Some time ago I was in Barrie to do research on materials I needed for an upcoming court case.I found a couple of technical magazines and got two different lists of the fastest growing companies over the last five years.I have used them to be added to other companies-companies that have already been listed on the T.S.X .I have found that if you take the ten fastest growing companies in the last year only one or maybe two will last another two or three years.So if they don't accept my offer to sell their shares at a reasonable price they may not survive.My offer gives them a much better chance of thriving in five years as well as some cash.
A spree of buying
About three months ago I bought a bunch of shares for three or four "small cap" companies listed on the T.S.X.These companies acquiring shares included Tecsys,Heroux-Devtek,Mediagrif,and Tucows.All rose on the original purchases but only ones that gained real synergies will stay at these levels.This does however force the acquiring company to look at new ways of doing business.Some like Heroux-Devtek will have new and useful resources.Others not as much.Changes will continue until the right mix of new companies goes with the companies acquiring them.
Five hot junior stocks
My last list of five young companies all showed growth rates of 25% to 300% annual growth.Logistec was given new resources in the north and will get more.It's stock price has benefited from the new resources and additional attention it has received.Construction Control has been added at first to the almost stagnant Intrinsyc Software as has Evoco.But this was only a move to show that they "are in play".Both companies have very high annual growth rates and will have to make asjustments.The adjustments have already started. However now their shares have been moved largely to Tecsys which is a far better fit.Tecsys should be able to give some useful advice on growing and eventually getting listed.Another of these five new ones is Vixs Systems.I arranged for Mediagrif to get some equity in order to get them more "seed money".I am not sure what happened to this relationship but now Vixs has been listed and has moved up in price just like Logistec.It is likely that Mediagrif still has a small stake here yet.The last company on my list is called Global Relay and it has not been "in play" yet but it will be.I have seen no news on it recently but I think it may fit with Intrinsyc Software after Tucows has purchased another tranche of shares of Intrinsyc. send comments on consulting advice on "small cap" companies to workathon
Friday 31 January 2014
Sunday 19 January 2014
Earnings season (part4)
R.E.I.T.s are a relatively new phenomenon that are listed on the T.S.X.They are an accumulation of capital,both debt and equity,that primarily invest in real estate.They trade on their substantial dividends as well as on earnings.Most offer at least a 5%dividend.This year it is expected that interest rates may rise and that tends to bring the price per share for R.E.I.T.s down.But it is contended that interest rates will not be that big a factor in 2014.The Bank of Canada does not seem ready to raise interest rates yet as growth is expected to be at an anemic 2 to 2.4% growth.Bond yields may rise by 25% but the rate on the 10 year Canadian bonds is only at 2.55%.A 25% increase brings the yields to only around 3%.Some marginal investment may move to Canadian bonds but this should not affect R.E.I.T.s that offer a 5% or greater dividend.Especially if earnings are increasing by 20%or more.
Kinds of R.E.I.T.s
There are three main kinds of R.E.I.Ts:reits for hotels,reits for shopping centres and reits for apartment building complexes.There are others but these are the main ones.The dividend rate is almost always higher than for other stocks.Many substantial companies offer dividends like Extendicare and Riocan at 5.6%to 6.83%.The reits for senior residence like Chartwell and Extendicare are expected to have only slight increases in earnings.Other apartment building based reits should have larger gains in earnings.Interrent ,for example,is expecting a 30% increase in earnings. Reits that supply hotel accomodations may not do so well this year.But there is a breakdown;those that offer luxury accomodations wil see small increases in earnings whereas those like Innvest that offer more modest accomodations could see good gains.The prices of reits is harder to predict as it will depend on the movement of the T.S.X.
Winners
I am again picking juniors as those that should have the largest percentage increases.I also like stocks with low price/earnings ratios.So I pick here BTB trust,Innvest,Interrent,Partners Investment units and Artis.All have low price /earnings ratios and most offer dividends above 7%.A 3 % bond yield shouldn't affect these stocks in a substantial way.
