The Globe and Mail asked 13 of Canada's best money minds to choose one investment they see soaring in 2012. Nicolas Johnson reports on their recommendations.
If you had to bet on only one stock for 2012, what would it be?
That's the question we put to 13 investment professionals and personal finance specialists across Canada in our 16th annual stock-picking contest. The contest is meant to explore what some of the country's smartest money minds are thinking about the year ahead.
Each contestant was asked to pick one stock, income trust, American depositary receipt or exchange-traded fund traded on a major exchange in Canada or the United States. The minimum market capitalization for Canadian securities was C$100 million; for US picks, US$1 billion.
The security that generates the highest percentage gain (based on total returns, including dividends and distributions, and converted into Canadian currency in the case of US picks) for the 2012 calendar year will be the winner.
The spoils to the victor? Eternal bragging rights.
For spectators, the payoff is in entertainment—and maybe, just maybe, some investing ideas. But a note of caution is in order: None of what is outlined here should be taken as advice to bet the house on any (or all) of our contestants' picks.
By its nature, a contest like this encourages competitors to swing for the fences with high-risk, high-reward picks. Selections like this tend to fare extremely well—or fizzle spectacularly.
Consider, for instance, Research In Motion (RIMM), the maker of the BlackBerry handset. Its stock slid 75% last year as product delays and increased competition darkened sentiment around the company.
Despite the cascade of bad news, two of our contestants—Steven Palmer, president and chief investment officer of AlphaNorth Asset Management in Toronto, and Malvin Spooner, president of Sienna Capital Management in Toronto—picked the smartphone maker on the grounds that things can't get much worse for the company or the stock.
With a price-to-earnings ratio of about 3, RIM is one of Canada's lowest-valued companies. Sentiment is so low that it would take only a little bit of good news to send the stock soaring.
"My philosophy has always been, when everyone has sold a stock, the only thing that can happen next is someone buys it," said Spooner, also a blogger at maverickinvestors.com. "What's the catalyst? I don't care!"
Benj Gallander, president of the Contra the Heard investment newsletter in Toronto, also picked a turnaround play—in his case, ATS Automation Tooling Systems (Toronto: ATA), in part as a recovery play.
Some of our contestants took a different tack and picked stocks they think are well positioned to ride upward trends. For instance, Sheryl Purdy, an investment advisor at Leede Financial Markets Inc. in Calgary, selected Poseidon Concepts (Toronto: PSN) because of the increasing demand from the oil and gas industry for the company's portable storage tanks.
"I am most bullish on [Poseidon Concepts] for the growth trajectory ahead," Purdy wrote in a note to clients. "The delightful bonus" is that it began paying a dividend, she said, so "this stock offers 'growth' and 'yield.' "
In picking New York-listed shares of ING Groep (ING), one of Europe's largest financial-services companies, Brian Pinchuk of Lorne Steinberg Wealth Management Inc. in Montreal was attracted to the company's management, attractive valuation and low risk to over-indebted countries.
"Despite the market turbulence, ING is well managed and highly profitable," Pinchuk said.
Note that participants may own or trade the securities they mention. We'll review the picks throughout the year. Here's the rundown:
ATS Automation Tooling Systems (Toronto: ATA)
Benj Gallander, president, Contra the Heard, Toronto
The maker of factory-automation systems climbed above $20 in the late 1990s. Then it was hit by problems and, most recently, the bankruptcy of its solar unit. The slowing economy has also weighed on operations.
The solar issue should be largely or completely resolved in 2012, and the company's record-high order backlog indicates that it is recovering.
Descartes Systems Group (Toronto: DSG)
Bob McWhirter, president and portfolio manager, Selective Asset Management Inc., Toronto
The maker of logistics software had record third-quarter results and good cash flow, and its significant demand backlog for some products suggests growth will continue.
The company's price-earnings multiple, return on equity and recurring revenue make it attractive. Analysts' one-year price target of $9 implies a potential gain of more than 20%.
Glacier Media (Toronto: GVC)
Tim McElvaine, president, McElvaine Investment Management Ltd., Victoria BC
The publisher of community newspapers has an owner mentality, with the board of directors holding about 30% of the shares.
The company generates significant free cash flow and has a high return on invested capital. Glacier Media trades below book value, has a forward price-to-earnings ratio of less than 10, and a respectable dividend yield.
