Remember all the talk a year or so ago how gold would take off? Well, guess what? It didn’t. In fact, it’s now trading at an even lower price. Keith Richards, portfolio manager of Barrie, Ont.-based ValueTrend Wealth Management also names three stocks to sell now and favors an exchange traded fund of U.S. bank stocks over Canadian bank stocks.
If you’ve been a regular reader of my columns, you’ll know I usually write about new and exciting investments.
But this time, I’m taking a different tack, focusing on investments that were once hot, but that are now tepid, if not downright chilly. I’ll also list some names that have long been real duds.
First up? Gold. Back in January of last year, I wrote a fairly poignant commentary about this much-touted metal. I warned that until gold prices formed a positive technical profile, it was best not to buy it.
I also noted that gold would likely remain in its trading pattern — a consolidated triangle — for some time. The metal then fetched roughly US$1,200 an ounce.
In addition, I said I’d only advise buying gold if it broke through at about $1,360 an ounce, preferably at the same time it popped its 200-day moving average.
Well, if you heeded my advice, you saved yourself a lot of grief. More than a year later, gold prices now hover around US$1,150 an ounce — even lower than it was when I warned you to stay away.
But if you bought into the idea that the metal would rise because of, say, political turmoil — well, you’ve seen few, or no, returns.
Still, I did say in January 2014 that I’d be the first person to buy gold should it break out of its base — something that could happen this summer if markets correct themselves. And my pledge still stands. But until there’s a breakout of the type I’ve described, try to avoid buying the metal.
This manufacturing company stock is a dud
Another investment to avoid is Bombardier Inc. (TSX─BBD.A), Canada’s biggest maker of transportation equipment. Bombardier is a dud. For starters, its margins have narrowed considerably, the result of a big earnings miss in its most recent quarter.
In addition, the company’s balance sheet is shaky. Bombardier, for example, ended 2014 with cash of US$2.4 billion — its lowest year-end cash pile in a long time. Not surprisingly, these things are keeping a lid on the company’s share price.
Moreover, there’s little hope Bombardier will do a 180 anytime soon, given the low loonie, as well as the likelihood that there will be few buyers for its business jets. Not only did Bombardier’s shares crash below their technical support of $3 and change, but they now seem to be heading even lower — toward $2.
Avoid this Canadian technology stock
Another stock market dog is BlackBerry Ltd. (TSX─BB), about which rumours continue to swirl. One such rumour? That the Canadian tech stock wunderkind will be snapped up by Samsung, the South Korean multinational.
If this proves correct, BlackBerry could be the buy of the century — at its current price, of course.
Meanwhile, Bay Street still sees headaches for BlackBerry’s service business, given the continual erosion of its subscriber base. Moreover, sell-side analysts are skeptical about the company’s ability to ramp up software, as well as operate more competitively.
They also worry whether BlackBerry can continue to hold its own on the hardware front, given today’s fiercely competitive market for smart phones.
Technically, BlackBerry, like gold, remains contained within a consolidation pattern. And, admittedly, a breakout above $14 might inspire some technical traders to buy this Canadian tech stock.
But I think that doing so on the hopes the company will merge or even get bought out is a gamble.
Remember actor Clint Eastwood in the movie “Dirty Harry”? In it, Eastwood asks the bad guy if he “felt lucky” — this after losing count of the shots he’d made. But the bad guy decides not to chance it. And when it comes to BlackBerry, I don’t know if I feel I should chance it either.
Consumer goods stock no longer tops
Sears Canada Inc. (TSX─SCC) is another stock market darling that’s now a dud. True, for many years, the company was both a respected and profitable retailer.
But is this still the case? Perhaps not. If you’ve bought Sears’ shares over the past six years, you likely realize the company is only a ghost of its former glamour.
In fact, if you’ve bought Sears recently, you’ve likely bought a real estate play, rather than a consumer goods stock. That’s because the company has been aggressively trying to monetize its real estate holdings. Not only has it already sold most of its best locations, but it’s fed most of the sales proceeds to its U.S. parent.
In sum, Sears Canada has been shrinking. Moreover, its retail model has failed to attract enough customers to lift its shares.
Then, too, the company has plowed little of its revenue back into its stores, choosing instead to pay dividends on a random basis.
Admittedly, Sears’ shares could rally if it chooses to pay more dividends, or if it’s bought by its U.S. parent, or if it successfully sells off more of its real estate. But none of this is guaranteed to happen; Sears’ technical chart offers scant hope for a rebound.
Moreover, most of the company’s prime real estate has already been sold. So, if you’re risk-averse, avoid Sears Canada.
Best financial stocks now U.S.-based
Canadian bank stocks are another investment that’s had its day. Indeed, given the banks’ poor winter, we recently cashed out of the BMO S&P/TSX Equal Weight Banks Index (TSX─ZEB), an exchange traded fund that tracks Canada’s banking sector.
We got out a little below $23 a unit just before the start of the banks’ latest earnings season. And we’re glad we did. For one thing, Canadian bank stocks face a tough market — one that’s unlikely to get better in a big way anytime soon.
Moreover, the banks are taking a big hit in their loan books from the plunge in petroleum. After all, with oil and gas prices sinking fast, why would energy outfits want to borrow money to buy more land, or equipment? Put another way, low petroleum prices are keeping oil and gas producers away from their bankers.
True, at some point, owning Canadian bank stocks will again make sense. But this is unlikely to happen until interest rates rise and the oil patch stabilizes.
At ValueTrend, we’re focusing on U.S. banks, instead of Canadian ones. With that in mind, we’ve bought BMO’s Equal Weight U.S. Banks Hedged to CAD Index (TSX─ZUB). As its name implies, it’s an exchange traded fund that covers America’s banking sector.
Investor’s Digest of Canada, MPL Communications Inc.
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Investor's Digest of Canada •4/20/15 •