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Market Summaries
S&P/TSX Composite up 1.40% to 12240 (up 4.20% year-to-date)
S&P/TSX Venture Composite up 0.02% to 1670 (up 14.30% ytd)
Dow Jones Industrial Avg up 1.70% to 11204 (up 7.40% ytd)
Nasdaq Composite up 2.00% to 2530 (up 11.50% ytd)
Oil (West Texas Intermediate) up $1.18 to $84.42 (up $5.06 ytd)
Gold (Spot USD/oz) up $18.92 to $1156.32 (up $59.37 ytd)
Spring/Summer trading strategy…
Following a 13 month-long rally that has seen the TSX rise over 60% and the S&P 500 over 80%, we have recommended our clients move away from all index-related investments. Most broad-based equity mutual funds and equity indexes have been shed as we hit a typically slow stretch in the equity markets. Based on performance, May, September and February have historically been the worst months for the TSX and after this sharp move higher on the indexes, it’s hard not to believe things are shaping up for another quiet period. While we are not in the “crash” camp, we are anticipating an index that has trouble moving materially higher and a market that provides investors with “opportunities” rather than the easy-money environment we have just experienced. Now that we have eclipsed the one-year anniversary of “the bottom,” companies will find it increasingly difficult to beat or even meet analyst expectations on upcoming earnings. As 2010 progresses, the weak data of 2009 that has acted as a catalyst for heroic earnings announcements will become a thing of the past. The year-over-year comparables will be off of data within the recovery will become increasingly hard to match or exceed.
Going forward, we are focusing on individual names that still possess significant value at current levels and decent downside protection. We will be picking up high-quality, income-paying common stocks and trusts while still looking for trade opportunities as different sectors “take turns” going on runs. Pulp and paper along with OSB-focused names are taking their turn in this trader’s haven, following the likes of copper, energy and gold which have all had recent runs. The Canadian financials moved early on in the rebound and have now traded sideways for a few quarters, and could be providing a nice entry point in the coming weeks.
Historically low interest rates and a lack of stock market euphoria probably signal we have yet to reach a market “top,” but we are preaching a more disciplined and selective approach rather than a blanket index buy at this stage.
Soundbites
- Pixar Canada, the Vancouver “offspring” of the California-based animation giant, will be up and running by early August. Pixar Canada GM Amir Nasrabadi says the firm already has 20 employees and plans to more than double that over the next 18 months. The company will initially set up shop in a 7000 sq ft space in Gastown but already has designs on a much larger space, with a 20,000-25,000 sq ft office in mind. The studio will make animation “shorts” using characters from a number of Pixar’s feature films, such as Buzz Lightyear and Woody from Toy Story, and Lightning McQueen and Matter from Cars.
- The already despised Harmonized Sales Tax (HST) tax, which most are dreading come July 1st – is ready to rear its ugly head a few months earlier. The majority of the public is unaware that a “pre-collection period” will begin May 1st, affecting any goods paid for after that date but not to be delivered until post June 30th. Any goods paid for prior to June 30th will be exempt, even if the delivery date falls after the HST’s full implementation. This will be a shock for those buying big ticket items such as annual membership dues, airline tickets or various season passes to sports or live entertainment.
- An oil rig immersed in flames sunk Thursday into the Gulf of Mexico, leaving 11 workers dead and sparking fears of an environmental disaster. The Deepwater Horizon rig burned for more than 36 hours after a massive explosion hit the rig late Tuesday night, sending fire balls high into the sky. The US Coast Guard kicked into high gear and managed to rescue 115 from the platform but 11 were unable to be located. Environmental agencies are working feverishly to get a grip on the situation due to the fact the platform had 2.6 million litres of diesel fuel on board and the semi-submersible platform was pumping 8000 barrels of oil per day at the time of the accident. The rig is owned by Transocean Ltd and had been contracted to oil giant BP.
