THE LATEST UPDATE Peter Gibson, the strategist at Desjardins Securities, has taken some of his safe cash holdings in his Focus 10 portfolio and put it to work in Research In Motion. He has also exited another safe, defensive holding and taken the plunge into a bank. He is still holding one spot of the 10 in cash. WHAT IS THE FOCUS 10? It is a basket of 10 growth and defensive stocks and it has solidly beaten the market the past few years. It has returned 101.1 per cent (as of the last calculation on Nov. 15, 2007) since its inception in October 2004, versus 64.6 per cent for the S&P/TSX composite index. So far this year, the basket is up 12.3 per cent, versus 7 per cent for the TSX. A lot of statistical analysis goes into Mr. Gibson's Focus 10, but one metric he is a big fan of is return on equity, which is a measure of how efficiently a company can produce profits. Mr. Gibson likes companies that improve their ROE. MORE DETAILS In August, Mr. Gibson dropped several stocks in favour of more defensive cash positions. At the beginning of October, he added Bombardier back into the mix and kept two of the 10 spots in cash. Last week, he added Research In Motion in place of cash. "Growing technology stocks are likely to be the main initial beneficiaries from Federal Reserve rate cuts," he said in a note. "[RIM's]ROE has now reached 36 per cent, more than double the TSX average." Mr. Gibson also exited his Yellow Pages holding, which was sporting a defensive yield of more than 8 per cent. Instead, he is going with Toronto-Dominion Bank, despite his worries that the subprime mess in the United States will continue to hurt banks. "We still believe falling U.S. housing prices and further large loan writeoffs among financials will mean further rate cuts and U.S. dollar weakness in 2008," he said. TD, however, is showing good profitability and doesn't have any subprime or asset-backed commercial paper exposure. "Given the 15-per-cent decline in TSX banks versus alternative asset classes such as bonds, which have become more expensive as yields on U.S. Treasuries have fallen almost 150 [basis points]since June, TSX banks represent incredible, rarely seen value to investors," he said. "In fact, early last week, TSX banks were yielding more than U.S. 10-year bonds. This has only occurred twice in the last 50 years, and the last previous instance was in early October, 2002, in the last days of the 2000-to-2002 bear market. Since then, TSX banks have returned 174 per cent to investors including dividends, or 22 per cent compounded annually."
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