Select Group of Common Stocks Now Favored for Investment
BUSINESS & INVESTMENTS
A. W. BLUE
DESPITE the low spirits of the stock market, and the discouragements of the past few months, a large element of the investing public is still distinctly "common-stock
minded.” The ease with which fortunes have been won by the few through speculation in common stocks has made a lasting impression, which even the debacle of last autumn and the subsequent indifferent action of the market have not dispelled.
The relative merits of junior equities as a medium for investment are still a stock subject for argument, but the fact remains that many conservative investors are searching the market lists for the potential leaders of the next forward phase. And there arises the question which many Canadian investors are asking: What are the leading Canadian common stocks, measured from the standpoint of security, yield, and potential possibilities for the future?
In an endeavor to help the investor solve his problem, a number of representative stockbrokers were requested to name a list of common stocks which in their opinion could qualify for the high post of leadership, and their selections and comments, as presented below, are of timely interest:
Flood, Potter and Company, Montreal
THE purchase of securities of our leading Canadian utility, industrial and mining companies at current market levels should, in time, show handsome appreciation to the patient holder who is willing to ignore intermediate fluctuations. In this connection the possibilities of profit seem to be greatest in:
Montreal Light, Heat & Power Consolidated. This company supplies electricity and gas to one of the fastest growing cities on the Continent. The company enjoys excellent management and has proved very profitable to investors.
Shawinigan Water & Power Co. Dividends on the common stock of this large producer and retailer of electrical power have been regularly paid during the last twenty-two years. Appreciation has been high and the prospective developments on the St. Maurice River are indicative of the rapid expansion of the company.
Steel Company of Canada. It is very favorably situated both as regards markets and raw materials. In the past it has shown itself to he extremely well managed, and a dividend payer through bad times as well as good.
Imperial Oil, Ltd., is the leading oil company in Canada. It operates a completely integrated unit from production, through refinery, to distribution, and should benefit from rapid increase in
Hundreds of thousands of dollars are lost annually In Can~sda through careless Investment. Fraudulent and worthiest seour~tien are being ccn• etantly poured on to the market to trap the unwary. A general observ ance of this simple maxim w11 assist In the reduction and elimin ation of this economic waste --macnor VAn IeJVT....IeJVcQT,,~ATa"
anadian automobile registrations. International Nickel produces ninety-five per cent of the world’s nickel supply and, with the development of the Frood Mine, promises to become
an important factor in world’s copper production. Income should increase substantially over the next few years.
Abitibi Power & Paper is one of the largest newsprint producers in the world, and also has important water power resources. As a low cost producer it is one of the strongest in the newsprint group. Any improvement in the newsprint situation as a whole should be reflected in materially increased earnings by the company.
Dominion Bridge. The strong position of the company in its field and recent acquisitions afford quite definite promises of continued earnings growth during the next few years.
Craig, Luther and Irvine, Montreal
rT'HE common stocks of the following -*• companies constitute, in our opinion, sound investment media, and offer definite possibilities of appreciation in market value within a reasonable period.
The Bell Telephone Company of Canada: Brazilian Traction, Light & Power Company, Limited:
Montreal Light, Heat & Power Consolidated:
The Shawinigan Water & Power Company : Steel Company of Canada, Limited.
The Bell Telephone Company of Canada occupies in this country a position analogous to that of the American Telephone and Telegraph Company in the United States. Its past record is good, and its progress should go hand in hand with the growth and development of the provinces of Ontario and Quebec. On more than one occasion stockholders have received valuable rights, and we expect this privilege to recur as the company’s expansion programme proceeds. The company has paid a regular dividend of eight per cent per annum for many years, and there is little doubt that this rate will be maintained. At its present price the stock affords a yield of over five per cent which represents a satisfactory return from an investment of this character.
Although not operating in Canada, the Brazilian Traction, Light and Power Company has been so largely financed from this country, and its stock so widely held throughout the Dominion, that we consider it may be regarded for all practical purposes as a Canadian undertaking. Brazil is a country of immense potentialities, and this statement applies particularly to the commercial centres in which Brazilian Traction operates.
Admittedly there is an element of speculation inherent in the stock owing to possibilities of fluctuation in the Brazilian exchange; but recent events have demonstrated that such fluctuations are merely temporary, and that underlying conditions in the country point to steady improvement in its economic condition.
The stock of Montreal Light, Heat & Power Consolidated has been a volatile issue, and the wide fluctuations in market value that have occurred in the past year would normally preclude our recommending it for investment. We are not concerned, however, with the minor swings in the market price of this stock, and our recommendation is based on the promising prospects which we believe the company, and therefore the stock, to possess. The company’s future is intimately associated with the growth and expansion of the city of Montreal and its environs, and there is every assurance that its revenues will continue to increase. On the basis of current earnings the stock is certainly overvalued, but in view of the company’s unique position and other special circumstances, we feel that the trend of the stock in future years will be steadily, if irregularly, upward. The floating supply of the stock is surprisingly small, and for that reason it tends to rise sharply in price in response to any strong demand. It is probable, too, that the annual financial statements did not disclose the real earning power of the company, or the substantial revenues that are periodically derived from its investments.
