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(B)(N) The Canadian “Hot” Money Stocks

March 23, 2014
Map of Canada

$50 Billion From Sea-To-Sea

Drama. There are more than sixty stocks in the Canadian small-cap to mid-cap market that have gained more than 20% since December and more than fifty that have gained more than 30% and into the stratosphere but it is the “ugliest” portfolio that we have ever seen outside of a textbook; it is “textbook ugly” and has real money in it – $50 billion at the last count and an aggregate portfolio gain of +33% on new money.

Undoubtedly, the portfolio was “designed” by a CAPM-model unduly impressed by the 10% discount on the Canadian dollar and that could explain where the “missing” $50 billion from the NASDAQ Expendables has gone – it has been  “strategically” placed for the next round of inflation/deflation and exchange rate fighting.

Or is it a “pump and dump” on a grand scale?

We’ve called the portfolio “March Madness” and like its namesake, it will take unpredictable bounces in the next quarter tending to a “dribble” but unlike its namesake, it won’t break the hearts of the well-heeled investors who put it up and have no place else to go if not the casinos of Macau and Bermuda.

Last year, the aggregate portfolio lost $16 billion with a negative return of minus (9%); this year, it’s up $56 billion and +33% in just three months. So pass us the Molson’s and we’ll put on our mukluks and take a look at the fundamentals. Please Click on the Chart to make it larger and again if required.

Exhibit 1: March Madness – Fundamentals – March 2014

March Madness - Fundamentals - March 2014

March Madness – Fundamentals – March 2014

(B)(N) March Madness - Risk Price Chart - March 2014

(B)(N) March Madness – Risk Price Chart – March 2014

Almost none of these stocks are “big-cap” and the only thing that’s holding up their prices is “new money” – $50 billion of it and an expensive makeover with the expectation that if there’s enough noise then the “somebodies” out there are going to buy them back at higher prices; in other words, an aggregate “somebody” – possibly just by working the same models = is gaming the system.

The synopsis is that these companies lost ($11 billion) last year and paid dividends of $3.4 billion for a yield of 1.5%; they also turned over their inventory once in order to lose it and are all set for another year; and their aggregate modality is 1.5 indicating that they can’t (or won’t) raise money through debt so why not issue some new stock out of treasury to help the supply for this amazing demand as opposed to buying it in at high prices as some companies are wont to do. That’s not true of all the companies, of course (and we mention specifically, Magna International which stands out in this list) but the numbers speak for themselves and only a few of them might have earned their double-digit flotations; in aggregate, the return on the shareholders equity is minus (10%).

This portfolio can be salvaged but it needs something stronger than a bunch of random numbers and a legion of economists to run them. The “investment idea” is not that money begets money but that our money should be safe – 100% capital safety – and we should obtain a hopeful but not necessarily guaranteed return above the rate of inflation.

Real Risk Management

Real Risk Management
Not Only In Canada

Twenty-six of these sixty-one companies are currently in the Perpetual Bond™ and that portfolio is up +76% since December and our estimate of the downside risk due to the demonstrated price volatility is minus(13%) in the next quarter but we can easily defend against that with our usual stop/loss discipline because we never know where the next surprise is coming from.

For more details, please click on the links “(B)(N) March Madness – Prices & Portfolio – March 2014” and “Portfolio & Cash Flow Summary – March 2014“.

And for more information on real “risk management” and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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