David Sherlock, portfolio manager, McLean & Partners Wealth Management Ltd., Calgary
The oil refiner trades at a deep discount to both its historical valuation multiples and net asset value. Estimates for earnings per share have largely been discounted. The company will profit if West Texas Intermediate crude oil weakens relative to Brent.
HollyFrontier pays a modest dividend, and an analyst price target of $39 suggests a possible increase of more than 70%.
ING Groep (ING)
Brian Pinchuk, analyst, Lorne Steinberg Wealth Management Inc., Montreal
The Dutch financial-services company has proven well managed and highly profitable amid this year's market turbulence. Its exposure to Portugal, Ireland, Italy, Greece and Spain is relatively low.
Plans to reduce debt, cut costs and spin off assets will reduce its complexity and risk profile. ING will remain a top-tier financial-services company, and at 0.4 times tangible book value, it is compellingly cheap.
iShares Russell 2000 Growth Index Fund (IWO)
Peter Hodson, CEO, 5i Research and Editor, Canadian MoneySaver, Kitchener, Ontario
No one expects economic growth to accelerate or growth stocks to do well. But growth stocks are incredibly cheap, have huge beta in a rising market, and it would take only the slightest bit of good economic news to send them on a tear. If the market does well, this ETF could easily rise 30% or more.
The rest of the world is buying all bonds, all the time, and there may be a bubble. Management fees are low.
Magna International (Toronto: MG)
Gail Bebee, author of No Hype—The Straight Goods on Investing Your Money, Toronto
The supplier of auto parts has the capability to expand where markets are growing. The stock price is cheap relative to earnings and book value. The company no longer has the overhang of dual-class shares.
It has a decent dividend, low payout ratio, manageable debt and lots of cash. Sales and earnings per share are rising. Any positive earnings surprises should be well rewarded.
MI Developments (Toronto: MIM)
Jim Huang, president and portfolio manager, T.I.P. Wealth Manager Inc., Toronto
The real estate investment trust and landlord of Magna International aims to become a diversified industrial REIT. It has an under-leveraged balance sheet and potential to raise its dividend payout, improve its property mix and enhance share value.
With a current yield around 6.6%, it certainly pays to wait for the strategy to be executed. I expect the stock to reach $45 to $50 in the next 12 months.
Poseidon Concepts (Toronto: PSN)
Sheryl Purdy, vice-president and investment advisor, Leede Financial Markets Inc., Calgary
I am most bullish on the maker of swimming-pool-sized portable storage tanks for the oil and gas industry because of the growth trajectory ahead.
One year ago, they had manufactured 25 units. They expect to enter 2012 with 240 units and a 90% utilization rate. The bonus is that they have begun to pay a monthly dividend, so this stock offers growth and yield.
Retrocom Mid-Market Real Estate Investment Trust (Toronto: RMM.UN)
Yarith Chhiv, portfolio manager, Palos Management Inc., Montreal
This open-ended real-estate-investment trust is an attractive, sustainable, high-yielding dividend stock.
As income-oriented investors hold the shares for the payout, they benefit from the REIT's growth prospects and important support from SmartCentres, a developer and operator of shopping plazas.
SPDR S&P Regional Banking ETF (KRE)
Philip Pearlman, executive editor, StockTwits, Montebello, New York
Many readers will think it's crazy to suggest a financial ETF. At some point, though, banks will outperform again, and often it is when a sector is so disliked that it finally bottoms out.
I like the regional banks ETF because many of the component companies are cleaner than the money-center banks. I want to buy KRE during periods of weakness and write covered calls against it into strength.
Research In Motion (RIMM)
Steven Palmer, president and CIO, AlphaNorth Asset Management, Toronto
Despite recent disappointments and earnings downgrades at the BlackBerry maker, the consensus earnings estimate for 2012 is $3 per share.
RIM's price-to-earnings multiple is among the lowest on the Toronto Stock Exchange. It has no debt and lots of cash. It is hard to imagine sentiment getting any more negative, and any glimmer of hope could result in significant stock gains.
Research In Motion (RIMM)
Malvin Spooner, president, Sienna Capital Management Inc., Toronto
My philosophy has always been: when everyone has sold a stock, the only thing that can happen next is someone buys it. What's the catalyst? I don't care!
The BlackBerry maker has lots of cash and receivables, so no wonder scavenger hedge funds have beaten down the stock and hope to get a massively successful business on the cheap.
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