RIM’s PLAYBOOK
2011 April 15 by Mike
With 41 Million subscribers, RIM doesn’t have to appeal to everyone. If they can reach penetration levels of 15 – 20% of their existing client base, they will sell upwards of 8 million Playbooks (this translates to an additional $4 Billion in revenue). From all the negative reviews, the theme is the same: No email or calendar apps, and a lack of developed apps. This obviously is without the bluetooth bridge to the blackberry phone. When tethered (by bluetooth) the Playbook picks up all the applications on your blackberry phone…….email, calendar, messenger. RIM has already stated that they will have resident email and calendar apps available this summer, as well as the Android app that will allow Playbook users to run Android apps ( instant 150,000 Apps) .
I believe as an intial launch, RIM has rightly targeted its business (enterprise) clients…….like me. What is not fair, is the way Apple has been able to skate over their inability to assist the enterprise client:
- Ipad doesn’t support most corporate email plans
- Ipad doesn’t have the security that Blackberry supports (all data stays resident with the smartphone……..you can use the data on your Playbook, but the data is not transferred. This allows the corporation to be able to “wipe” the data (if necessary) on someone’s phone , and thus , not have to worry about any data on the Playbook.
- Ipad doesn’t use Adobe Flash…..and as a result, cannot properly read an abundance of websites. Adobe’s top 10,000 clients use Flash in their websites. ie. Try online banking with the Ipad………no go.
Apple has the consumer market and does an excellent job at it. RIM has the enterprise market, and the Playbook will dominate this market for the business client. The tech savvy “reviewers” are looking for that “do everything” type of tablet, instead of a tablet filling a specific niche. With Playbook’s ability to video conference, support HD video in and out, bluetooth tether to Blackberry smartphone (and thus no need for a separate internet contract) it is a very, very powerful device.
RIM’s problems are very short-term in nature. Ongoing software updates over the next quarter will “fix” the consumer issues on the table (email, calendar, apps) . 3G and 4G availability will allow the Playbook to be a standalone tablet for those consumers not owning a Blackberry. This isn’t a one or two quarter wonder, but a 3 to 5 year (and perhaps longer) transition of the tablets taking over the laptop market.
Investors should use this recent stock price weakness as an opportunity to buy RIM . Its arguably one of Canada’s best growth companies…….NO debt, $2.3 Billion in cash, and a wonderful new product to compliment their already first in class smartphone. At less than 8 times earnings, this stock is cheap.
Mike
The “END OF QE 2″
2011 April 14 by Mike
Quantitative Easing 2 is quickly coming to an end. Scheduled to end in June 2011, it is rumoured the Fed (US Federal Reserve) will actually opt to end early, in order to show a sign of confidence that the US economy can stand on its own two feet .
For those of you that are new to QE2, its simply a US stimulus program that prints new money to buy its own Treasury bonds every month (to the tune of $75 Billion per month). This program was designed to :
a. lower the US dollar
b. keep interest rates low (from buying their own bonds)
c. stimulate the economy through higher asset prices
Indirectly, the program created massive incentive to buy commodities, as investors, both large and small, look to hedge a declining US$ . From the objective of the Fed, it did a good job with its “intended” consequence, however, it also created some significant inflation (with energy and food prices in particular) which are the unintended consequences.
Withdrawing the Fed’s stimulus program can only (in my view) have negative effects on our stock markets (SHORT TERM VIEW):
a. The Fed is currently the largest buyer of US Treasuries. As such, Treasury yields will have to rise in order to incent new buyers
b. Higher interest rates will hurt bond prices , and will cause a strengthening of the US dollar and a negative reaction in commodity markets
c. Withdrawing the stimulus will slow down the US economy
A look back to April 2010 and you can quickly see the results of QE 1 ending (S&P 500 declined 16% , from April 23 to July 2) . The withdrawal of stimulus seem to have an immediate effect on the stock market and the economy (enough that the Fed chairman decided to implement QE 2).