Kinds of R.E.I.T.s
There are three main kinds of R.E.I.Ts:reits for hotels,reits for shopping centres and reits for apartment building complexes.There are others but these are the main ones.The dividend rate is almost always higher than for other stocks.Many substantial companies offer dividends like Extendicare and Riocan at 5.6%to 6.83%.The reits for senior residence like Chartwell and Extendicare are expected to have only slight increases in earnings.Other apartment building based reits should have larger gains in earnings.Interrent ,for example,is expecting a 30% increase in earnings. Reits that supply hotel accomodations may not do so well this year.But there is a breakdown;those that offer luxury accomodations wil see small increases in earnings whereas those like Innvest that offer more modest accomodations could see good gains.The prices of reits is harder to predict as it will depend on the movement of the T.S.X.
Winners
I am again picking juniors as those that should have the largest percentage increases.I also like stocks with low price/earnings ratios.So I pick here BTB trust,Innvest,Interrent,Partners Investment units and Artis.All have low price /earnings ratios and most offer dividends above 7%.A 3 % bond yield shouldn't affect these stocks in a substantial way.
Tuesday 14 January 2014
Earnings season (part3)
The shape of the business cycle has been determined;it will be like most of the business cycles since the 1970's.It will probably be a "u" shaped cycle and there will likely be two or more years of low growth before we have a downturn.The growth rate is probably going to be less than 2013 as we approach the top of the"u" curve.But what will be the likely winners?I turn to the teachings of another mentor Irene Spry who got her Ph.D from the university of Toronto.She was apparently a friend of the economist Harold Innis.Mr.Innis's theory was called the staple theory.It stated that the manufacturing and financial industry were built from the profits of staples.This I believe will be just such a year.Growth will come mainly from the staples.I predict a good year for the lumber,coal,natural gas and uranium sectors.Other winners will come from outperformers in sectors with average growth.As I believe this year will have economic growth less than 2013.Investment will not see significant growth;there will be investment for some innovation and for replacement of outdated equipment.There will not likely be a boom in investment.Exports and export earnings will be helped by the falling dollar that may hit $.88 relative to the American dollar.
Winners
The trend for new technology companies in U.S.A. will continue this year.Expect Twitter,Facebook and even Microsoft to move up.There may be one or two winners in this field in Canada but they will come from juniors.Large percentage increases can be expected from juniors like Vixs,Tucows,and maybe Mediagrif.I also expect Cameco,Ur-Energy,and Denison Mines to show increases in the uranium sector.New nuclear plants are coming onstream and old ones refurbished,This includes refurbishing in Ontario also.Natural gas is expected to rise and some LNG exports will help here.This will affect companies such as Peyto,Pengrowth,Birchcliffe and even Perpetual Energy.Air Canada is considered a "wild card".Its' new equipment and stable airline ticket prices may carry it higher.The agreement with Chorus will help Chorus and keep their ticket prices stable also.This indicates that traffic may be up in 2014.Lumber spot prices have moved up in 2013 and should continue in2014.Yet it is clear that the housing boom has peaked in Canada and U.S.A but not in Japan nor China.Look for Interfor,Western Forest and Ainsworth Lumber to show good percentage increases this year.Overall there will not be large increases in demand nor revenues so the emphasis will be on reducing costs to increase profits.
