(Business Edge columnist Gyle Konotopetz regularly profiles the top stock picks of some of Canada’s most accomplished investment pros.)
FEATURED PRO: Fred Pynn is vice-president of Calgary-based Bissett Investment Management (www.franklintempleton.com/bissett). Fund Form: Pynn manages the Bissett Canadian Equity Fund, which has a three-year annualized return of 2.6 per cent compared to the group average of -1.1 per cent. Management Expense Ratio (MER), 2.46 per cent.
Pynn’s Perspective: “The economy is doing well and corporate profits are doing well, but we think that’s all reflected in the market. We see upside in the market, but the upside is fairly limited. Our target for the TSX (index) for 2004 was 9,000 (recently 8,788). If corporate profits continue to be very strong and interest rates remain modest, maybe you could put a 9,200 or 9,400 (2004) target. We’re cautioning people that there could be some corrections along the way.”
* Nexen Inc. (NXY-TSX)
* Recent Price: $51.50.
* 52-week Range: $28.26-$53.35.
* Snapshot: Nexen is an energy and chemicals company with oil and gas operations in North and South America, the North Sea, Yemen, Nigeria, Australia and southeast Asia as well as the Alberta oilsands. The company also supplies bleaching agents to the pulp and paper industry.
* CEO: Charlie Fischer.
* Head Office: Calgary (2,875 employees).
* Vital Stats: Current Price/Earnings Ratio, 8.4; Revenue (last 12 mos), $3.5 billion; 5-Yr Revenue Growth, 20 per cent; Earnings (last 12 mos), $639 million; Market Cap, $6.36 billion; Shares Outstanding, 123.52 million; Dividend Yield, 0.70 per cent.
* Pynn’s View: “This stock got beaten up a little bit because of the situation where companies are writing their reserves down (under new regulations). We think it was overdone and we think they still have a very active exploration program that has a good chance of success going forward.
“The stock is relatively inexpensive compared to some of its peers and with this company you’re also getting the added prospect of high-impact international exploration. The stock has also gone down because they’ve had two dry holes, but that’s part of the deal when you’re doing high-impact wells. I think they’re going to get their fair share of successes.”
* Pynn’s Risk Rating: Medium.
* Web watch: www.nexeninc.com
* Dorel Industries (DII.B-TSX)
* Recent Price: $45.60.
* 52-Week Range: $33.29-$46.69.
* Snapshot: Dorel is a manufacturer of children’s products such as strollers and furniture. The company recently acquired Pacific Cycle, the maker of Schwinn bicycles, for $310 million US.
* CEO: Martin Schwartz.
* Head Office: Montreal (3,600 employees).
* Vital Stats: Current Price/Earnings Ratio, 14.9; Revenue (last 12 mos), $1.5 billion; 5-Yr Revenue Growth, 15.9 per cent; Earnings (last 12 mos), $96.6 million; 5-Yr Earnings Growth, 24.2 per cent; Market Cap, $1.22 billion; Shares Outstanding, 26.86 million.
* Pynn’s View: “I think their purchase of the Schwinn
bicycle brand name (from Pacific Cycle) should fit in very well with their existing business line. As the Schwinn acquisition is ramped up, we’re looking for healthy earnings-per-share growth, which could be 20 per cent in 2004.
“In a market where there are a lot of expensive stocks, we think this is very attractively valued. It’s a high-risk stock because the company does have a lot of debt as a result of taking over Schwinn. If the economy was to tail off here and consumers pulled back on their spending, this would have a direct impact on Dorel.”
* Pynn’s Risk Rating: High.
* Web watch: www.dorel.com
* Rothmans (ROC-TSX)
* Recent Price: $32.99.
* 52-Week Range: $21.90-$33.40.
* Snapshot: Rothmans is a holding company that
produces and sells tobacco products through its 60-per-cent-owned subsidiary, Rothmans Benson & Hedges Inc.
* CEO: John Barnett.
* Head Office: Don Mills, Ont. (931 employees).
* Vital Stats: Current Price/Earnings Ratio, 12.4; Revenue (last 12 mos), $589.6 million; 5-Yr Revenue Growth, two per cent; Earnings (last 12 mos), $89.1 million; 5-Yr Earnings Growth, seven per cent; Market Cap, $1.1 billion; Shares Outstanding, 33.61 million; Dividend, 5.30 per cent.
* Pynn’s View: “Rothmans is a distant second in the (Canadian) premium cigarette price category, but they have more than 50 per cent of the roll-your-own market and they’re now the market share leader in the discount market with their Number 7 brand.
“There are challenges in the industry with big hikes in taxes and there also appear to be problems again with smuggling and marketing of counterfeit products, but the company remains very profitable. The short-term catalyst is that they just announced very good (financial) results. They have $5 (per share) cash in hand and no debt, so we’re expecting that there could be a very significant special dividend of $4 or $5 per share (above the regular dividend). That isn’t factored into the share price.
“The basic business is very low risk, but there’s always the risk of litigation (with tobacco companies). I would say the litigation risk in Canada is extremely low.”
* Pynn’s Risk Rating: Medium.
* Web watch: www.rothmansinc.com
Pynn’s EDGE Record (since Oct./2001): +30.8 per cent. Best Pick: Alimentation Couche-Tard (ATD.B-TSX) +87.6 per cent. Worst Pick: Biovail (BVF-TSX) -36.2 per cent.
Disclosure: Pynn may own shares in the Bissett Canadian Equity Fund in which the Featured stocks are held.