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

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Ian Nakamoto of Toronto-based Bonham & Co. (www.bonham.com), portfolio manager of the Bonham Canadian Equity Fund. The fund’s investment objective is to provide long-term capital growth with a focus on medium and large corporations.

Nakamoto’s Current Strategy: “I probably have the most broadly diversified portfolio I’ve had in 10 years and it’s by design because I don’t know where the economy is going. I have some cyclicals (in the Canadian Equity Fund) like Magna International and Canadian National Railway. I also own very conservative companies like Enbridge and TransCanada PipeLines. I’m looking at companies with relatively low valuations. My top three picks are all economically sensitive companies, but I particularly like them because of their competitive advantages. I could be wrong if we get into a major recession, but I was careful in terms of price-to-book valuations. If I’m wrong, I think I’ll be maybe 15 per cent wrong. If I’m right, they could be 20 to 30 per cent up.”

FIRST STAR:

* Fairmont Hotels and Resorts (FHR-TSE).
* Recent Price: $33.48.
* Year Range: $20.49-$40.
* Snapshot: Fairmont is a hotel management company operating in Canada, the U.S., Mexico, Bermuda and Barbados.
* CEO: William Fatt.
* Head Office: Toronto.
* Vital Stats: Current Price/Earnings Ratio, 2.26; Revenue (2000), $831.6 million; Earnings (2000), $143.4 million; Market Cap, $2.68 billion; Shares Outstanding, 80.1 million.
* Nakamoto’s Comment: “They have locations of hotels and resorts that are not duplicatable. In other words, there’s a competitive advantage. It’s impossible to replicate hotels in locations like Lake Louise, Banff and Whistler. They also have a strong balance sheet so, in an economic downturn which we’re obviously in now, they have the wherewithall to buy properties in North America that are distressed.”
* Nakamoto’s Risk Rating: Low.
* Web watch: www.fairmont.com

SECOND STAR:

* Magna International (MG.A-TSE)
* Recent Price: $98.08.
* Year Range: $57.40-$106.25.
* Snapshot: Magna designs, develops and manufactures automotive systems, assemblies and components. The company also engineers and assembles complete vehicles, primarily for sale to original equipment manufacturers of cars and light trucks in North America, South America, Mexico and Europe.
* CEO: Donald Walker.
* Head Office: Aurora, Ont. (61,711 employees).
* Vital Stats: Current Price/Earnings Ratio, 9.6; Revenue (last 12 mos), $16.6 billion; 5-yr Revenue Growth, 18%; Earnings (last 12 mos), $970 million; 5-yr Earnings Growth, 6%; Market Cap, $8.04 billion; Shares Outstanding, 81.9 million; Dividend Yield, 2.2%.
* Nakamoto’s Comment: “Having a strong balance sheet will keep Magna in good stead and it’s obviously a buyer’s market. I don’t think anyone would argue that Magna is one of the world’s leaders in the auto parts business. Look at the contract they’ve landed with the likes of Daimler Chrysler and they’ve won a whole bunch of contracts with GM for new rollouts of product lines for the next few years. The OEMs (original equipment manufacturers) have lost market share to the likes of the Japanese and the only way they can regain market share is to introduce new products and that means more out-sourcing potential to the likes of Magna.”
* Nakamoto’s Risk Rating: Low.
* Web watch: www.magnaint.com

THIRD STAR

* Domtar Inc. (DTC-TSE)
* Recent Price: $14.40.
* Year Range: $11-$16.46.
* Snapshot: Domtar is a North American manufacturer of pulp and forest products, fine paper and packaging. It is also a major eastern Canadian lumber producer.
* CEO: Raymond Royer.
* Head Office: Montreal (8,232 employees).
* Vital Stats: Price/Earnings Ratio, 12.3; Revenue (last 12 mos), $3.8 billion; 5-yr Revenue Growth, 13.2%; Earnings (last 12 mos), $252 million; 5-yr Revenue Growth, 19.5%; Market Cap, $3.26 billion; Shares Outstanding, 226.1 million; Dividend Yield, 1%.
* Nakamoto’s Comment: “I like the management with Mr. (Raymond) Royer as CEO. His background is Bombardier, so he has a management discipline, financial discipline and skill set to run a relatively large company. They recently made an acquisition in the U.S. of four paper mills from Georgia Pacific. By all accounts, they bought those assets at about 40 cents on the dollar. Georgia Pacific was forced to sell because they had too much debt. This catapults Domtar in the fine paper market from No. 8, I believe, to No. 2 or 3. They’ll have a bigger clout to sell to bigger companies out there.”
* Nakamoto’s Risk Rating: Low.
* Web watch: www.domtar.com

* Disclosure: Nakamoto says he does not personally own any of the individual stocks. All three are in the Bonham Canadian Equity Fund (approximate weighting – Magna 3%, Fairmont 2%, Domtar 2%).