If you had to bet on only one stock for 2012, what would it be?
That’s the question we put to 13 investment professionals and personal finance specialists across Canada in our 16th annual stock-picking contest.
The contest is meant to explore what some of the country’s smartest money minds are thinking about the year ahead. Each contestant was asked to pick one stock, income trust, American depositary receipt or exchange-traded fund traded on a major exchange in Canada or the United States. The minimum market capitalization for Canadian securities was $100-million; for U.S. picks, $1-billion (U.S.).
The security that generates the highest percentage gain (based on total returns including dividends and distributions, and converted into Canadian currency in the case of U.S. picks) for the 2012 calendar year will be the winner.
The spoils to the victor? Eternal bragging rights.
For spectators, the payoff is in entertainment – and maybe, just maybe, some investing ideas. But a note of caution is in order. None of what is outlined here should be taken as advice to bet the house on any (or all) of our contestants’ picks.
By its nature, a contest like this encourages competitors to swing for the fences with high-risk, high-reward picks. Selections like this tend to fare extremely well – or fizzle spectacularly.
Consider, for instance, Research In Motion Ltd., the maker of the BlackBerry handset. Its stock slid 75 per cent last year as product delays and increased competition darkened sentiment around the company.
Despite the cascade of bad news, two of our contestants – Steven Palmer, president and chief investment officer of AlphaNorth Asset Management in Toronto, and Malvin Spooner, president of Sienna Capital Management Inc. in Toronto – picked the smartphone maker on the grounds that things can’t get much worse for the company or the stock.
With a price-to-earnings ratio of about 3, RIM is one of Canada’s lowest-valued companies. Sentiment is so low that it would take only a little bit of good news to send the stock soaring.
“My philosophy has always been, when everyone has sold a stock, the only thing that can happen next is someone buys it,” said Mr. Spooner, also a blogger at maverickinvestors.com. “What’s the catalyst? I don’t care!”
Benj Gallander, president of the Contra the Heard investment newsletter in Toronto, also picked a turnaround play – in his case, ATS Automation Tooling Systems Inc., in part as a recovery play.
Some of our contestants took a different tack and picked stocks they think are well positioned to ride upward trends. For instance, Sheryl Purdy, an investment adviser at Leede Financial Markets Inc. in Calgary, selected Poseidon Concepts Corp. because of the increasing demand from the oil and gas industry for the company’s portable storage tanks.
“I am most bullish on [Poseidon Concepts] for the growth trajectory ahead,” Ms. Purdy wrote in a note to clients. “The delightful bonus” is that it began paying a dividend, she said, so “this stock offers ‘growth’ and ‘yield.’ ”
In picking New York-listed shares of ING Groep, one of Europe’s largest financial-services companies, Brian Pinchuk of Lorne Steinberg Wealth Management Inc. in Montreal was attracted to the company’s management, attractive valuation and low risk to over-indebted countries.
“Despite the market turbulence, ING is well managed and highly profitable,” Mr. Pinchuk said.
Note that participants may own or trade the securities they mention. We’ll review the picks throughout the year.
Here's a rundown:
Pick: ATS Automation Tooling Systems Inc.
Benj Gallander, President, Contra the Heard Investment Newsletter, Toronto
Rationale: The maker of factory-automation systems climbed above $20 in the late 1990s. Then it was hit by problems and, most recently, the bankruptcy of its solar unit. The slowing economy has also weighed on operations. The solar issue should be largely or completely resolved in 2012, and the company’s record-high order backlog indicates that it is recovering.
Pick: Descartes Systems Group Inc.
Bob McWhirter, President and Portfolio Manager, Selective Asset Management Inc., Toronto
Rationale: The maker of logistics software had record third-quarter results and good cash flow, and its significant demand backlog for some products suggests growth will continue. The company’s price-earnings multiple, return on equity and recurring revenue make it attractive. Analysts’ one-year price target of $9 implies a potential gain of more than 20 per cent.
Pick: Glacier Media Inc.
Tim McElvaine, President, McElvaine Investment Management Ltd., Victoria
Rationale: The publisher of community newspapers has an owner mentality, with the board of directors holding about 30 per cent of the shares. The company generates significant free cash flow and has a high return on invested capital. Glacier Media trades below book value, has a forward price-earnings ratio of less than 10, and a respectable dividend yield.
Pick: HollyFrontier Corp.
David Sherlock, Portfolio Manager, McLean & Partners Wealth Management Ltd., Calgary