As bad as the year has been for investors tagging along with the stock markets, it was still possible to make money.
You just had to be selective, and buy stocks that paid dividends.
Ten Canadian stocks we selected using a robotic or automated filtering technique would have earned us about $92,000 in six months, if we had only had a million dollars and the courage to invest it on the eve of 2010.
Holding all of the stocks tracked by the Standard & Poor’s/TSX composite index would have cost us about $25,400, plus brokerage fees.
Toronto’s index fell by 3.85 per cent in six months, although dividends limited losses to 2.54 per cent.
Meanwhile, seven of our 10 stocks rose in value, including drug maker Biovail Corp. by 39.7 per cent.
This has been a period of uncertainty regarding growth in the global economy, anxiety about mounting government debt and a flight to the perceived safety of gold and U.S. government bonds.
Most other major stock markets have fallen more than Canada’s after the exceptionally strong gains last year.
Yet many stocks did continue to rise in value. Our Robot Portfolio selection technique, popularized in earlier news columns by Boston money manager John Dorfman, seems to have drilled through to find some hidden value.
We cannot say this always works, however. Earlier portfolios gained 30 per cent gain in 2006, and 68.5 per cent in 2009. But we lost 5 per cent in 2007 and 40 per cent in 2008, a worse performance than the markets as a whole. Our average gain over four years was only 5.7 per cent a year, ignoring trading fees and taxes.
Each time we chose 10 companies with 10 different specialties. All had a market value of at least $500 million, more shareholder equity than debt, at least a penny of profit per share in the latest four quarters reported and a low share price relative to earnings.
Our biggest winner this year, Biovail, shot up in price on news it had agreed to merge with Valeant Pharmaceuticals International Inc., a California maker of generic drugs and treatments for chronic illnesses. The combined companies will have operations in several countries, but with a workforce nearly 20 per cent smaller.
A big gain of 27.6 per cent was posted by Western Coal Corp., which mines coal in British Columbia and West Virginia for makers of metal and generators of electricity. It has seen a decline in revenues, but every analyst tracked by Bloomberg rates the stock a buy.
Shares of Telus Corp., the telephone company, produced a 20.9 per cent gain. It turned in a slightly higher profit in its latest quarter, even though revenues were flat, new competitors are challenging its share of the cellular telephone market and analysts differ on whether to buy the stock.
Yellow Pages Income Fund, another company facing challenges and a lack of enthusiasm from analysts, defied the odds and turned in an 18.3 per cent investment return. It recently expanded by acquiring Canadian Phone Directories Holdings Inc.
Natural gas extractor Peyto Energy Trust provided a 9.1 per cent gain, while cheque printer Davis + Henderson Income Trust added 3.4 per cent and power generator and natural gas distributor ATCO Ltd. added 4.3 per cent.
Capstone Mining Corp., which mines copper, silver and zinc, and operates in Canada and Mexico, was the biggest disappointment, posting a 23.1 per cent investment loss. Fairfax Financial Holdings Ltd. provided a 2.4 per cent investment loss, while Precision Drilling lost us 7.7 per cent.
We will see at the end of the year whether our overall gain holds up. In the meantime, you should know we are providing the information as a matter of interest only. We are not offering investment advice.
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