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Saturday, December 30, 2000
Jump to…Contra Guys Portfolio Performance | Review of Canadian Stock Picks
Last week we reviewed the performance of our Canadian stock picks, which though only lagging the TSE 300 benchmark by a couple of percentage points, was certainly nothing to write home about. Our U.S. picks are a different story, up 25.3 per cent. By comparison, the S&P 500 is down 11.3 per cent since March 30, the date of our first U.S. selection, and the Nasdaq composite index has fallen a gut-wrenching 44.6 per cent.
It's very unusual for us to use language like "a firm that screams buy," but that was how we described both R.J. Reynolds Tobacco Holdings Inc. and Philip Morris Cos. Inc. last April. Since then, the two companies are up more than 180 per cent and 100 per cent, respectively, as the combination of increases in cigarette prices with highly "motivated" customers has meant fat profits for Big Tobacco. Meanwhile, the spectre of huge lawsuit settlements has for the moment become yesterday's news. But the "evil" of this sector will be recognized again, making this a good time to take profits.
Wild swings in Office Max Inc. recently highlight the impact of luck on prices, at least in the short run. The stock got bombed when the firm was kicked out of the S&P 400 mid-cap index on Dec. 12 and mutual funds liquidated their holdings. But a few days later, a favourable article in influential Barron's sent the stock soaring. We'll take the lovely 77-per-cent gain in three weeks, and hope that the takeover possibility outlined in our piece becomes reality.
Children's footwear maker Stride Rite Corp. has shaken off a third-quarter earnings warning, and is moving up nicely. It's a great example of a solid company that has been unfairly punished because retail and apparel are so out of favour. Our other retail pick, Bombay Co. Inc., has drifted downward, but we do not think the Christmas numbers will be as poor as is feared. Both companies remain on our "buy" list.
After our recommendation last July, Utah Medical Products Inc. made a self-tender for its shares at $8.20, which we grabbed.
Since then, the stock price eased on soft revenue.
Consistent margins and sharp management are keeping profit healthy, however, and we would not be surprised to see this company go private. Grocery giant Fleming Corp. hit a pothole in its turnaround, but we still like it, especially if recession winds blow. People always have to eat.
We also have a couple of dogs.
Ameriquest Technologies Inc. rode the dot-com mania up, and then down, but investors still haven't figured out that this outfit has little in common with those nascent firms.
It's a speculative buy at its current moribund level.
Molecular Biosystems Inc., on the other hand, is a mutt, pure and simple. The long-awaited buyout of this firm is finally closer to reality, but at a price that is a tiny fraction of what the CEO was saying for years the company was worth.
A little reminder, as we move into the real, unadvertised millennium, to separate the virtual from the reality.
Spar Aerospace Ltd. pays a dividend of 19 cents a quarter.
Incorrect information appeared in last week's column.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter.
They can be reached at http://www.contratheheard.com or 416-410-4431. To track the progress of this portfolio, click here.
Acquisition date in Deal Dec. 29 Unrealized
2000 close close gain/loss*
RJ Reynolds Tobacco Holdings March 30 $17.00 $48.75 +186.8%
Philip Morris Cos March 30 21.25 44.00 +107.1
Office Max Inc Dec. 7 1.63 2.88 +76.9
Stride Rite Corp July 27 5.94 7.00 +17.9
Utah Medical Products Inc July 6 6.81 7.50 +10.1
S&P 500 index March 30 1,488 1,320 -11.3
Fleming Cos Sept. 14 15.00 11.81 -21.3
Bombay Co July 27 2.81 1.94 -31.1
Ameriquest Technologies Inc April 27 0.42 0.18 -57.1
Molecular Biosystems Inc April 13 0.81 0.31 -61.8
Total U.S. stocks +25.3%-*Does not include dividends
Jump to…Contra Guys Portfolio Performance | Review of Canadian Stock Picks