Marketwatch – A Look at the Week’s Newsmakers
Apple Inc (APPL) – announced stellar Q2 earnings results on the back of surging iPhone and MacIntosh personal computer sales. Profits shot up 90% from the same period in ’09 to $3.07 billion USD on revenue of $13.5 billion. This caused Apple shares to surge to new all-time highs, closing Wednesday’s session at $259.22 USD. The outlook for Apple is just as rosy with extraordinary sales and early reviews for the new iPad, combined with increasing iPhone sales which appear to be cutting into RIM’s Blackberry marketshare.
Ballard Power Systems (BLD) – the Burnaby-based fuel-cell developer has agreed to sell its suburban headquarters in for $20.75 million to help free up cash to fund further development of its products. The buyer, Madison Pacific Properties, will lease back the 117,000 sq ft property to Ballard for the next 15 years, with options for two, five-year renewals. The company, which develops and manufacturers hydrogen fuel cells to power forklifts and backup electricity systems, has fought an uphill battle to get to profitability – something the firm intended to do years ago.
Teck Resources Ltd (TCK.B) – after hinting Wednesday that a dividend re-implementation may be back on the table, Teck did just that Thursday, committing $236 million annually to a dividend (or 20 cents a share). “The surplus cash is really starting to roll in now and, actually, we’re going to enjoy that for a while,” CEO Don Lindsay said on a conference call Wednesday. Going from being $10 billion in debt and facing possible bankruptcy to having “excess cash” in less than 24 months is astounding and has caused many of Lindsay’s critics to go very quiet. The company has repaired its beleaguered balance sheet and regained its investment-grade rating from three of four ratings agencies’ (with Moody’s expected to upgrade the company shortly). Teck paid out nearly a half a billion in dividends in 2008 before the commodity collapse put the firm in dire straits.
Goldman Sachs Group Inc (GS) – the young banker caught in the centre of the Goldman Sachs fraud is reportedly set to defend his actions this week before the Senate. Fabrice Tourre, who goes by the moniker “Fabulous Fab,” will testify alongside company CEO Lloyd Blankfein, if he shows. Tourre had agreed to testify before he was included in a slew of charges by the SEC and many close to the situation doubt he will show up. Legal experts doubt he will want to potentially implicate himself further or open up the opportunity for the SEC to use these testimony against him in future legal proceedings.
“Quote of the Day”
“The whole building is about to collapse anytime now. Only potential survivor, the “Fabulous Fab”…standing in the middle of all of these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!” – 31 year-old Goldman Sachs junior trader Fabrice Tourre in an email to co-workers
JAMIE SWITZER | Raymond James Ltd.
Senior Vice President, Financial Advisor
North Vancouver IAS
PH: 604.981.3355 | FAX: 604.981.3376
jamie.switzer@raymondjames.ca
MARC LATTA | Raymond James Ltd.
Senior Vice President, Financial Advisor
PH:604-981-3366 | FAX: 604.981.3376
marc.latta@raymondjames.ca
Suite 480, 171 West Esplanade
North Vancouver, British Columbia
This newsletter expresses the opinions of the writers, Marc Latta and Jamie Switzer, and not necessarily those of Raymond James Ltd. (RJL) Statistics and factual data and other information are from sources believed to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. It is not meant to provide legal, taxation, or account advice; as each situation is different, please seek advice based on your specific circumstance. RJL and its officers, directors, employees and their families may from time to time invest in the securities discussed in this newsletter. It is intended for distribution only in those jurisdictions where RJL is registered as a dealer in securities. Any distribution or dissemination of this newsletter in any other jurisdiction is strictly prohibited. This newsletter is not intended for nor should it be distributed to any person residing in the USA. Within the last 12 months, Raymond James Ltd. has undertaken an underwriting liability or has provided advice for a fee with respect to the securities of the Royal Bank of Canada. Raymond James Ltd is a member of the Canadian Investor Protection Fund.