the boost is removed. With mortgage rates rising at some banks this past week and stimulus spending set to wind down over the summer in some segments, we will soon find out.

In Canada, for example, propping up the economy has been a $46-billion stimulus and the central bank has taken overnight rates to practically zero, which can lead to some misleading numbers near term.

For instance, broadly speaking, across the great white north, we see a red-hot housing market in the face of high unemployment and job uncertainty. These statistics run contrary to one another. Apparently, the low rates have been “just good to pass up.” But, will rate increases quickly lead to demand destruction? If the increases are sharp enough, that scenario is likely.

One place where we have seen excellent demand through the recession and into the “recovery” is in the pay-day loan market. The growth, which we have very successfully benefited from through our recommendation of The Cash Store Financial Service Inc. (CSF:TSX) – shares have more than doubled for our clients over the past nine months, has not strictly been seen in Canada.

In fact, another recommendation from our Small-Cap Universe (www.keystocks.com), The Cash Store Australia Holdings Inc. (AUC:TSX-V), has also benefited greatly.

With roots that date back to a single location launched in June 2004, The Cash Store Australia Holdings Inc. is a payday advance broker (44 locations), operating as an alternative to traditional banks throughout Australia, serving the needs of everyday people through its banner “The Cash Store.” The Cash Store acts as a payday advance broker on behalf of income earning consumers seeking short-term advances with a third party lender; without having to provide credit history or security on the loan, which is generally required by commercial lending institutions.

Recently, the company announced that its revenue for its second quarter ended December 31, 2009, rose 370.4 per cent to $2.7 million, up from $574,000 in the same quarter last year. Year-to- date, revenue was $4.5 million compared to $1.1 million in the first six months of fiscal 2009.

Net income for the second quarter was $16,000, or $0.00 per share, compared to a net loss of ($507,000), or ($0.03) per share, for the same quarter last year. For the six month period, the net loss was ($178,000), or ($0.01) per share, compared to ($702,000), or ($0.05) per share, in the same period last year.

We are happy to report that the company’s shares have jumped over 200 per cent in the last eight months.

Looniversity – Over-the-Counter (OTC) Stocks

Contrary to popular belief, over-the-counter stocks are not a generic set of stocks that securities regulators allow Joe and Jane Q. Public to purchase without a prescription from their broker.

No, over-the counter stocks is the name commonly given to companies that trade on a decentralized market (as opposed to an exchange market – TSX or NYSE) where geographically dispersed dealers are linked by telephones and computer screens. The market is for securities not listed on a stock or bond exchange. The NASDAQ market is an OTC market for U.S. stocks.

Typically though, investors associate OTC stocks with the OTC Bulletin Board (OTC-BB). The OTC-BB is a quotation medium for subscribing members. OTC-BB securities are traded by a community of Market Makers that enter quotes and trade reports through a highly sophisticated, closed computer network, which is accessed through Nasdaq Workstation II™. The OTC-BB is unlike The Nasdaq Stock Market in that it:

•           Does not impose listing standards.
•           Does not provide automated trade executions.
•           Does not maintain relationships with quoted issuers.
•           Does not have the same obligations for Market Makers.

Put it to Us?

Q. As a contrarian, all this talk about “socially responsible investing” in recent years has got me thinking that, while it may be good for my conscience to invest this way, in terms of returns, it might be better to look at “sin stocks.” What do you think?

– Shirley Sterling; Montreal, Quebec

A. Well, we hate to say it, but you may be right. Industries that lure us with “naughty” temptations can offer a good place to park a portion of your portfolio. First of all, these companies provide relatively stable returns to investors, both in good times and bad. As the old saying goes, “What do you do to celebrate good times? Drink, smoke, gamble, and have sex.” And, what do you do during stressful and recessionary times? “Drink, smoke, gamble, and have sex.” The returns provided by the companies related to these activities are often less prone to the cyclical downturns of the economy.

So-called “sin stocks” are generally those companies which are involved in the gambling, alcohol, tobacco, sex, and defense industries. Outside of the numbers, your choice to invest in these stocks will come down to personal beliefs and preferences.

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