This week’s column is brought to you by the letter S. For Sell. We spent the week scouring the stock pages for sell recommendations.
As we missed our deadline in our exhaustive search for the letter S, for sell, you may never get to read this.
But we figure that since we invested approximately 86 hours to unearth the S word, we’d write about it anyway.
The inspiration for this exercise was, of course, my pal Bre-Xer.
“Forget it,” my pal Bre-Xer had scoffed when the S word reared its ugly head.
“You’ll never do it. Even Cell-Loc didn’t have a sell recommendation during its nosedive to oblivion. It’s a strong buy! Nortel has about a million strong-buy recommendations. If you find a sell, I’ll buy the stock. If you don’t, you have to buy it.”
“I don’t like the deal, but you’re on,” I advised my pal.
So my pal is the proud owner of not one stock, but two stocks carrying heavy baggage — the S word.
Judging by the buy mania in the industry, we have to wonder if those two brave analysts — we have yet to unearth them — have been disciplined with the F word — for fired!
As this was not a scientific survey, we only surveyed stocks beginning with the letter A on the Toronto Stock Exchange, using ratings on a scale of five — strong buys, moderate buys, holds, moderate sells, strong sells — provided by E*Trade Canada.
Of 129 ratings, there were actually two sells — a strong sell on Alcan Aluminum (which also had six strong buys, six moderate buys and two holds) and a moderate sell on Ainsworth Lumber (which had no other ratings).
We send our condolences to these companies.
Of the other 127 ratings, there were 101 buys (strong and moderate) or 78 per cent and 26 holds or 20 per cent.
The numbers jive with those of a major investment firm, First Call in Boston, which has buys on 70 per cent of 26,000 recommendations and sells on one per cent, with the remaining 28 per cent holds.
This bullishness, of course, doesn’t make sense in a stormy market in which numerous stocks in various sectors have been tanking.
With a backlash from angry investors, many of whom were loading up on Nortel stock before its 70 per cent drop in recent months, the Investment Dealers Association of Canada has appointed an Analyst Standards Committee to deal with issues such as a rating system that has investors seeing analysts (medical analysts), confusing recommendation terms and disclosure by analysts of their company’s positions and association with companies they cover.
Unless the committee emerges with a buy recommendation, it should be a worthy undertaking.
PRO'S THREE STARS
Randy Ollenberger, Canadian energy director at Calgary’s Merrill Lynch office, has strong buys on three local oil-and-gas powerhouses.
While many oil-and-gas analysts have been leaning towards companies with strong exposure to natural gas recently, Ollenberger is leaning towards oil-weighted companies.
His picks are Suncor Energy (SU-TSE), Husky Energy (HSE-TSE) and Gulf Canada Resources (GOU-TSE).
“Suncor is a unique investment opportunity as it has very little reserve replacement risk and the ability to double production every five years,” says Ollenberger, who has a $44 target on the stock.
Suncor had a recent price of $35.35 and a year trading range of $27.25-$39.80. Husky had a recent price of $14.50 (range, $10.15-$17.80) while Gulf was at $7.85 (range, $4.41-$9.20).
Merrill Lynch defines a strong buy as a company with an upside of more than 20 per cent.
Its other ratings are accumulate (10 to 20 per cent upside), neutral (10 per cent range above and below the price), reduce (-10 per cent to -20 per cent downside) and sell (-20 per cent or greater downside).
TRADING TIP:
Mom was right when she said, “better safe than sorry.”
In other words, in an uncertain market dogged by dire economic forecasts, high-risk plays such as techs should be limited in any portfolio, particularly one with a low risk-tolerance.
Site of the Week: Tse.com
The bland Toronto Stock Exchange site doesn’t get a great review here, but it does offer a simulated investment challenge worth $3,500 where one can play in the street without getting hit by a truck.
The site also offers investment education, including a glossary of terms.
HOT STOCK: RANCHERO ENERGY REY-TSE $1.60 Up .34 (+27%) on 196,300 shares. It wasn't so long ago that a debt-riddled Ranchero was in the market for a blindfold and a cigarette. Now, the Calgary operation is one of the comeback kids of the junior oil-and-gas companies. Less than a year ago, the stock was trading as low as 45 cents, but now it's rallying near its year high on strong volume, even without news on its prospects in northwestern Alberta.
COLD STOCK: LOON ENERGY LEY-CDNX $.09 Down .04 (-31%) on 20,000 shares
Investors, smarting from some spectacular wrecks in recent months on the Canadian Venture Exchange, have become wary of most stocks on the small-cap exchange, particularly penny stocks. Calgary-based Loon, which hasn't had any updates from its Swan Hills and Beaverhill Lake oil-and-gas prospects in four months, is down 50 per cent from its year high.
