News

Who

Bill Tynkaluk, president, Leon Frazer & Associates Inc.

The Strategy

In a word, defensive.

“Right now we're trying to buy companies that have good dividends that are likely to increase over time,” Mr. Tynkaluk said in an interview, “Enbridge ENB-T, BCE BCE-T, Fortis FTS-T, Emera EMA-T, TransCanada PipeLines TRP-T, likely Shoppers Drug SC-T, likely Rogers RCI.B-T.”

These companies' stocks must also be reasonably priced.

“We've found a few defensive stocks that are not too highly priced and that have good growth prospects,” he says. “We hope to make a little money on utilities such as Fortis, which has raised its dividend, and BCE, which is yielding 6 per cent,” he says.

BCE's stock could rise by $2 a share over the next year or so, rewarding holders with an 8-per-cent capital gain, for a total return of 14 per cent.

The veteran investment counsellor also likes gold stocks, which he says look inexpensive relative to the price of gold bullion. His favourites are Goldcorp G-T and Kinross K-T.

Mr. Tynkaluk shares the growing concern voiced by forecasters of a bearish bent about the swelling U.S. debt load and a possible dive in the U.S. dollar.

He thinks the greenback could rise a bit in the short term. “But some time before the end of the year or early in 2010, it will take a major hit,” he predicts.

Mr. Tynkaluk, who has been in the investment business for 52 years, also has his eye on railways “but not at these prices.”

He adds: “I don't think you should be taking too much risk in this market. I think most of the stocks are overvalued.” Until a couple of weeks ago, stock prices have done nothing but go up from the March bottom, he notes.

“They're considerably ahead of earnings. If the earnings are not there, market prices will fall. We're being very, very cautious.”

When It Works Best

A defensive strategy works best when stock markets have run ahead of earnings, as Mr. Tynkaluk believes they have now. Buying inexpensive shares with good growth prospects and rising dividends is also a good long-term strategy, he points out.

What Could Go Wrong

As with any marketable investment, there is always the risk that stock markets will fall, dragging down shares of even the strongest companies.

How Is He Doing

Last November, when oil had tumbled to less than $50 (U.S.) a barrel, Mr. Tynkaluk recommended buying a handful of quality oil and gas companies. He was a bit early with his call because the price of oil slid even further, but it has since rebounded to the $80 (U.S.) range.

Of the companies he recommended, Talisman TLM-T has risen from $9.50 then to $18.30 now; Nexen NXY-T from $13.40 to $25; EnCana ECA-T from $48.55 to $60.88; Imperial IMO-T from $33.66 to $40; Suncor SU-T from $20.03 to $35; and Canadian Natural Resources CNQ-T from $40 to $70.

Market Outlook

Dismal. Mr. Tynkaluk thinks the S&P/TSX composite index could fall by 800 to 1,000 points from 11,200 currently.

New York stocks could plunge even further, with the Dow Jones industrial average falling from the 10,000 range now to 8,000.

“Multiples are huge,” Mr. Tynkaluk says of the relationship between stock prices and earnings. “How much higher can earnings go? I think it's going to take three or four years before earnings catch up to these multiples. We're very cautious.”