Hunting for bargains

Hunting for bargains Lou Schizas Friday, May 29, 2009

Dear Lou,

It looks like a dead cat bounce and I wondered what you thought about the “go away in May’ strategy. My savings have recovered somewhat but I was considering picking some proven money maker stocks like Johnson & Johnson and Kraft ?etc.and let go some mutuals containing US equities and possibly trading money market funds for actual bank shares ?Toronto-Dominion , Royal Bank and Bank of Montreal . Any thoughts ? I’m 54 and counting and don’t want another Oct 8th wake up call?love the show on AM640?appreciate the input.

Sincerely,

Doug

----------

Hi Doug,

I think you have identified a solid strategy. Buy great companies when they are cheap. Johnson & Johnson and Kraft foods are both off of their highs and paying an attractive dividend. JNJ pays 3.6 per cent while KFT offers a 4.5 per cent dividend yield. But lets not forget that they are both U.S. equities, which you were thinking of trimming from your portfolio.

Given that both companies have international operations that will shield them somewhat from the travails of the U.S. economy, you still have to reconcile the fact that the major part of their business comes from the U.S. The idea of moving your capital out of the U.S. isn’t a bad one given that it appears that Canada is better positioned to weather the current storm.

Moving out of cash and into Canadian bank stocks is another example of looking for solid companies at low prices. All of the banks have been lifted by the rally that started on March 9 and yet still offer attractive dividends. The Bank of Montreal dividend offers a 6.7 per cent yield which given the tax treatment of dividends only makes it sweeter.

When it comes to being 54 and not wanting another wake up call I would say that you might have to reconsider your investment profile. It sounds like you have become more risk averse and need to start moving more of your assets into lower risk categories that reflect your concerns.

As far as applying the “sell in May and go away” strategy I think that you are wise to be aware of seasonality that effects certain sectors but you are best served reviewing the charts of the stocks that you own on a regular basis. A regular review will give you a better handle on how your investments are performing.

Happy Capitalism!

Lou Schizas

Talisman could split in two

Talisman could split in two

by Peter Koven

Energy, natural gas, Talisman Energy

Unconventional natural gas deposits were the dominant theme at Talisman Energy Inc.'s investor day, and UBS Securities analyst Andrew Potter wrote that the company's next big move could be an acquisition in that area, and ultimately a split into two companies to capture a higher valuation for the unconventional assets.

"The strategy introduced last year of focusing on unconventional gas as a major growth driver has panned out far greater than we expected, both in terms of amount of resource but also the economic viability of that resource," Mr. Potter wrote in a note.

He added that it will take some time for the unconventional gas to deliver aggregate growth to the company, since growth in unconventionals will be mitigated by declines in conventionals. But he expects the unconventionals to become self-financing in 2010 in a US$7/mcf pricing environment.

At that stage, he thinks Talisman will consider separating its North American business (which is heavily focused on unconventional gas) from its international business, if the market has not rewarded the company with a "reasonable" valuation.

"We believe [Talisman's] North American gas assets would ultimately attract a competitive valuation with other large-cap gas plays given its top-tier resource size and economics," Mr. Potter wrote.

He reiterated a "buy" rating on the stock, and increased his target 15% to $23 a share. He noted that Talisman still trades at a discount to its large-cap peers, and a re-rating is likely as the market gains confidence in Talisman as "a credible unconventional gas story."

Peter Koven