As The Globe and Mail's My One and Only stock-picking contest begins its closing lap, the standings reflect a dramatic realignment of market winners and losers.
Biotech and technology companies stack the leaderboard. Resource stocks are nowhere to be seen.
"Investors who a year ago were saying they've got to get their money into base metal and gold stocks are now looking at technology, industrials and biotech companies," said Robert McWhirter, president of Selective Asset Management Inc., and the current front runner. "And Canada doesn't have much in the way of significant biotechnology companies that are actually profitable."
Mr. McWhirter has opened up a formidable lead in the annual contest thanks to the meteoric rise of ProMetic Life Sciences Inc., a long-slumbering biopharmaceutical company based in Laval, Que. ProMetic's stock has risen 167 per cent through the end of September, almost tripling the next-best performer in our competition.
Mr. McWhirter is one of eight investment professionals participating in our contest. At the beginning of the year, we asked each of them to choose the one North American stock they thought had the greatest potential for gains in 2013.
This is high-conviction investing taken to its extreme, the roulette equivalent of putting your whole stack of chips on a single number. It is definitely not the way that any of our participants would construct a portfolio in real life – but it is highly entertaining and an interesting window on high-potential plays.
Some ground rules: There is a minimum market capitalization of $100-million for Canadian-listed securities and $1-billion (U.S.) for U.S.-based picks. Returns, including dividends, are calculated in Canadian dollars.
The victor earns a Globe and Mail mug – and, of course, becomes the stuff of investing folklore.
Based on the standings right now, it looks as if it will be tough for any of the other contenders to catch up to Mr. McWhirter and his selection of ProMetic.
Just a year ago, the company's viability was still uncertain. It had negative working capital, little investor interest and its share price had bottomed at 10 cents. "The company had been virtually bankrupt for five years," Mr. McWhirter said. But ProMetic at that point had invested close to half-a-billion dollars in its blood filtering technology, which can both remove pathogens and recover proteins from plasma, and drug development.
Things began to change when Chinese biotech billionaire Li Li extended a $10-million lifeline last October. The company announced it would also begin to develop its own "orphan drugs" to treat rare conditions.
This September turned into an explosive month for ProMetic: The company announced favourable results in pre-clinical tests for a drug targeting lung disease, as well as an additional $10-million in financing from Thomvest Seed Capital Inc., a Toronto-based private equity firm founded by Peter Thomson.
In one month, the stock more than doubled to 76 cents. It has since continued to climb, breaking through 90 cents in October before a moderate slip. Mr. McWhirter sees good reason to expect a solid fourth quarter. "I have a lot of faith in this company," he said, explaining that Selective's position in ProMetic now exceeds 20 per cent of the total portfolio.
Meanwhile, a second Quebec-based small-cap biotech company occupies second place in the contest. In fact, Neptune Technologies & Bioressources Inc. – the pick of Alex Ruus, portfolio manager at BluMont Capital Corp. – looked poised to claim the lead before slipping in the third quarter. The company, which develops pharmaceuticals and nutritional supplements, including krill oil, had an otherwise stellar year after an explosion destroyed its Sherbrooke plant last year.
"You could see the company taken out by big pharma … or you're going to see the market really recognize the stock," Mr. Ruus said. He sees the recent dip as a buying opportunity for a stock with as much promise as ever.
The contest's early leader, Hewlett-Packard Co., had a monster first quarter, rising in share price by 71.9 per cent, before falling to the middle of the pack after investors lost faith in the company's turnaround. "There remains a divorce between the company's economic reality and the price of their shares," said Brian Pinchuk, a portfolio manager at Lorne Steinberg Wealth Management Inc. "HP's turnaround story is intact and the wave of negative news is largely in the rear-view mirror."