In Canada, long ago, General Wolfe gazed up at the 170-foot-high cliff and then summoned the regimental economist.
"Give me your GDP growth forecast for this place," the general demanded.
The regimental economist replied that his conservative forecast was 1.5 per cent but his sighting of a pickup in trade could take it to 2.5 per cent.
"You people never get it right," the general sighed. "You know about as much as the market timers. But if the risk really is 2.5 per cent to the upside we should take this citadel. Scale the heights."
For me to stab at forecasting 2010 is as nonsensical as the above. I am almost purely a stock picker (oh, so pure). I would not scale a cliff for either one per cent or three per cent GDP growth. However, as a stock picker, I still scramble for winners even when we have scaled two-thirds of the heights attained across much of the Canadian stock market before the great crash started mid-2008. And, whatever the GDP, I have outlived Wolfe and Montcalm.
What is the order of battle right now in late-January 2010? Metals are still leading the great recovery in their biggest move since the Depression, and as the regimental clairvoyant, I see reinforcements on the cliff face. Example: a new technology phase; after years of dreaming we are now well into 3G and even probing the frontlines of 4G. There is even a potentially robust and revivalist 3D movement with its sights on your television and film-centre viewing.
Meanwhile, the obvious consumer tech giants continue strong - Google (GOOG-NASDAQ), Apple (AAPL-NASDAQ) and Research in Motion (RIM-TSX). Google is moving to capture more intellectual and commercial territory, though ready to abandon China on a principle. Apple, whether a wondrously futuristic designer or a delightful 1960s design throwback, stays uniquely successful along with Canada's
RIM, which still leads the charge of the e-mail devices.
No portfolio with tech content is worthy of battle without most of those giants, but my point right now is that many smaller Canadian tech pioneers have started to do well in 3G/4G crossover time. This is nicely outlined by Pardeep Sangha and Eric Chin, analysts with Pacific International, brokers based in Vancouver, on their return from CES, the big consumer electronics show in Vegas.
Our portfolios hold their DragonWave (DWI-TSX) and Sierra Wireless (SW -TSX), which are both prominent in the space. I also have Bridgewater Systems (BWC-TSX) and, I am glad to say, I increased my crushed Redknee Solutions (RKN-TSX) instead of succumbing in December to one of those often silly tax-relief sales.
We are not tech-crazy, but other tech stocks sprinkled around our accounts are RuggedCom (RCM-TSX), SXC Health Solutions (SXC-TSX), Celestica Inc. (CLS-TSX) and Absolute Software (ABT-TSX). Then there is IMAX Corp. (IMX-TSX), in a revival after several wars and making it into top-tier 3D-film releases, the latest being Avatar.
Our global closed-end fund, Canadian World Fund (CWF-TSX) holds a long-term major position in the easily accessed U.K. world leader in "intelligent" search technology, Autonomy (AU-LSE), one of the fund's biggest contributors to its 62.7 per cent NAV growth through 2009.
Another long-term tech holding doing well is thinly traded Logibec Groupe Informatique (LGI-TSX) in medical systems management in Canada and the U.S. And I am well pleased that CWF holds Baidu Inc. (BIDU-NASDAQ), which is the clear leader in Chinese search whatever the local status of Google.
It might be worth pointing out here that, while Canada always has minerals to dig for, it has few large-cap names. Communications technology and other technologies are new forms of greatness that bring employment, wealth and economic vigor in general and also help to dig us out of bear markets.
On hard assets, I expect these to stay wanted in 2010 and beyond. In Canada and internationally, materials-sector war chests are well funded again and the hum of exploration and development has revived. This is a big event. Our sole surviving big base metals company, Teck Resources Ltd. (TCK.B-TSX), is up strongly and still climbing. It is weighted toward coal right now, but copper and zinc are not to be counted out. I expect Teck to go higher. The company could eventually restore dividends.
Have you noticed that no one is complaining about control-protective A and B shares these days? I am actually dreaming of the day when major mining groups get reassembled in this resourceful country.
Sneaking up north for the moment to assess the biggest prospect around, I note that Alaska has softened its attitude to mining, and this is probably helping to warm up the shares of Northern Dynasty Minerals (NDM -TSX). The company and its giant shareholders and partners hope they are closer to the end of the long-term faceoff with environmentalists. For grandeur, with its 94 million ounces of gold, 72 billion pounds of copper and lots of molybdenum, nothing comes close, except perhaps Ivanhoe Mines (IVN-TSX) in Mongolia.
