Quants pick mining winners

Quants pick mining winners

Posted: March 31, 2009, by Peter Koven

Bring on the quants! Macquarie analysts Javed Jussa, Yin Luo and Rochester Cahan used quant factors to rank mining stocks based on a combination of their ability to perform well in a rebounding market, but still hold up if the market deteriorates again.

They studied all the Canadian metals and mining stocks over the past three weeks (when they had a major upswing) and over the past three years (when the market went from bull to bear). They figured out which quant factors had the most predictive power for the miners during both periods, and screened all the companies against the combined list.

The most important factors turned out to be upward analyst revisions, strong five-year earnings growth, improved liquidity, positive earnings surprises, and high return on assets.

The rankings turned up plenty of surprises, to say the least. The analysts found that the company most likely to perform well in a rebounding market, and still hold up if the market deteriorates, is Silvercorp Metals Inc., a silver miner working in China. Debt-laden giant Teck Cominco Ltd. also cracked the top three following its big rebound in March. Here is the entire top 10:

1. Silvercorp
2. Inmet Mining Corp.
3. Teck
4. Quadra Mining Ltd.
5. Corriente Resources Inc.
6. First Uranium Corp.
7. Taseko Mines Ltd.
8. First Quantum Minerals Ltd.
9. HudBay Minerals Inc.
10. Thompson Creek Metals Company Inc.

Globe and Pescod say...

Windows get dressed

RTGAM

North American stocks on Tuesday recovered some of the ground they lost during Monday's selloff  - but failed to hold on to their highs for the day after a substantial dip in the final hour of trading.


The Dow Jones industrial average closed at 7608.92, up 86.90 points, or 1.2 per cent. The index fell about 116 points toward the close. The broader S&P 500 closed at 797.87, up 10.34 points, or 1.3 per cent, similarly surrendering more than half of its gains in the final hour of trading.


So, is the glass half full or half empty? Skeptics can certainly point out that there appeared to be more at work here than a shifting assessment of the global economy or corporate earnings. The latest glimpse of U.S. house prices, courtesy of the S&P Case-Shiller index, showed a drop of about 19 per cent year over year in January, slightly worse than expected. As well, the Conference Board's confidence index showed that consumers remain in the dumps.


Indeed, as some observers pointed out, the rebound in stocks may be due to nothing more than "window dressing" - that the final day of trading in the first quarter may have attracted mutual fund managers ditching their losing stocks and piling into recent winners to impress clients with their know-how.


If so, then a lot of mutual fund investors will discover that they are now the proud owners of U.S. financial stocks, many of which soared on Tuesday. Bank of America Corp. rose 13.1 per cent, Citigroup Inc. rose 9.5 per cent and JPMorgan Chase & Co. rose 7 per cent. In other moves, Alcoa Inc. rose 9.7 per cent and Microsoft Corp. rose 5.1 per cent.


Still, despite a volatile rebound since early March, results for the first quarter were dismal. The Dow fell 13.3 per cent and the S&P 500 fell 11.7 per cent. The technology-heavy Nasdaq composite index fared better, though, falling just 3.1 per cent.


In Canada, the S&P/TSX composite index closed at 8720.39, up 124.17 points, or 1.4 per cent - and ended the quarter down about 3 per cent, making one of the world's best-performing major indexes.


For Tuesday's rebound, financials were the biggest movers - hey, could Prime Minister Stephen Harper's upbeat assessment of Canada's financial system be paying off? Toronto-Dominion Bank rose 3.5 per cent, Bank of Montreal rose 4.6 per cent and Sun Life Financial Inc. rose 7.8 per cent.


Energy stocks were also generally higher after the price of crude oil rebounded toward $50 (U.S.) a barrel, up $1.25. Canadian Oil Sands Trust rose 4.8 per cent and Canadian Natural Resources Ltd. rose 0.3 per cent.

Copyright 2001 The Globe and Mail