With all of this information in mind, it makes good sense to be cautious over the next couple of quarters:
1. Protect your capital gains – take profits in some commodity areas and wait to buy back at lower prices
2. Prepare your portfolio for rising interest rates – consider switching domestic bonds for emerging market bonds
3. Expect more stock market volatility
4. Remember, our long-term outlook for commodities is very bullish, however, short-term profit taking is expected and healthy for the stock market. As we have witnessed in gold over the last decade, many times gold has sold off only to come back to make new highs.
As always, my team and I are here to assist you in managing your money. Don’t hesitate to contact us with any questions or concerns.
Best regards,
Mike
Investing with a “Legend”
2011 March 2 by Mike
We all know several names when we think of Investment Legends. For me, its people like : Peter Lynch, Warren Buffett, George Soros, Jim Rogers, Jeremy Grantham….to name a few. Common traits of these individuals is their strict discipline to their investing strategy, which becomes very obvious over time (and through various business cycles).
For individual investors, it is not easy to access the expertise of these legendary money managers. Its not impossible, but it is very difficult. First and foremost, these managers usually only manage very large sums of money (i.e. Several million as a minimum investment).
I would like to draw your attention to a company called “Omega Advisors”, which is a US hedge fund that is lead by legendary investor, Leon Cooperman. Prior to founding Omega, Mr. Cooperman spend 25 years at Goldman Sachs, where he was the Chairman and CEO of their Global Asset Management division. He was rated the #1 portfolio strategist for nine consecutive years. Most people have not heard of Leon Cooperman, but his track record and investment ability, speak for themselves:
He has out-performed the S&P 500 and the TSX over the last 1 year, 5 years, 10 years , and since inception (January 1, 1992). His 10 year compounded return is 9.5%, and 12.9% since inception. Compare this with a zero % 10 year rate of return for the S&P 500. (all numbers are as at June 30, 2010).
What it even more impressive, in my view, is that the last ten years have been the most difficult years to be an investor. With two stock market crashes of over 50% (the Tech bubble of 1999- 2000, and the Credit Collapse of 2008) it has been very difficult to make consistent returns.
Omega Advisors, through a relationship with ScotiaMcLeod, is offering the opportunity for individual investors to invest, with a minimum investment of only $10,000. The units, being a closed-end fund, will trade on the TSX . This is the first time that Omega Advisors have managed a “retail” program. US investors, for example, require a minimum of $10 Milliion to invest in Omega’s hedge fund.
When I asked as to why Omega is coming to Canada, he simply responded, “Canadians are longer-term and more patient investors”.
I am very excited about this opportunity. Omega will be available to our clients until March 11, 2011. Please call me at 613 271 6609 with any interest.
Best regards,
Mike
Charitable Giving
2011 January 24 by Mike
We all understand the need of giving back to our community, whether its helping the needy, providing much required funding for health research, or giving to our favourite church or charity.
ScotiaMcLeod has put together a charitable foundation that will make charitable giving more tax effective. Simply put, it will allow donors to give more money to their favourite charities for LESS after tax dollars.
HOW DO WE DO THIS ?
As many of you are already aware, Flow-Through Shares have been a proven tax assisted investment in Canada, for the last 20 years. ScotiaMcLeod has put in place the infrastructure to allow investors to buy flow-through shares and then DONATE them to their charity of choice.
The net result is that the donor, not only receives the tax deduction for the charitable donation, but also receives the tax savings from the purchase of the flow-through share.
For example:
1. Direct donation: If you give $1,000 to your favourite charity, you receive a tax deduction of approximately $460 (assuming the highest marginal tax rate in Ontario). So, your ACTUAL cost of this donation is $540.
2. Donate Flow-Through Shares: The donor under this process, receives the CCE deductions from the flow-through shares , AND the charitable donation deduction, reducing the ACTUAL cost of the donation to approximately $220 (or LESS than HALF the cost of the direct donation).
