(Every week, Business Edge columnist Gyle Konotopetz profiles the top three stock picks of one of Canada’s most accomplished investment pros.)

FEATURED PRO: Wayne Deans is a co-founder and partner with Vancouver-based Deans Knight Capital Management and manages two mutual funds – the Northwest Specialty Equity Fund and the TDK Resource Fund.

Deans relies on 25 years of investment experience to focus on building portfolios of small emerging companies with distinct competitive advantages and growing market share.

Fund Form: The Northwest Specialty Equity Fund has a one-year return of 44.6 per cent compared to the group average of 14.0 per cent and the TDK Resource Fund has a one-year return of 43.6 per cent (group average 24.2%).

Wayne Deans

Management Expense Ratios (MER): Northwest Fund, 2.67 per cent; TDK, 2.50 per cent.

Web watch: www.deansknight.com

Deans’ Perspective: “The market is real expensive. Real Expensive. Real Expensive. We’re very wary of what is going on (in terms of equity valuations) and we’re warning our clients that things are getting a little bit on the expensive side. I would expect rates of return on the portfolio to trend down a bit going forward because we’ve been going pretty strong with an increase of about 30 per cent per annum for the past three years consecutively.

“Let’s look at some ‘dogs’ that are cheap. I don’t know if they’re going to go up in the next three or four months but at least they’re cheaper than other stocks.”



FIRST STAR
* Canfor Corporation (CFP-TSX)
* Recent Price: $9.49.
* 52-Week Range: $7.09-$10.95.
* Snapshot: Canfor is an integrated forest products company that produces pulp, paper, lumber and wood-fibre products and has pulp sales offices in Canada, Europe and Japan.
* CEO: David Emerson.
* Head Office: Vancouver (6,290 employees).
* Vital Stats: Revenue (last 12 mos), $2.0 billion; 5-Yr Revenue Growth, 4.8%; Earnings/Loss (last 12 mos), $30.7 million Loss; Market Cap, $777.17 million; Shares Outstanding, 81.16 million; Dividend Yield, 2.7%.
* Deans’ View: “Forest products stocks have basically done nothing because of the softwood lumber dispute with the Americans and there’s the feeling that at some point the United States housing market will be in a bit of a bubble. That’s all very true but these stocks are relatively cheap in terms of their book values.
“Our view is that there will ultimately be a consolidation trend within the Canadian forest products industry to drive the cost structures down. I’ve got a funny feeling that Canfor may be a beneficiary of that process, either as a candidate to be taken out or as an acquirer themselves.”
* Web watch: www.canfor.com



SECOND STAR
* Petrobank Energy & Resources (PBG-TSX)
* Recent Price: $2.94.
* 52-Week Range: $2.11-$4.45.
* Snapshot: Petrobank is an oil and gas company focused on properties in Western Canada and Colombia.
* CEO: John Wright.
* Head Office: Calgary (16 employees).
* Vital Stats: Current Price/Earnings Ratio, 12.0; Revenue (last 12 mos), $46.7 million; 5-Yr Revenue Growth, 28.7%; Earnings (last 12 mos), $7.4 million; Market Cap, $134.04 million; Shares Outstanding, 45.59 million.
* Deans’ View: “Petrobank has had some technical difficulties drilling in Colombia but our view is that a lot of those problems have been solved and are largely behind them. The stock is cheap relative to some of the oil stocks, which are getting more expensive on balance as a group.”
* Web Watch: www.petrobank.com



THIRD STAR
* Exco Technologies (XTC-TSX)
* Recent Price: $6.80.
* 52-Week Range: $5.63-$7.64.
* Snapshot: Exco’s technologies are utilized in the die-cast, extrusion and automotive industries. Their moulds are used for transmission housings in the auto industry.
* CEO: Brian Robbins.
* Head Office: Markham, Ont. (1,900 employees).
* Vital Stats: Price/Earnings Ratio, 8.5; Revenue (last 12 mos), $226.0 million; 5-Yr Revenue Growth, 15.7%; Earnings (last 12 mos), $17.5 million; 5-Yr Earnings Growth, 9.1%; Market Cap, $272.93 million; Shares Outstanding, 40.14 million; Dividend Yield, 0.2%.
* Deans’ View: “This stock has languished and is a bit of a sleeper. What drives their growth is not so much overall auto sales but changing models which drives the demand for new moulds for transmission housings. They sell to most of the auto manufacturers, primarily the Big Three.
“There’s a lot of talk about the difficulties being experienced by the major auto makers that have been offering massive incentives to try to keep sales going. Sales have been a bit soft, particularly for North American auto makers. So that’s basically rubbed off on Exco, but it’s relatively cheap on a price-to-book (value) basis. Earnings, I believe, will start to accelerate over the next few years as the auto makers introduce new six-speed automatic transmissions and things like that that require new tooling.”
* Web watch: www.excocorp.com

Deans’ Edge Record
(2 yrs): 79.0%. Best Pick: Cinram International
(CRW-TSX) 542.9%. Worst Pick: Velan (VLN-TSX) -28.5%.
Disclosure: The featured stocks are held in the funds managed by Deans.