Winners
The trend for new technology companies in U.S.A. will continue this year.Expect Twitter,Facebook and even Microsoft to move up.There may be one or two winners in this field in Canada but they will come from juniors.Large percentage increases can be expected from juniors like Vixs,Tucows,and maybe Mediagrif.I also expect Cameco,Ur-Energy,and Denison Mines to show increases in the uranium sector.New nuclear plants are coming onstream and old ones refurbished,This includes refurbishing in Ontario also.Natural gas is expected to rise and some LNG exports will help here.This will affect companies such as Peyto,Pengrowth,Birchcliffe and even Perpetual Energy.Air Canada is considered a "wild card".Its' new equipment and stable airline ticket prices may carry it higher.The agreement with Chorus will help Chorus and keep their ticket prices stable also.This indicates that traffic may be up in 2014.Lumber spot prices have moved up in 2013 and should continue in2014.Yet it is clear that the housing boom has peaked in Canada and U.S.A but not in Japan nor China.Look for Interfor,Western Forest and Ainsworth Lumber to show good percentage increases this year.Overall there will not be large increases in demand nor revenues so the emphasis will be on reducing costs to increase profits.
Monday 13 January 2014
Earnings season(part2)
When I was studying business cycles at the University of Ottawa my mentor was O.J. Firestone;he was a former deputy minister of Industry,Trade and Commerce.He stressed the importance of good data.However today it is hard to get good data.For example,the Bank of Canada gives forecasts of economic growth and constantly revises them.I have seen forecasts of 2%and 2.4% and now annual growth may come in closer to 3% for 2013.Forecasts are again at 2.4% for 2014.However I suspect that final growth figures may end up at closer to 2%.This is what happens in a "u" shaped cycle.The economic growth starts to gradually reduce as the effect of the dampening takes hold.
Dampened growth
Dampened growth occurs for two reasons;first the excess government spending does raise demand and prevents economic growth from becoming dramatically negative.The curve is rounded or softened.However on the other hand large government taxes reduce disposable income so the economy does not get as large increases in income and spending.The income accelerator affect has been reduced.Lower incomes will not get the large reductions like before and higher income households will not get the large increases like before.This is especially true in Ontario which has the G.S.T tax,the P.S.T tax as well as a $10 to $15 billion deficit.Consumers have less to spend even in a "boom" year.This has an overall drag effect on the Canadian economy as Ontario is about 40% of total Canadian output and income.
Offsets
Using the"u" shape of the business cycle as a predictor of economic growth and earnings would make it look like another tepid year for the stock market and for earnings.However one offset is that the value of the Canadian dollar(relative to the American dollar) is down to almost $.91 now and may fall to $.88 by some estimates.This will help to increase exports and export earnings.Secondly the stock market has traded in a narrow range between 11,500 and 13,500 for about two years.So even 2% growth in the economy may be enough for it to finally break out of this trading zone.However it is unlikely that earnings and the stock market will fall as we are still contained in the steadiness of the "u " cycle.send coments to workathon for business advice
Dampened growth
Dampened growth occurs for two reasons;first the excess government spending does raise demand and prevents economic growth from becoming dramatically negative.The curve is rounded or softened.However on the other hand large government taxes reduce disposable income so the economy does not get as large increases in income and spending.The income accelerator affect has been reduced.Lower incomes will not get the large reductions like before and higher income households will not get the large increases like before.This is especially true in Ontario which has the G.S.T tax,the P.S.T tax as well as a $10 to $15 billion deficit.Consumers have less to spend even in a "boom" year.This has an overall drag effect on the Canadian economy as Ontario is about 40% of total Canadian output and income.
Offsets
Using the"u" shape of the business cycle as a predictor of economic growth and earnings would make it look like another tepid year for the stock market and for earnings.However one offset is that the value of the Canadian dollar(relative to the American dollar) is down to almost $.91 now and may fall to $.88 by some estimates.This will help to increase exports and export earnings.Secondly the stock market has traded in a narrow range between 11,500 and 13,500 for about two years.So even 2% growth in the economy may be enough for it to finally break out of this trading zone.However it is unlikely that earnings and the stock market will fall as we are still contained in the steadiness of the "u " cycle.send coments to workathon for business advice
Sunday 12 January 2014
Earnings season(part1)
When I was doing my graduate work at University of Ottawa my major was business cycles.Later when I was in Cambridge I wrote articles for the Cambridge Reporter and the Kitchener Record.I got all my statistics from Wilfrid Laurier University to back up my story.My story was that the business cycle had changed from it's usual pattern and shape.Cycles from 1930 to 1970 had been traditionally four years in length and shaped like a "v".Production and income went down from 15% to 30% and came back 40 to 50%.The business cycle was necessary to overall economic growth;it brought with it a change in inventory and new equipment.
