About three weeks ago, giddy Nortel investors were fitting fearless stock forecaster Ross Healy for a straitjacket.
As a guest on Report On Business TV’s Market Call program, Healy, president of Strategic Analysis Corporation, was asked if he was revising his $25 target on Nortel Networks, which was then trading in the $45 range on the Toronto Stock Exchange.
Healy stunned viewers by promptly sacking Nortel with an $18 target, which seemed absurd — until the stock recently crashed to the $30 range when the company dropped a bombshell of earnings warnings in the laps of investors.
“Yup, they wrote me off as a nut,” Healy tells the Edge on the phone from his Toronto office. “I’ve been getting hate e-mail from investors, ya know. Some guy called me a specious jerk. We exchanged a few e-mails and eventually he came around and was quite cordial.”
The feisty money manager is one of a few experts who have been throwing out red flags during the past year over the company whose investors have seen $50 billion shaved from the value of their shares in the selloff of the past two weeks.
Asked if he has recommended the stock to his clients during the past year when it has traded as high as $125, Healy snorted: “Good God, no! I was terrified for their mortal lives! Back in July and August (when Nortel was the darling of Bay Street, trading over $100), I was saying the downside was $25.”
Nortel’s reputation and that of John Roth, its CEO, have been dragged in the mud since Feb. 15 when the fibre-optics giant reduced its forecast for 2001 operating growth to 10 per cent from 30 per cent and also forecast losses for the current quarter.
“I don’t know if Nortel would replace Roth,” says Healy. “It would be a terrible black eye for the company to fire the the guy who was man of the year two months ago. But let’s suppose out of the wild blue they called and said: ‘Ross, we would like you to take over the company because you’re a level-headed guy and a realist.’
“But I can’t imagine anyone taking the job of cleaning up those books. You’ve already got Hiroshima, the bombing of the stock price. Then you follow with Nagasaki with the bombing of the balance sheet. I think they’ll stick with Roth.”
Although we acknowledge Nortel, a Traders’ Edge buy at $31 a week ago, may be dead money for a spell, we think Healy’s $18 target on the TSE is too pessimistic.
The day Nortel hits $18, we’ll literally eat these words with perogies and sour cream.
PRO'S THREE STARS
Ross Healy figures it might be a good time for investors to hide in a bomb shelter. His bullet-proof vest is made of gold, oil and gas.
He picks Barrick Gold (ABX-TSE), the bellwether of gold stocks, at its recent price of $23.71, giving it a 12-month target of $40. Barrick’s year range is $18.70-$29.45. He also covets Alberta Energy Corporation (AEC-TSE) and Canadian Natural Resources (CNQ-TSE).
Alberta Energy had a recent price of $68.25 (year range, $37.75-$72.15) and Canadian Natural Resources recently traded at $45.25 (year range, $29.85-$56.20).
“These stocks are a good counterweight against any market weakness,” says Healy.
“Gold’s cheap, and, historically, when the U.S. markets are down, golds begin to move. I like the (oil and gas) fundamentals. It’s difficult to find any oils I don’t like.”
TRADING TIP
Are you suffering from red eye? Dizziness? Confusion? Scrambled-brain syndrome? You may be overcome by the obsession to retrieve hundreds of quotes a day, which can jeopardize your ability to make rational decisions.
It may be a good idea to limit the number of stocks you track and the number of quotes you call up (see next week’s column for a more in-depth look at a quotaholic).
SITE OF THE WEEK
Marketplayer.com
This site offers tons of market insights and analysis, although its focus is on U.S. stocks.
Its stock-screening service offers specialized lists such as the Warren Buffett Stable Growth Screen and the Ridiculously High Valuation Screen.
There are also stock-market games.
HOT STOCK: PFB Corporation
PFB $4.10
Up $1.10 (+35.5%) on 32,800 shares (for week ending Feb. 23).
This plastics manufacturer provides insulation products and is also proving to be good insulation in a scary stock market. It popped on its release of earnings that showed $9 million in overall earnings for 2000, which was nearly triple the $3,360,000 for the previous year. The Calgary-based company, which operates a plastic foam business across Canada, also showed a profit of $2,317,000, or 41 cents per share, for 2000. It also announced it will be paying out a total dividend of 90 cents per common share.
COLD STOCK: Axia NetMedia
AXX $2.02
Down .98 (-32.7%) on 715,900 shares (for week ending Feb. 23)
Axia is one of the companies that will provide the foundation for Alberta’s Supernet high-speed broadband network, but it has been anything but a super stock. With tech stocks tanking, it wasn't easy to stand out in the crowd, but this Calgary company did just that. Adding insult to injury was a grim earnings report for Axia's latest quarter, showing losses of $5.6 million (18 cents a share) and revenue growth of only four per cent ($16.8 million).