FOR ALL DONATIONS ABOVE $200, THE FLOW-THROUGH METHOD ALLOWS THE DONOR TO MORE THAN TRIPLE YOUR CONTRIBUTION FOR THE SAME AFTER TAX COST .
So, everybody wins……..the charities have the opportunity to receive more donations and the donors receive more tax breaks.
It’s just a better way to give.
With any questions, please don’t hesitate to call me directly at 613 271 6609 or toll free 1-877-727-8827.
Sincerely,
Mike McGann
2011 OUTLOOK – “Cautiously Optimistic”
2011 January 13 by Mike
Being cautious regarding equity exposure in 2010 worked very well until September. With a giant push from Ben Bernanke (US Federal Reserve Chairman) the markets surged ahead on freshly printed US dollars. With his appearance on the TV show , 60 Minutes, Mr. Bernanke made it very clear that he will keep using “quantitative easing” (or QE) until he sees a visible improvement in the US labour market. He admitted that this may take a few years .
As I mentioned in my last month’s blog, this QE dilutes the US dollar and pushes commodity prices higher, as global investors seek to hedge their US dollar exposure. Many countries, central banks, institutional investors (pension funds, hedge funds) prefer to own the commodities rather than the dollar. As commodity prices rise under QE, many investors are switching bonds for stocks , as they also seek a better hedge on inflation. Higher inflation will eventually lead to higher interest rates, which can be very detrimental to bonds and fixed income portfolios. (see today’s article in the Globe and Mail: “Merrill warns of higher interest rates ahead”. pg. B13).
I firmly believe that this trend of higher commodity and higher stock prices, will stay intact as long as the US Federal Reserve continues to use QE.
2010 saw the rise of most commodities, including grains, energy, and precious metals. Many underlying resource companies did not move higher as quickly as the underlying commodity prices. This is why I put a strong buy out on Barrick Gold Corp. Even if gold stays reasonably flat, Barrick may increase their earnings up to 50% this year. Scotia has a $70 target on the stock (its currently trading around $48.75). The same can be said for some food and energy companies. As a result, I am recommending that investors consider the following for their portfolios:
Recommendations:
Sprott Silver Trust
Barrick Gold Corp
Powershares Global Agriculture Class ( exposure to companies such as Potash, Monsanto, Mosaic Syngenta Ag….)
Trimark Energy Class
Powershares Canadian Dividend Index Class
I look forward to discussing these exciting opportunities with you.
Best regards…….and Happy New Year!
Mike McGann
Investment Demand for Commodities – “The Perfect Storm”
2010 December 14 by Mike
As I outlined in my last blog, the US Federal Reserve is creating a much weaker US$ by using “Quantitative Easing”. An instant result of this action, is higher commodity prices as countries, institutions, pensions and individuals, seek to hedge their portfolios against currency depreciation.
What might not be obvious to most investors is the significance of the investment demand for commodities. The investment demand for gold has just surpassed the demand for gold jewellery (as pointed out by Dennis Gartman today):
“……..we note that “investment” demand has for the first time in our memory eclipsed jewellery demand this year. This we find interesting, and so too should everyone else. To put things in perspective, at the turn of the century jewellery demand was 80% of total gold usage while “investment” or “hoarding” was barely above 2%. By ’05, jewellery demand for gold was approaching 60% while “investment” demand had risen to 20%. This year, jewellery demand for gold shall be approximately 40% of total demand while “investments” will be 42%.
The ETFs are having their very real impact.”
Other commodities, such as silver and copper, have a much, much higher demand for industrial applications. Silver uses include: imaging, electronics, jewellery, solar panels, batteries, superconductivity, coinage and water purification. Copper uses include: electrical applications (wiring, transformers, motors, bushbars, generators, etc) plumbing and heating applications, roofing, and cooking utensils. .
