Just when you thought the sordid affair of Nortel Networks couldn’t get any goofier, along comes a fund manager to put a novel spin on the story by going to bat for this disgraced company on national TV.
The fund manager is Tera Capital’s Duncan Stewart, one of Canada’s best- known technology fund managers. Stewart is manager of the Dynamic Canadian Technology Fund which, incidentally, counts Nortel as one of its heaviest weightings, about four per cent.
Stewart was a guest on Report On Business TV’s Market Call program recently, just as stock in Nortel was tanking mightily.
Jittery shareholders were bailing on concerns over yet another delay in the company’s financial reporting and fears the stock may eventually be delisted from both the Toronto and New York Stock exchanges if the company does not file its 2003 annual report by Dec. 15.
The company also dropped another bombshell in the laps of shareholders, admitting it overstated revenue by $3.1 billion US in 1999 and 2000 when John Roth was CEO.
Based on the troubles at Nortel, the stock is now being treated like a speculative investment in many circles. Ross Healy, the CEO of Strategic Analysis Corp. who cautioned investors about Nortel during its wild heyday when the stock was trading over $100, recently characterized Nortel as “a pure and utter speculation.”
But Stewart, whose Dynamic Canadian Technology fund was down 18.8 per cent for the six months through Oct. 31, largely on Nortel’s freefall, referred to Nortel (TSX:NT) on Market Call “as the cheapest telecom manufacturer for sale today” and said he was “leaning more toward the buy.”
Host Jim O’Connell was also leaning and almost fell out of his chair.
Later in the program, O’Connell told Stewart he’d received some e-mails from viewers who were wondering why he held Nortel in his fund at a time when he was also alleging that Nortel CEO Bill Owens had “no credibility.”
In describing its investment philosophy on its website, Tera Capital (www.teracap.com) lists “quality management” ahead of other investment criteria.
Stewart responded to O’Connell by referring to Owens, the former U.S. navy admiral, as a “figurehead” who salutes employees.
“But he runs the company,” said O’Connell, rolling his eyes.
“No, he doesn’t, not really,” said Stewart, appearing flustered. In further defending his position, Stewart noted that Nortel “makes interesting products” and “is worth something.”
Yeah, and so is my electric typewriter.
Perhaps, “worth something” could be incorporated into the analyst rating system on Wall Street, something to fill the gap between hold and sell.
Of course, what Nortel is worth, with the company still unable to produce financial results for the past three years, facing investigations by the SEC as well as a criminal investigation by the RCMP and a potential barrage of lawsuits, is a mystery.
Yet, according to Zacks Investment Research, 26 analysts still cover Nortel, the blind man’s bluff of investing. Imagine that. They not only continue to cover a company that, at this juncture, is virtually impossible to cover but some are also recommending it as a buy.
Seven analysts still rate Nortel a buy while only two rate it a sell. The average rating is hold.
Meanwhile, on ROB-TV, Stewart continued to talk up Nortel stock, saying he believed the “odds” of Nortel going up 100 per cent are greater than the odds of it going down 100 per cent.
And, to that he added: “Obviously, mathematically, it can’t go down more than 100 per cent.”
Now, there’s a brilliant deduction.
Say, Duncan, maybe you can lend your calculator to Nortel’s accounting department. Obviously, they need some help with the numbers over there.
* NO MORE LOONIE JOKES, PLEASE: Calgary fund manager Randy Oliver believes the surging loonie could essentially trade places with the U.S. dollar in terms of exchange rates within 10 years.
“This would blow people’s minds away, but I think the Canadian dollar may be at $1.25 to the U.S. dollar on the positive side,” says the CEO of Hesperian Capital Management.
That would represent almost a 50-per-cent increase to the 83-cent range the loonie recently traded at versus the U.S. dollar.
“If I go back 100 years ago, Wilfrid Laurier (former prime minister) spoke at the Canadian Club and said the 19th century was America’s century and the 20th century would be Canada’s century,” says Oliver, who manages the Norrep series of funds. “Well, I think he was wrong by a hundred years. When you look at China and India, they have something like eight million square miles of land and two billion people, and they’re running short of resources.”
“And Canada has seven million square miles of real estate, 30 million people and we’ve hardly touched our resources. We’re going to love being hewers of wood and drawers of water, despite having rejected that image for the past hundred years.
“As long as we can do it effectively and be environmentally sensitive, I think it’s going to be a fabulous period for us.”
Oliver believes the U.S. is on a dangerous economic course.
“Their economy is being penalized horrendously by their weak currency and huge debt. There are things they can do to improve the situation but you have to be willing to make choices and they don’t seem to be willing to make those choices. They just want to trudge ahead without thinking of the consequences.”
* COMIC RELIEF: “I think the former Iraqi information minister is running the company.”
– A Nortel chatboard humourist.
* SAGE WORDS: “It’s tough being on top. It’s lonely there. If you want to be the best, you can’t be best friends with everybody.”
– Chris Evert, former tennis star.
HOT STOCK: Linear Gold Corp.
TSX:LRR $8.51
Up 3.51 (+70.2%) on 4.7 million shares (for week ending Nov. 19).
Strike up the mariachi band! Linear stockholders were in a mood for a fiesta after the company announced more encouraging exploration results from its Mexican gold property at Chiapas. The Halifax company said the results were indicative of a world-class discovery. Since May, shares in Linear have bolted from 81 cents for nearly a 10-fold leap. The stock has also benefited from a 16-year high in the price of gold, which surged to $446 US per ounce.
COLD STOCK: Zi Corp.
TSX:ZIC $3.28
Down $1.12 (-25.5%) on 467,900 shares (for week ending Nov. 19)
A fickle tech market didn’t take kindly to Zi in the aftermath of fourth-quarter results that showed substantial gains from the year-ago period. The Calgary wireless company reported a profit of $725,000 US (two cents per share) compared to a $261,000 loss (one cent per share) in the year-ago period. The selloff continued even after the company announced it had entered the gaming industry with its text-input technology being utilized in the Gizmondo handheld console.
(Gyle Konotopetz can be reached at gyle@businessedge.ca)