The Shawinigan Water and Power Company is not only one of the largest hydro-electric undertakings in the world, but bids fair to become an increasingly important factor in the chemical industry of Canada. While its rate of progress in the electric field may not be so rapid in the next few years as it has been in the past decade, there is little doubt of the company’s continued progress side by side with the industrial development of the province. The subsidiary company’s production and export of acetic acid have increased substantially in the past year or two, and are likely to provide larger revenues for the parent company as time goes on. The company enjoys excellent management. The prior charges ranking before the common stock are relatively heavy, but should be gradually eliminated, and as the company’s expansion programme nears completion the position of the holders of the junior security should be materially improved. As a long range investment, the stock of the Shawinigan Water and Power Company merits, in our opinion, particularly favorable consideration.
The Steel Company of Canada, Limited, has built up a strong financial position in recent years, and has long been recognized as one of the most ably managed and most conservatively administered of Canadian industrial companies. Year by year, liberal allowances have been made for depreciation, and, since 1922, more than $6,000,000 has been added to surplus which now amounts to over $14,000,000. Against fixed assets having a book value at December 31, 1929, of $41,460,000, there was a depreciation reserve of just under $10,000,000. Earnings on the common stock have steadily increased, and last year were equivalent, after allowance for all charges including the preferred dividend, to $6.70 a share. The litigation that has arisen in connection with the rights of the common stockholders to past dividends is an unfortunate development, but is one that does not seriously affect the fortunes of the company. It is probable that this difficulty will be settled by the end of this year or early in 1931; and irrespective of the decision to be handed down by the Privy Council, we regard the common stock as a first class holding of its kind. There is an old axiom that warns investors not to buy into litigation, and for this reason both the preferred and common stocks of the Steel Company of Canada have been
out of favor for some little time. The broad outlook for the company is, in our opinion, unquestionably promising.
McLeod, Young, Harris and Scott. Limited, Toronto
Brazilian Traction, Light & Poteer Company. Improved economic conditions in Brazil and the most favorable market conditions enjoyed by shares of the Brazilian Traction, Light and Power Company, Limited, make the shares of this large South American utility a most desirable purchase. A moderate cash income return, plus the added advantage of stock dividends from time to time; safety of principal; great possibilities of capital appreciation; progressive management; and the excellent market provided, go to make the shares of this company attractive both for long term investment and for speculative account.
At a time when most industrial corporations experienced lower earnings, Brazilian Traction was able to report increased net earnings for the first quarter of 1930 at $6,657,946 against $6,584,554 for the first quarter of 1929. The cash dividend of $2 a share was earned with a comfortable margin in 1929, and the policy adopted for years past, of paying capital expenditures out of earnings, can only mean that the payment of stock dividends will be continued in the future.
British American Oil Company, Limited, is the second largest concern of its kind in the Dominion, having service stations and branches spread from coast to coast, thus placing the organization in a position to draw business from all corners. The no par value shares of this company were split two for one early this year, and are currently selling around 20, with regular quarterly dividends of 20 cents a share paid, and the general expectation of a cash bonus in the final months of 1930 in line with the policy of other years. Very few securities on the Canadian market have the record of appreciation that British American Oil has enjoyed. On all occasions in the past, whenever a split has taken place, the market value for the subdivided shares has steadily appreciated, and it is only a matter of time when the present stock will command much higher prices.
Steel Company of Canada. This company will benefit substantially by the increased tariff against certain steel products, and sooner or later the stock market will start to discount this. Steel of Canada is to the Dominion what the United States Steel Company is to the United States. The company is the largest of its kind in Canada, long established, and has an uninterrupted dividend record.
International Petroleum Company, Limited. is a subsidiary of Imperial Oil, Limited, and a member of the Standard Oil group. It is selling at an attractive price level in comparison with other members of the group. Overproduction of crude oil in the United States, and the agreement to bring production and consumption closer together by curtailing production, have not helped the market for the oil stocks. International Petroleum operating in South America and having a large market for its crude in Imperial Oil has not been beset by these difficulties, nevertheless the shares have remained at a low level in sympathy with the others. Conditions in the United States have improved greatly and the oil stocks are beginning to discount this in the market. International Petroleum has steadily increased production, and is in a much more favorable position for market enhancement than any of the others.
Bongard & Company, Toronto
THE following six Canadian stocks appear to be conservatively valued at present market levels for investment purposes, and also merit consideration from the standpoint of speculative price
appreciation. Current dividend yields vary from 3.80 to 5.65 per cent, with an average of 5 per cent. The International Petroleum Company does not publish an earnings statement, but the common stocks of the other five companies are from 8.2 to 16.7 times the latest available I earnings per share. The shares of public utility companies usually sell in a higher ratio to earnings than do the shares of industrial companies, and in this respect Bel! Telephone shares are no exception.
The companies represented are leaders in their respective fields, their competitive position is strong, they are ably administered and have a promising outlook. Commitments at current market levels in any or all of the following stocks would appear to be attractive for income purposes and for possible appreciation in price over a reasonable period of time.
Senility I »ivi. lom l
Sind Company of Cnna'la 1.75 I ini-i iiiiI Mina 1 IT'irulriim. 1.HI1
Dominion Stores ..... 1.20
Cairo-Hersey Tubes ... 5.00
Hell Telephone ....... K.iiO
Service Stations "A” .. 2.60
Current Net l’rof. Yn 1.1 I'