Written about in my last article, in the Dec. 11 issue, is Imperial Metals (III-TSX), up about 50 per cent since, having a well extended 4.12 per cent copper discovery suggestive of an underground mine below the Red Chris open-pit prospect in British Columbia. Real, listed base metals mines are quite rare in Canada these days, but I would add to the list the Sudbury Rim survivor FNX Mining Co., (FNX-TSX) which has newly announced discoveries along the Rim.
In gold, a number of high-grade domestic projects are on the scene. In the Timmins camp of Ontario, the main potential consolidator among smaller operators is Lakeshore Gold, (LSG-TSX), backed by Hochschild
Mining (HOC-LSE) of Peru. HOC also has a big investment in a developing high-grade mine in Mexico southeast of Acapulco. This is Gold Resource Corp., (GORO-OTC:BB), which Canadian World Fund also owns. Rubicon Minerals Corp. (RMX-TSX) is another high-grade operator which could follow other mines into consolidation in the historic Red Lake district of Ontario.
Stock-price appreciation is also well advanced in the lower-grade gold section while the gold price is high, like now. In this class, the gains are big, but risk gets higher. I include Osisko Mining (OSK-TSX), a revitalized junior now pushing well through 10 million ounces, Detour Gold Corp. (DGC-TSX). International Tower Hill Mines (ITH-TSX) has big backers for its so far 5.5 million-ounce low-grade Livengood resource in Alaska.
Over in the oils, I like foremost as a group the Bakken shale plays Crescent Point Energy (CPG-TSX), PetroBakken Energy Ltd. (PBN-TSX) and the early stage Legacy Oil Plus Gas Inc. (LEG-TSX). But, I now
note that, since the start to the year, the war rooms on Bay Street have shifted the horizontal drilling theme from shale to the vastness of the Cardium play under much of Alberta; hundreds of millions of dollars will be poured into producing light oil as well as gas. It is time to admit that the Canadian energy sector is far from fatigued.
In the quite thin Canadian big-cap market my current favourite might be Magna International (MG.A-TSX), the healthiest of the North American majors through the motor-industry troubles and no longer arm-wrestling with GM over its Opel and Vauxhall businesses in Europe. This presumes the sector will recover.
One more pick outside the resources sector I will give you right now is a Canadian class act not yet well recognised and that is the previously mentioned Alliance Grain Traders Inc. of Regina (AGT-TSX), where our quite newly crowned lentils king, Murad Al-Khatib, is fast expanding his Turko-Canadian empire, most recently with an intent to expand production by 15 per cent through the purchase of Parent Seed Farms of St. Joseph, Man.
TSX target
AGT last year absorbed a Turkey-based producer of pasta, rice and wheat products which had helped found Regina-based pulses processor and distributor a decade ago. Revenues are climbing toward $300 million a year and a payout of over 60 per cent of earnings provides a 1.79 per cent yield after a big advance in the stock. I think Mr. Al-Khatib will continue to scale the heights.
Concluding, I shall give you a S&P/TSX consensus-target gain for the 2010 year at an opening think-tank session at No. 10 Toronto St., now the headquarters of our management company Morgan Meighen & Associates. It is 13,048, which would represent an 11 per cent gain on 2009. At the extremes were our cautious resident Swiss, Alex Sulzer, with 12,400 and the dashing John Weatherall at the top - who denies serving under General Wolfe - with 14 per cent. I am strictly the regimental voyeur.
Further concluding, I know investors have been scaling up in equities everywhere, although none should be surprised to see another market leg down. Possible causes I do not know. I suspect the China factor is neither market maker nor breaker. Just keep a little space in your mind for testing the rationale of a communist and centrist state running a capitalist society. In Canada, I hope that what has been called a recession is just a pause. I want to keep on enjoying the climb.
The opinions expressed in this article are those of the author and may not necessarily reflect those of Morgan Meighen & Associates. This article is presented only as a general source of information and is not an offer to sell or a solicitation of an offer to buy any of the securities that may be mentioned or discussed in such articles, nor are they intended to provide legal or tax advice. Prospective investors of any security should review the offering documents relating to any investment carefully before making an investment decision and should consult their own professional advisor for advice based on their specific circumstances.
