Up, up and away

Tom Fennell December 6 1999

Up, up and away

Tom Fennell December 6 1999

Up, up and away


Investors, giddy with profits, have nicknamed it the Nortel Index. Last week, the Toronto Stock Exchange 300 composite index closed at 7,890, nearly 70 points above the record high it set back in April, 1998. Fuelling that resurgence are dozens of high-tech companies, notably Canada’s largest, Nortel Networks Corp. The share price of the Brampton, Ont.-based Internet equipment maker has soared more than 220 per cent over the past year. Along with parent BCE Inc., the two now account for an astonishing 20 per cent of the total value of the blue chip TSE 300, and Nortel is expected to surge even higher. “We are no longer hewers of wood and drawers of water,” says Duncan Stewart, a mutual fund manager at Tera Capital Corp. in Toronto. “We are writers of code and designers of chips.” That might be a bit of an overstatement. The Nortel moon shot, in fact, had masked a serious problem gripping the broader Canadian market. While the indexes soared, the average TSE stock was being mauled in a bear market

and is down 5.4 per cent on the year. But last week’s march into record territory gave analysts reason for optimism because it was widespread, including the energy, communications and all-important banking sectors. Now, after watching the U.S. markets post record gains over the past two years, Canadian investors finally seem set to cash in.

“We’ve got global economic growth,” said Scott Penman, a Winnipeg-based portfolio manager for IG Investment Management. “We had that in the early 1990s, and that was a fantastic period for Canadian companies.”

With the Asian, European and Canadian economies improving, Penman believes they will lift a broad section of the market, including the manufacturing and resources sectors. But it is technology and communications companies, including cable TV firms, that have stepped into the limelight. Another TSE titan, JDS Uniphase Canada Ltd. of Nepean, Ont., which makes fibre-optic equipment, is up more than 1,000 per cent on the year, and over just the past two weeks its shares have climbed by more than $100.

Even smaller technology companies have caught fire. Shares in Waterloo, Ont.-based Research in Motion Ltd. shot to record levels last week after the company confirmed Dell Computer Corp. had agreed to use its e-mail equipped pager. While traditional resource companies will continue to rise and fall with the commodities market and growth in the overall economy, says

Tera Capitals Stewart, the technologysector, which now accounts for 23 per cent of the TSE, will remain red-hot. “The engines of growth,” he adds, “are good indefinitely.”

After years of stagnation, biotechnology stocks are also surging. Leading the way are firms like QLT PhotoTherapeutics Inc., a Vancouver-based company that produces light-activated drugs to fight cancer. So far, it has climbed 434 per cent this year, and shows no sign of slowing down. One reason foreign investors are snapping up shares in firms like QLT is because they are a bargain compared with their U.S. counterparts. “Over the last three months,” said Stewart, “we have seen U.S. stocks underperform Canadian securities and that will continue.”

Foreign investors, in fact, are warming to TSE stocks even more than Canadians. Contributions to Canadian mutual funds have plummeted by 45 per cent so far this year. But foreign investors bought $1.1 billion in Canadian equities in September alone, bringing the total for the period ending on Sept. 30 to $10.7 billion. Penman expects foreign investors to continue taking advantage of Canadian hightech stock prices: “They are cheaper than their global counterparts.”

Many analysts believe that the economic forces pushing the TSE higher, including low inflation and strong earnings, will continue well into next year. “Were in a very bullish time right now,” says Katherine Beattie, senior technical analyst at Standard & Poors MMS in Toronto.

Still, there are two wild cards that could at least temporarily undermine the market. Analysts believe some nervous investors may sell securities ahead of the so-called Y2K effect at the end of the year. As well, the U.S. Federal Reserve Board has raised interest rates three times since June and could strike again in February. Interest rates will rise further, says Nesbitt Burns chief economist Sherry Cooper, “but that in itself wont derail the stock market.” And the Nortel Index will keep surging higher.

Tom Fennell

Getting Yriisey’s on track

Roger Grimes, Newfoundlands minister of mines and energy, says Inco Ltd. of Sudbury, Ont., now wants to build a nickel processing plant in the province in exchange lor the right to mine the rich body of ore at Voisey’s Bay in Labrador. Inco, which hopes to have a deal by year-end, had in the past said no to such a plant.

Canadian asks for time

The directors of Canadian Airlines issued a circular urging shareholders not to sell their stakes until Dec. 1. That is when the board will respond to Air Canadas purchase offer. The struggling Canadian is also exploring other options, including selling its regional airlines, or getting a cash infusion from its international partners in the Oneworld airline alliance.

Of profits and job cuts

The Bank of Montreal reported a profit of $1.4 billion for fiscal 1999, up 2.4 per cent from 1998. The bank spent $113 million on restructuring, which curbed earnings. (In October, the bank announced it would cut 1,450 jobs to boost profits.) The bank also closed 62 neighbourhood branches this year, while opening 33 cheaper branches in retail stores.

Renovation wars

Réno-Dépôt Inc., Quebec’s biggest hardware chain, says it will open 15 stores in Ontario and create more than 600 jobs under a four-year, $350-million plan. The chain, owned by Castorama SA of France, will be called Building Box and feature fashionable home decor items designed to lure customers away from Home Depot.

Criticizing the Eatons

Justice James Farley of the Ontario Superior Court approved a restructuring plan forT. Eaton Co. Ltd., but took the unusual step of criticizing how much the Eaton family and other shareholders will recover, while creditors receive a fraction of the money they are owed. Family members will get about $ 11 million and shareholders will get $20 million, which Farley said appears to be “on the rich side.”