For example, the 2011 forecast for global copper consumption, is highlighting an approximate 4% global shortage. All the while, two new copper ETF’s (exchange traded funds) are in the process of being launched in the USA (by Ishares and ETF Securities) which will add significant demand to the copper market. To give you an idea of size, the Ishares silver trust (SLV) is $9.35 Billion dollars.
As more and more commodities become “vaulted” or stored by these ETF’s , the industrial world will continue to face higher and higher shortages of raw material. This is what I call “The Perfect Storm” for investors: an excessive surge of investment demand that will continue to drive commodity prices higher……..MUCH higher!
I don’t agree with the US Federal Reserve’s strategy of printing money and buying their own bonds. This is piling on the debt for future generations. It is, however, flooding the markets with liquidity, artificially stimulating stock prices and putting a significant lift under virtually all commodity prices.
Please have a read of Eric Sprott’s detailed analysis of this silver market (by clicking on the underlined area). He does a remarkable job:
I highly recommend investors add silver and copper to their portfolios.
Wishing all a very Merry Christmas !!
Mike
Gasoline on the fire !
2010 November 4 by Mike
The Federal Reserve made it very, very clear yesterday. They will keep printing money , calling it “Quantitative Easing” , to boost equity prices higher. I call it, putting gasoline on the fire.
Make no mistake, quantitative easing will do very little to help the average American. Temporary wealth will be created by an increase in the stock market, without it translating into a creation of many full-time jobs. From an economic perspective, the US is in a real mess. With interest rates at all time lows, the FED can do little but ensure that interest rates stay low, in the hopes that some borrowing takes place. So far, there is no evidence of more borrowing……but the contrary; credit continues to contract in the US.
Quantitative Easing puts more money directly into the Banking system. This increases the amount of bank reserves in the system, giving the US banks more ability to lend. The fact that there is no lending demand, seems to be irrelevant to the FED. With this newly created money, the FED then buys its own Treasury notes , from 5 years to 30 year US government treasury bonds. With this massive increase in demand (some $75 BILLION a month, confirmed yesterday), it effectively keeps interest rates down, by pushing bond prices up.
The direct effect of Quantitative Easing, is really the instant depreciation of the US $. This has a rather immediate effect on commodity prices, from precious metals to crops. The FED made it very clear that pushing equity prices higher is now its mandate. Since their ability to create money is almost endless, expect the stock market (and particularly commodities) to move substantially higher in the coming months:
“We listened to Dr. Laurence Meyer yesterday (a former member of the FOMC) as he was interviewed on CNBC, and long before the FOMC meeting had ended, he made a truly stunning statement…….When asked by Erin Burnett of CNBC, what he was going to expect from the post-meeting communique, Dr. Meyer said simply and without a moment’s hesitation, “Watch what happens over time to the equity market”. The FED is targeting the equity market and it wants the equity market to go higher, for in so doing, the economy’s “animal spirits” shall rise. That’s what we are down to: the FED is now targeting a higher inflation rate; it is targeting a lower unemployment rate AND it is targeting stronger stock prices……end of discussion. ”
(The Gartman Letter…..November 4, 2010).
Make no mistake, as I have been addressing all along, this is not a stock market that is being driven by higher economic growth (and hence my cautious stance). It is an artificial growth created by a massive depreciation in the US dollar. Quantitative Easing (QE) was over $1.5 Trillion US$; QE II announced yesterday is starting at $600 Billion US$. QE III ?
Who is kidding who ? You can’t borrow your way out of the worst recession since the Great Depression. The abuse of too much credit is what started this mess in the first place. That, however, isn’t stopping the FED (Mr. Bernanke) from trying to convince the world that they have the magic powder.
When does it all end…….nobody knows. But in the meantime, equity markets will be more volatile and likely trend higher as the FED continues to pour gasoline on the equity market fire. I highly recommend investors protect their portfolios with solid commodity investments (gold, silver, copper) as the ongoing depreciation of the US$ continues.
