Tuesday, 17 January 2012
A balance sheet with a lot of net cash and minimal debt will help ensure the company's survival while it works to overcome short-term difficulties with its operations, Radin said. Meanwhile, adopting a longer-term investment horizon, Radin said, increases his chances of buying a company at its most inexpensive point as a way of generating maximum returns once the company rights itself and the stock rebounds.
"Many investors are so focused on the short term that they just don't want to touch companies that have any sort of issues in the short term," Radin said. But "I believe those are typically the companies that are at the cheap prices because the short-term issues are known" in the market, he said.
Toronto-based Radin's typical holding period for a stock is about three years, "so I am OK waiting a year or two before [a company's issues] get resolved," he said. When that happens, "the shares really start to move."
For the one-year period ended Dec. 31, the fund returned negative 9%, versus a negative 2.9% return for the MSCI World (C$) index, according to tracking service Globe Investor. But Radin only started managing the fund at the end of November and December was a transition month as he sold old holdings and replaced them with new ones. Globe Investor shows that the fund returned an average of 4.3% over the three years ended Dec. 31, versus 5% for the index.
Globally, Radin has found opportunities in the financial services sector, which has been operating under a cloud because of the ongoing European debt crisis.
Morgan Stanley (MS) is one of Radin's financial holdings. It's one of the major global investment banks, yet its share price is down about 82% from its peak of US$90 in 2007 and down around 43% over the past 52 weeks. The weak stock price reflects investors' well-known concerns over Morgan Stanley's potential exposure to the euro debt crisis, uncertainty over its derivatives book, and its capital positions, Radin said.
But Radin is focused on how the stock was trading at a 10-year-low price-to-book value of around 0.4 times, as of Friday. On average the stock trades at about two times book value and in good times, it will trade at about 2.5 to three times book value, he said.
Radin suggested that potential catalysts to move the stock higher include moves to resolve Europe's debt crisis. Morgan Stanley also stands to benefit from a backlog of initial public offerings and other investment banking work as markets improve.
Other financial holdings include money manager Janus Capital Group Inc. (JNS), a beaten-up stock that Radin likes because of the big fee stream it generates and the company's efforts to "clean up its balance sheet," he said.
About 40% of the fund's weightings is in financial stocks, though Radin doesn't have exposure to banks in the U.S. such as Bank of America Corp. (BAC).
"We don't have a comfort level ... yet" with their credit exposure and balance sheet risk, Radin said.
He added that most of the fund's exposure to banks includes those with significant operations in Asia and little sovereign debt that are inexpensive just because of the "global hate on financials right now."
One such holding is Standard Chartered PLC (STAN.LN, 2888.HK). About 70% of its business is in Asia, with the top four markets being Hong Kong, Singapore, South Korea and India. By comparison, continental Europe, the U.K. and the U.S. combined represent less than 10% of its operation.
Bond yields, which move inversely to bond prices, fell across the curve. Canada's two-year bond yields fell to 0.942% Tuesday from 0.957% on Monday while the 10-year bond yielded 1.916%, down from 1.934%.
Bonds were also pressured earlier Tuesday following better-than-expected economic data from China and Germany, Europe's largest economy.
Kinross Gold (C$10.69, -C$2.51, -19%) said it will require an additional six to nine months of analysis and planning to develop its Tasiast gold mine in Mauritania, and expects to record a "material" non-cash impairment charge in connection with the project.
Dundee REIT (C$33.50, -C$1.57, -4.5%) said it has agreed to buy Whiterock REIT (C$15.98, C$1.68, 12%) for C$16.25 a share in cash, subject to a maximum of C$360 million, or 0.4729 of a Dundee unit for each Whiterock unit. Whiterock's board supports the offer.
Primero Mining (C$3.25, -C$0.49, -13%) said some operating results at its San Dimas gold-silver mine in Mexico in 2011 didn't meet its expectations, mainly due to lack of grade predictability. As a result, it said it's undertaking a number of operations improvements and reviewing its current reserve and resource estimation methods. It puts 2012 production at 100,000-110,000 gold equivalent ounces, reflecting the lower ore grades its recently encountered.
In its one-page statement accompanying the rate decision, the central bank said the global economic outlook "has deteriorated and uncertainty has increased" since the Bank's October Monetary Policy Report.
It said the recession in Europe "is now expected to be deeper and longer" than earlier forecast. It said the economy of Canada's biggest trading partner, the U.S., will proceed "at a more modest pace going forward," a result of household deleveraging, fiscal consolidation and spillover impact from Europe's deepening woes.
On the domestic front, Canada's central bank said there is less slack in the economy and forecast that the economy will return to full capacity by the third quarter of 2013, three months sooner than forecast previously.
The Bank of Canada's statement may have blunted some lingering expectations in the market that the Bank might yet ease its 1.00% policy rate, reiterating its refrain that, "With the target interest rate near historic lows and the financial system functioning well, there is considerable monetary policy stimulus in Canada."
Nonetheless, it offered "no indication that the Bank is seriously thinking about shifting away from the current 'wait and see' stance any time soon," said Peter Buchanan, economist at CIBC World Markets in Toronto.
The Bank is due to deliver a fuller explanation of its position on Wednesday, with the release of its quarterly Monetary Policy Report.
In June 2010, the Bank of Canada became the first central bank in the Group of Seven leading nations to raise interest rates since the onset of the global economic crisis. It hiked rates three times, before moving to the sidelines in September of that year, citing external risks to the domestic economy. It has been sidelined since.