Biz X Magazine October 2010 : Page 31

poRtfol io CORNER Horror Stories By Steven Mayo Think back to when you were a kid, watching Detroit TV on Saturday afternoon and Sir Graves Ghastly would come on and set the scene for the scary black and white movie of the week. Since those days in the seventies, the US markets have gone through similar scary periods: the oil shocks, high-interest rates of the early ‘80s, the Savings and Loan Crisis of the early ‘90s, the Iraq War, and the Tech Meltdown. Today, the US investor is in a similar pessimistic mood. The current “horror movie” playing out includes US politics, US healthcare, Financial Regulation (some obviously needed), government deficits, and the struggling US economy. So, it’s no wonder the general population is in a foul mood. However, this is precisely the environment where bargains are found in the stock market, and as readers of this article will attest, I rarely prefer US stocks over Canadian, but I’m now ready to cross the border to buy specific US gems. My reasoning begins with the fact that the US market is experiencing a higher level of pessimism than in Canada and, while our stock market has dramatically out-paced theirs the last five years, it seems more and more unlikely that would be the case for the next five. Secondly, there are many global companies available on the US market that are not in Canada, and lastly, the US companies, many with great balance sheets, are likely to see more merger/takeover activity in coming years. The month of August was very active on this front (targets included Potash, McAfee, 3Par) and in such a low interest rate environ-ment, with too much cash on corporate balance sheets, I expect this will continue. The “horror-ible” US environment is actually not so bad when you look at individual companies, their earnings, assets, and their global reach. But, as usual, US investors continue to be caught up in the headlines that bring about opportunities for those of us paying attention. In the US, stories such as Visa and MasterCard are appealing as they are global leaders, and will continue in that position. The large US banks are reporting quarter after quarter of improved performance, even as their share prices declined from April to August. I expect to see these banks increase their dividends in 2011. There are also great resource companies like Freeport-McMoran Copper & Gold whose earnings and balance sheet are strong, and getting stronger, but has experienced significant fluctuation in it’s share price. Going forward, as opposed to buying the whole market, buy companies that are leaders in their industry, at a good price. It is scary out there for investors…but it could be scary good! I suggest it is the latter. Happy Halloween! I’ll end with a quote as always… “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” – John Templeton X This article is not intended as investment advice. Please consult with a qualified professional before taking any action based on information in this article. Steven Mayo is a Vice President and Investment Advisor with RBC Dominion Securities Inc.* RBC Dominion Securities and Royal Bank of Canada are separate corporate entities that are affiliated. *Member CIPF. B I Z X M A G A Z I N E • O C T O B E R 2 0 1 0 3 1

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