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

March 28, 2014
How much do you want?

How much do you want?

Drama. We looked at the Canadian market with a view to buying it; that is, to buying all of it. We’re not crazy and we know, for example, that this is our third Post on the subject and as the title might suggest, we’re just warming-up to it. As a practical matter, it’s worth about $2 trillion at the current prices and it’s still only marginally “undervalued” despite a stock market boon of $120 billion since December; and we would think that there is still a liquidity problem that might affect holders of large blocks because they can’t sell what they have without getting lower bids, especially in the resources sector. Please see below for more details.

Moreover, this is not a “growth market” because last year the companies paid-out nearly 100% of everything that they earned, such as it was, and they are well-positioned to do it again this year as things continue to wind-down rather than up; we could think of it as an investment for the long-term in the resources that are in the ground and in the people who are above it and we would still have “pocket change” if things don’t worsen.

Which they could do if the Canadian dollar continues to test 90¢ or less which it will do if we don’t develop some new export products and new markets for them; and clearly, the current shareholders aren’t doing anything but taking their money home and hoping to sell their stocks at higher prices (which we don’t intend to offer outside of the Perpetual Bond™).

We divided the major Canadian market S&P TSX Composite Index into the Industrials (148 companies) which consists of all the companies but the axe and spade, drill-in-the-ground Resources companies (90 companies); the Industrials, therefore, include the financials and investment companies, utilities and transports and assorted manufacturing and retail companies. Please Click on the links (and again if required to make them larger) for all the details “The Canadian Hot Money Industrials – Fundamentals – March 2014” and “The Canadian Hot Money Resources – Fundamentals – March 2014“.

Exhibit 1: The Canadian Hot Money Market – Fundamentals – March 2014

The Canadian Hot Money Market - Fundamentals - March 2014

The Canadian Hot Money Market – Fundamentals – March 2014

(B)(N) The Canadian Hot Money Industrials - Risk Price Chart - March 2014

(B)(N) The Canadian Hot Money Industrials – Risk Price Chart – March 2014

From the Summary in Exhibit 1, these companies earned $58 billion last year but in aggregate all of it was earned by the industrials ($67 billion) because the resources sector lost ($8.5 billion) and are all set to do it again for the next three years absent some miracle that would increase demand and prices (Inventory Turns to make (EPS) 0.3×).

(B)(N) The Canadian Hot Money Resources - Risk Price Chart - March 2014

(B)(N) The Canadian Hot Money Resources – Risk Price Chart – March 2014

They also returned 96% of their earnings to the shareholders for a return of $56 billion and an aggregate dividend yield of 2.9%; and again, the resources top the charts with a dividend payout of $13 billion amid losses of $8.5 billion digging deep into their own pockets.

Despite all of that, the resources are still “overvalued” whereas the industrials are still “undervalued” and have gained $73 billion for the year-to-date.

The “fair price” is the price of risk, the Risk Price (SF), but it needs to be earned in order to be effective as such – we want our money to be safe – 100% capital safety – and to obtain a hopeful but not necessarily guaranteed return above the rate of inflation.

Canada Company C Modality - Risk Price Chart - March 2014

Canada Company C Modality – Risk Price Chart – March 2014

We also note that in aggregate “Canada” is a Company C with modality 0f 1.08 which is the “bank rate” and just above that of an “exchange economy” with low productivity or “added value” (please see our Post, The Food Chain) and even more so for the resources which have the “profits” to show for it.

The solution, of course, is not to not develop the resources but to use more of them at home.

These data are available from The RiskWerk Company in a machine-readable form (csv) for free; please drop us a line at RiskWerk@gmail.com.

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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