The "u" cycle
Governments started to adopt Keynsian economics.By increasing the money supply in various ways including buying government bonds to inflate the books of the commercial banks there was more money in the hands of bank customers.Loans would increase and consumers would spend more.Aggregate demand would increase.This increased production for consumers' increased demand and incomes grew.This actually lengthened the upwards part of the business cycle and stretched into a "u" shape.Previous business cycles had increases in income in the upward part of the cycle of 5,6, and7%.Now growth was reduced to 3,4 and sometimes 2.5%.No more growth rates of 6 and 7 % and no more recessions.Or at least recessions were dampened now.
Today's business cycle
The upwards part of this business cycle started in 2009 when the downwards part of the "v" or "u" was reached.Economic growth has been positive since 2009.But we are not getting growth of 5% or even 4% we are getting growth of 2 and 2.5%.This is because the economic growth has been dampened by government spending.This year is expected to have economic growth of 2 to 2.5 % and in coming years will likely reduce to 1% in the future.
The earnings season
The stock market is a leading indicator so that it's values lead the values of economic growth and income.The stock market was up 9% this year and might indicate that growth would be up by at least by 5% but in this dampened environment it will be only 2 to 2.5%.Earnings will on average only be up slightly for manufacturing and technology and the commodity-based sector will lag.There will be a few large increases as always but the investor must be careful as this is going to be only an average earnings season;we are not going to get 5or even 4%growth.
The "u" cycle
Governments started to adopt Keynsian economics.By increasing the money supply in various ways including buying government bonds to inflate the books of the commercial banks there was more money in the hands of bank customers.Loans would increase and consumers would spend more.Aggregate demand would increase.This increased production for consumers' increased demand and incomes grew.This actually lengthened the upwards part of the business cycle and stretched into a "u" shape.Previous business cycles had increases in income in the upward part of the cycle of 5,6, and7%.Now growth was reduced to 3,4 and sometimes 2.5%.No more growth rates of 6 and 7 % and no more recessions.Or at least recessions were dampened now.
Today's business cycle
The upwards part of this business cycle started in 2009 when the downwards part of the "v" or "u" was reached.Economic growth has been positive since 2009.But we are not getting growth of 5% or even 4% we are getting growth of 2 and 2.5%.This is because the economic growth has been dampened by government spending.This year is expected to have economic growth of 2 to 2.5 % and in coming years will likely reduce to 1% in the future.
The earnings season
The stock market is a leading indicator so that it's values lead the values of economic growth and income.The stock market was up 9% this year and might indicate that growth would be up by at least by 5% but in this dampened environment it will be only 2 to 2.5%.Earnings will on average only be up slightly for manufacturing and technology and the commodity-based sector will lag.There will be a few large increases as always but the investor must be careful as this is going to be only an average earnings season;we are not going to get 5or even 4%growth.
Sunday 5 January 2014
changes in the uranium industry
The turning point in the health of the uranium industry was the Fukishima nuclear accident in Japan.There, of course, had been previous accidents but the press coverage was quite a bit larger in Japan.Suddenly there was a blanket over the uranium industry and the price of nuclear fuel took a nosedive.The price had been hovering around $70 and moved fairly quickly down to around $40 to $45 a pound.This affected the health of the entire industry.Production of uranium went down as the price fell.
