Canada's biggest investing newsletters have passed the biggest credibility check they may ever face.
In the midst of a historic stock market plunge a year ago, these newsletters told readers to chill out and buy stocks. With surprisingly few exceptions, that was just the right approach.
The Successful Investor told readers to buy Linamar Corp. (LNR-T14.650.211.45%), which had lost more than 60 per cent of its value since the beginning of 2008. Linamar has almost doubled since it was recommended. The Investment Reporter highlighted Toronto-Dominion Bank (TD-T66.190.350.53%), which has since risen almost 17 per cent.
There were misfires, too. General Electric (GE-N15.94-0.24-1.48%), Manulife (MFC-T18.49-0.01-0.05%)and TransCanada Corp. (TRP-T33.980.280.83%) were among the recommendations that didn't pan out. But a year after Canada's biggest investing newsletters met the bear market, we can describe the results as very good.
None of the highlighted stocks blew up. And while few of the picks outperformed the 20-per-cent gain of the S&P/TSX composite index since the end of October, 2008, most have done better than the bonds, guaranteed investment certificates and money market funds that investors have been clinging to lately.
It's not just the newsletters that survived this credibility check, though. At a time when lots of investors have been parking cash in do-nothing money market funds and savings accounts, the idea of buying quality stocks in a terrible market has also proved sound. Let's go through the newsletters one by one:
The Investment Reporter
Who's Behind It: MPL Communications, a major publisher of investing newsletters.
What it said in its five weekly editions in October, 2008: “Just keep in mind that the stock market selloff gives you an excellent buying opportunity. This is especially true of the hard-hit Canadian banks.”
“… it's impossible to consistently outsmart all other investors to buy at the bottom and sell at the top. Rather than attempt this feat, we feel that you'd do better holding a well-diversified portfolio of high-quality, dividend-paying companies.”
What worked: Potash Corp. (POT-T118.262.231.92%) and TD Bank have both snapped back nicely, and Petro-Canada merged with Suncor Energy (SU-T37.96-0.05-0.13%) in a deal that valued its shares at a 25-per-cent premium. That was a win for Petrocan shareholders.
What didn't work: General Electric is sort of a proxy for the global economy, which is in recession right now. GE might have worked out better here if not for a dividend cut this past February. Telus (T-T34.400.020.06%) is the more surprising blotch on The Investment Reporter's record. As a telecom stock, Telus should have held up better. The problem has been investor concern about heightened wireless phone competition. Note that Telus shares now yield about 5.5 per cent, which is roughly two to three percentage points more than you can get from a five-year guaranteed investment certificate.
The Successful Investor
Who's Behind It: Veteran stock picker and newsletter publisher Patrick McKeough.
What it said in October, 2008: “The market's drop seems to have turned into a panic reaction that is out of proportion to what's going on in the economy. … However, we think prices of many stocks are low enough now that we'll look back on them a few years from now as bargains.”
What worked: Calling a rebound for Bank of Nova Scotia (BNS-T48.180.270.56%) and IGM Financial (IGM-T41.360.601.47%) was hardly inspirational because these are dominant stocks in their sectors. But Linamar and ShawCor were true home runs. Both are smaller companies in sectors that were reeling last fall – auto parts for Linamar and industrials for ShawCor (SCL.A-T28.600.150.53%).
What didn't work: Gennum (GND-T4.11-0.04-0.96%), a tech stock that has fizzled after hitting $7.50 in January.
Money Reporter
Who's Behind It: MPL Communications
What it said in October, 2008: “What we will say is that this is no time to panic and sell all your stocks and income trusts, and move everything into bonds.”
What worked: Except for Royal Bank of Canada (RY-T56.700.821.47%), the Money Reporter went with a slate of defensive names. As it turned out, RBC was the pick of the bunch, thanks to a year-to-date gain of about 17 per cent. Two of the defensive choices, Fort Chicago Energy Partners (FCE.UN-T10.00----%) and Emera (EMA-T23.65----%), delivered solid gains and at no time fell as much as the broader market.
What didn't work: Canadian Utilities (CU-T40.46-0.19-0.47%) and TransCanada Corp. In a fast-rising market like we've seen this year, no one's much interested in playing defence. Final note: TransCanada has a dividend yield of 4.5 per cent. Just try getting that from a bond these days.
Internet Wealth Builder
Who's Behind It: Investing writer Gordon Pape.
What it said in October, 2008: “Over the long haul, those who invest in solid companies today will be richly rewarded. But in the short term, they may have to reach for the Tylenol.”
What worked: IWB was the one newsletter of the five to have a perfect record. Each of the five picks made last October was higher as of late this week, although some made it by mere millimetres. One impressive thing about IWB's picks is that they included only one defensive name, Enbridge (ENB-T45.070.621.39%). The other picks were nicely diversified throughout the economy.
Reality check: Diageo's (DEO-N68.09-1.20-1.73%) gains were eaten up by the appreciation of the Canadian dollar against its U.S. counterpart.
What didn't work: Not applicable.
The MoneyLetter
Who's Behind It: MPL Communications
What it said in October, 2008: “Each crisis is a little different, and this one is particularly special, in how it manifests itself. But each crisis is also similar, in that they all pass eventually, and they are very often followed by a significant rally as confidence in the future resurges.”
What worked: A trio of income trusts all made at least a little money. The best return came from Bell Aliant Regional Communications Income Fund (BA.UN-T27.09-0.09-0.33%), a good defensive name.
What didn't work: Manulife Financial, the worst performer in the S&P/TSX capped financials index in 2009 and, these days, the financial stock most likely to surprise shareholders in a bad way. Though it's disappointing to see Manulife down about 11 per cent while the capped financial index has gained 35 per cent year to date, it's worth noting that Manulife fell as low as $9.02 in March, 2009. Dark days, those were. Luckily, the newsletters saw past them.
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