Mike McGann
BUY: Barrick Gold Corporation
2010 October 28 by Mike
As most of you are aware, investing in gold (and gold companies) has been a great investment over the last decade, and in particular, the last 5 years. Today, the gold bullion price has surged ahead (over $350 per ounce this year), however, the gold stocks have trailed this performance. With much higher earnings projected, it is my expectation that higher stock prices lie ahead for the major gold companies.
Eric Sprott does a much better job (than me) at outlining this opportunity. You can read his article at:
Essentially, Eric is illustrating to us that with most gold companies fixed costs remaining stable, an increase of $350 in the gold price, provides incredible earnings leverage as most of this increase goes straight to higher earnings. Higher earnings drives higher stock prices.
“Barrick Gold Corp (ABX) just posted a record profit in the third quarter on better than expected gold production and lower costs. On an adjusted basis, earnings jumped to $829 Million or $0.84 cents a share from $473 Million or $0.54 cents a share a year earlier. ” (Reuters)
Barrick Gold is trading at $47.32 today. Our analyst has a 12 month target price of $69 . Barrick is the world’s largest gold mining company with 27 operating mines and 10 projects. With the removal of its hedge book, Barrick is currently fully exposed to the gold price.
Mike McGann
Flow Through Shares
2010 September 21 by Mike
It’s that time of year again, where “flow through” shares become available for investment. Flow through shares are one of the few tax deductions available to Canadians, other than RRSP contributions. As an incentive to invest in Canadian Resource companies, investors receive tax benefits that “flow through” to them from the issuing companies. These tax benefits are a deduction of tax from any income (not just investment income).
Another obvious case is for retired investors that are now withdrawing money from their RRIF plans (Registered Retirement Income Funds). In many cases, investors receive their RRIF withdrawals and unfortunately a significant part of it goes back to the Government in taxes owing (and in many situations, causes that individual to have their old age security clawed back). My experience is that flow through shares are a very good way for high income earners to reduce their tax burden.
I have attached a summary called Understanding Flow-Through Shares and Limited Partnerships (click on title to open) that elaborates on what flow through shares are all about.
Our current offerings are due to close the second week of October. Anyone interested in buying some flow through shares should act before Oct 8, 2010.
As always, don’t hesitate to call my office with any inquiries at (613)271-6609.
Sincerely,
Mike McGann
Director, Wealth Advisor
BUY Research In Motion (RIM)
2010 September 20 by Mike
Research in Motion is one of Canada’s best growth companies. As the maker of “Blackberry” smartphones, they are the world leader in business communication.
As of late, the stock has come under some pressure as companies (such as Apple) have come out with very consumer inticing products (such as the IPAD, their new “tablet”). The reality for RIM is that there market niche has been the business executive and not directly the consumer (like Apple). The consumer market is a growth market for RIM, albeit with very tough competition from the likes of Apple. The key takeaway is that Blackberry remains the number one device for business. RIM shipped 12.1 million devices to wireless carriers and stores in its fiscal quarter (just reported last week) which is up 45% from a year ago.
On the earnings front, RIM reported net income of $797 Million or $1.46 per share, in its fiscal second quarter. Revenue increased 31% to $4.62 billion. For their upcoming quarter, RIM expects to earn net income of between $1.62 and $1.70 per share. (Wall Street Journal , Sept 17, 2010)
Currently the stock is trading at approximately 7.5 times forward earnings , which is a cheap valuation for a quality growth stock. Trading at a market multiple, would easily put this stock up from $46.50 Cdn to $60 – $70 Cdn.
With zero debt, and $2.03 Billion in short-term securities, this is a very financially sound business. At $46.50 Cdn, this represents a 3 year low on the stock (Dec 2006).
As this is a volatile security, it may not be for everyone. But if you want a solid growth stock today at a very good valuation, this is a good choice.
Best regards,
Mike McGann
Director, Wealth Advisor