Consolidation
A lot of small companies had to curb production because of lack of buyers.Revenues started to drop for many small producers.Gradually some of these juniors started to buy up each other.Consolidation was taking place.This happened particularly in the Athabasca Basin in Alberta.There were small claims and only one mill in the area to process raw uranium.There were one and now two mills in the U.S.A.
A company called Mega Uranium has been adept at acquiring small companies in the basin and recently bought a chunk of shares in Bayswater and Toro Energy(Australia).Energy Fuels bought a chunk of shares in Mega and Denison bought Rockgate Capital outright.
There are only two processing plants in U.S.A;Energy Fuels has one and now there is a new one in Wyoming owned by Ur-Energy.Cameco has a mill in Canada and there is a new joint venture in Mclean Lake.
Small producers
Many small producers are not in production at all.Yet they are starting to see the value of their resource go up.Now producers can buy other "small cap" stocks by transferring parcels of land or by all share deals.There are less cash deals around.These deals also have conditions on expenditure on developing lands they buy.Many deals have a royalty fee attached to the price of uranium.As the price of uranium goes up the royalty goes up.This saddles small companies with payments over quite a few years.Then they become targets for larger companies themselves.
Catalysts
These changes in the industry have come about because of the 33% drop in price in a short period of time.Also other countries have followed the Japanese lead.Germany has plans to mothball up to seven nuclear reactors.France, in contrast,has built a couple of new reactors.There have been a couple of small American and Canadian utilities that are in need of new uranium and made purchases .Japan will likely go back to nuclear plants in the future largely because of economics.Both China and India intend to use nuclear plants but have built few plants.Nevertheless both countries will have to stockpile uranium soon before
plants are built.Overall demand will likely increase slowly from foreign plants but North America may see increases in demand.The price of coal is up 25% since August and natural gas is up about 33%.Alternative sources of energy cost more now and will not drop much this winter.
Price is an indicator
All uranium stock prices have moved up since August and even since October.Cameco has moved from $18 a share to around $22.This increases market capitalization by at least $1.5 billion.It seems that investors are counting on the price of uranium to move further ahead in the coming months.
Consolidation
A lot of small companies had to curb production because of lack of buyers.Revenues started to drop for many small producers.Gradually some of these juniors started to buy up each other.Consolidation was taking place.This happened particularly in the Athabasca Basin in Alberta.There were small claims and only one mill in the area to process raw uranium.There were one and now two mills in the U.S.A.
A company called Mega Uranium has been adept at acquiring small companies in the basin and recently bought a chunk of shares in Bayswater and Toro Energy(Australia).Energy Fuels bought a chunk of shares in Mega and Denison bought Rockgate Capital outright.
There are only two processing plants in U.S.A;Energy Fuels has one and now there is a new one in Wyoming owned by Ur-Energy.Cameco has a mill in Canada and there is a new joint venture in Mclean Lake.
Small producers
Many small producers are not in production at all.Yet they are starting to see the value of their resource go up.Now producers can buy other "small cap" stocks by transferring parcels of land or by all share deals.There are less cash deals around.These deals also have conditions on expenditure on developing lands they buy.Many deals have a royalty fee attached to the price of uranium.As the price of uranium goes up the royalty goes up.This saddles small companies with payments over quite a few years.Then they become targets for larger companies themselves.
Catalysts
These changes in the industry have come about because of the 33% drop in price in a short period of time.Also other countries have followed the Japanese lead.Germany has plans to mothball up to seven nuclear reactors.France, in contrast,has built a couple of new reactors.There have been a couple of small American and Canadian utilities that are in need of new uranium and made purchases .Japan will likely go back to nuclear plants in the future largely because of economics.Both China and India intend to use nuclear plants but have built few plants.Nevertheless both countries will have to stockpile uranium soon before
Price is an indicator
All uranium stock prices have moved up since August and even since October.Cameco has moved from $18 a share to around $22.This increases market capitalization by at least $1.5 billion.It seems that investors are counting on the price of uranium to move further ahead in the coming months.
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