David Taylor's Dynamic Value Fund of Canada, established in 1957, has a record of leadership.
The nearly $1-billion portfolio generated an 8.6-per-cent average annual compound return for the 20 years ended April 30, 2009, significantly higher than the 6.5-per-cent return of peer Canadian focused equity funds on the same basis in the period. Those returns put into perspective the 22.4-per-cent one year loss for the 12 months ended April 30, which was actually less than the 28.3-per-cent drop by peers.
Mr. Taylor, vice president, at Dynamic Funds in Toronto, has headed the portfolio since January 1, 2003. Earlier this year, it received Lipper awards for best Canadian focused equity funds for 5 years and for 10 years.
"I am a deep value manager, but I try to stay out of the value trap," Mr. Taylor said.
"I follow the wisdom of Ben Graham, the father of value investing, who said 'look to the market for opportunities, not for direction.' I seek companies whose fundamentals are improving long before their stocks reflect that."
Osisko Mining Corporation is a Montreal-based start up mine in northern Quebec. Shares purchased at an average cost of $4.50 have recently traded at $5.62. Osisko has proven reserves and financing in place. With a body of 8 to10 million ounces of gold, the mine should be in production by 2011, Mr. Taylor said.
Assuming a $750 (U.S.) gold price, the stock has a net asset value of $6.50 (Cdn.) per share. Gold companies of this size tend to trade at a 50 per cent premium to net asset value, he noted. Given that many large cap gold miners want to replace declining reserves, Osisko could be a takeover target and a price that would add a further premium, he suggested.
Within a year, shares could hit $9.00 or more, Mr. Taylor explained.
HudBay Minerals Inc. is a Toronto-based zinc and copper miner with assets in Flin Flon, Manitoba. Shares purchased at an average cost of $6.00 have recently traded at $7.18. The company has a strong balance sheet with $850 million in net cash which equals 75 per cent of its market cap, Mr. Taylor said.
Previously the fund bought HudBay at $2.00 and sold it at $24. Recently, the fund has gone back into HudBay because, at time of purchase, the shares reflected the value of its cash and included nothing for the mining assets. There is a good opportunity for the company to be taken out at $10 per share or more, he noted. Several global mining companies appear interested in a buyout, he added.
Canam Group Inc. , based in Saint-Georges, Quebec, makes structural steel and other products for highways, bridges and buildings. Shares purchased at an average cost of $4.50 have recently traded at $7.46.
Extending its markets, Canam, which has remained profitable through the downturn, has been able to supply steel not only in Canada but in major U.S. cities. Earnings for the year ended Dec. 31, 2010 should rise to 87 cents per share from 70 cents for 2009 and $1.00 for 2008, Mr. Taylor said. Within two years, shares should trade at $15, he suggested.