If the Canadian Venture Exchange (CDNX) is taken over by the Toronto Stock Exchange as anticipated, some rednecked westerners will no doubt be measuring Bill Hess’s neck for a noose.
We think that if these misguided souls took a long, hard look at recent trading volume on the CDNX, they’ll cut Hess, president and chief executive of the junior exchange, some slack.
The bottom line?
The CDNX has a credibility problem which translates into market illiquidity. Most sophisticated investors don’t even have the CDNX on their radar screen, a fact that hasn’t escaped the savvy Hess.
Some issues go weeks without a single trade.
A marriage with Canada’s major exchange, which would operate the CDNX as a separate exchange, could only enhance the image of the CDNX.
When investors were impaired by tech fever a year ago, all seemed rosy on the CDNX.
In February of 2000, average daily volume on the CDNX was 114 million shares for a total average daily value of $163.4 million. The new exchange was being trumpeted in some circles as Nasdaq North.
Last month, there were sobering numbers in a climate of investor sobriety. Average daily volume was 41.3 million, down 63.8 per cent, for average daily value of $19.7 million, a decrease of 87.9.
The average number of February daily transactions has plummeted by 78.7 per cent in the past year — from 38,185 to 8,142.
There is no assurance the TSE’s influence would impact liquidity on the CDNX, but many investors, companies and member firms agree that the worst thing the CDNX could do is nothing.
The concern is that junior CDNX companies wouldn’t get their specific needs met due to the eastern influence, but isn’t it worth the risk if the CDNX’s profile and image could get a makeover by the TSE?
The CDNX is also virtually ignored by the national media. Eastern-biased Report On Business TV doesn’t even include the junior exchange’s numbers on its standing ticker and rarely does interviews with executives from CDNX companies.
The CDNX, which was created in November 1999 with a merger of the Alberta Stock Exchange and the Vancouver Stock Exchange, still suffers from a nasty double hangover — the Bre-X gold scam (Bre-X initially traded on the Alberta Exchange) that did irreparable damage to the mining industry, and the Vancouver Exchange’s shady reputation as the Vegas Exchange.
A takeover by the TSE could only help distance the CDNX from those memories. The burning question here is how the heck the TSE’s notorious computer system would handle the extra load.
PRO'S THREE STARS
Patrick Slater, portfolio manager with Calgary-based QVGD Investors Inc., isn’t pining for home runs. He’s choking up on his investment bat.
“I rarely swing for the fences,” says Slater. “I love to hit singles and doubles, which I define as 10 to 20 per cent and 20 to 33 per cent rates of return respectively. Capital preservation is as important as capital appreciation, especially in today’s markets.”
Slater covets a trio of TSE companies — Russel Metals (RUS), Stantec Inc. (STN) and Silent Witness Enterprises (SWE).
Russel is a steel distribution and trading business that had a recent price of $3.20 and a year range of $2.70-$4.95. Slater’s target is $4.50 “with a reasonable shot at $5 or more.”
Russel also pays a dividend of more than six per cent.
Stantec (recent price, $15.05, year range, $12.05-$16) is an engineering services firm with a long-term record of profitability and a price-earnings ratio of less than 10. Slater’s target is $18.
Silent Witness (recent price, $9.40, year range, $7-$13.20) gets a target of $14 to $15 from Slater.
The company manufactures digital cameras and “is starting to attract attention from major international OEMs (original equipment manufacturers).”
TRADING TIP
One of biggest mistakes of unseasoned investors is an inability to resist the temptation of buying on news even if they’re aware of the buy-on-rumour, sell-on-news theory.
More often than not a stock will run up in anticipation of the news and, in the current investing climate, good news is being ignored.
SITE OF THE WEEK
www.cnbc.com
If you follow the U.S. markets, you’ll find tons of research material here and top-pick features by star analysts that include links so you can do your own research.
HOT STOCK: Nycan Energy
NYE-TSE $1.63
Up 38 cents (+30.4%) on 234,900 shares (for week ending March 23).
Nycan’s stock rallied on strong volume after the Calgary-based oil and gas company announced record financials for 2000 and then followed that up with news that it had a prospective buyer and was retaining Yorkton Securities for advice.
Nycan is an Alberta producer that boosted production by 46 per cent in 2000 from its previous year.
COLD STOCK: Westlinks Resources
WLX-CDNX $5.00
Down 90 cents (-15.3%) on 3,400 shares (for week ending March 23).
Westlinks dipped to its year low on low volume and no news, but it’s still up five-fold from early last year when it traded in the $1 range. The Calgary-based junior oil-and-gas company's business is focused in Western Canada. The company also began trading on Nasdaq's small-cap market under the symbol WLKS in January.
