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Market Buzz – Boyd Booms, Market Busts
After posting strong gains in October, the last five trading days marked Toronto’s worst weekly loss in eight weeks. On Friday, Toronto’s benchmark S&P/TSX Composite index dipped 22.99 points to 11,892.44. The index notched a weekly loss of 3.1%, its largest weekly percentage loss since the week ending September 23, 2011.
In a market that is taking its cues from an unstable macro environment in Europe, do not expect this type of volatility to end anytime soon. A deleveraging world will continue to keep the markets focus in the near term on macro issues until a credible Euro debt reduction plan is not only implemented, but shown to be carried through.
It is also our opinion that the U.S. has a great opportunity, while the world is distracted with the Euro market, to quietly draft and enact a credible long-term debt (not just deficit) reduction plan.
When Europe calms (and it eventually will for a time at least), the world will turn its eye to the largest debtor nation, the United States, and the current plan to “reduce the deficit gradually” is not good enough in our opinion. Eventually, those lending will want or require higher rates.
Also Friday, Statistics Canada reported Canadian prices rose 2.9% in October from a year ago, higher than expectations, but still retreating from the 3.2% posted in September. The core inflation rate, which excludes the prices of volatile items like food and energy, dipped to 2.1%, higher than the Bank of Canada’s target inflation rate of 2%.
The core inflation rate is still above where the Bank of Canada would like it to be and that will take away some ability for the Bank of Canada to sound too dovish. The result, the Canadian currency strengthened against the U.S. after the data was released, as the inflation numbers put temporary pressure off Canada’s central bank to further ease interest rates. The Loonie has appreciated in value by 1.7% against the greenback since Monday.
In our Canadian Stock Coverage Universe (www.keystocks.com), we saw strong positive earnings numbers out from a number of companies this past week including very strong numbers from long-time favourite, Boyd Group Income Fund (BYD.UN:TSX).
The company reported that its sales increased by 41.1% to $97.3 million in the third quarter of 2011 compared with sales of $69 million for the same period last year. Net earnings were $6.5 million, or 6.7% of sales, compared with net earnings of $1.9 million, or 2.8% of sales, for the same period last year.
The Boyd Group Inc. is the largest operator of collision repair centres in North America. The company also announced an increase in its monthly distribution to $0.0375 per trust unit. The first distribution will be payable on December 22, 2011, to unitholders of record at the close of business on November 30, 2011.
Looniversity – Should I Prefer Preferred to Common?
One way to add to the product mix in your portfolio during bear markets is through preferred stocks. A preferred stock typically pays a fixed dividend before any dividends are paid to common stockholders. In the event of liquidation, they represent partial ownership in the company and receive priority over common stockholders, but after bondholders. So, if safety is your primary concern, as a bondholder, you are first in line. Owners of preferred stock do not enjoy the same voting rights as common stockholders. The advantages of owning preferred shares include a greater claim on the company's assets and having a higher priority status, in terms of receiving dividends.
There are four basic types of preferred stock:
- Cumulative Shares: These shares have dividends, which build up if the company does not make the scheduled dividend payments as promised. This is the most common form.
- Non-Cumulative shares: These shares do not allow unpaid dividends to build up.
- Participating Preferred Shares: These shares receive a regular dividend and allow owners to participate with common stockholders in extra dividends.
- Convertible Shares: These shares can be exchanged for another type of security, usually common stock.
Put It To Us?
Q. I am 12 years old and have some money put aside from babysitting and other things, but I really want to learn how to save better. Can you help?
- Elisha Brooks; Calgary, Alberta
A. First off, the fact that you are already concerned about saving leaves you miles ahead of most of your peers, nice job! How much should you save? You actually may be able to save 100 per cent of your money. Does that mean you should? Not at all. The best way to develop good saving habits is to make saving a regular part of your life, along with spending.
Save before spending. Whenever some money gets into your hands, from a job or your allowance or whatever, take your savings out immediately before spending any of the money. The beauty of this system is that once you’ve removed your savings, you’re free to spend the rest.
Negotiate with your parents. This may or may not work for you, but it’s worth a shot. See if they’ll “match” your savings, in order to encourage good saving habits. If they match your savings dollar-for-dollar, for example, that would mean that for every $25 you plunk into savings, they’d plunk an additional $25.
Consider the “opportunity cost” of purchases. For example, imagine that you can either buy concert tickets for $50 or you can invest the money. If you invest for 10 years and your investment grows by an average of 11 per cent per year, your original $50 will become $142. So, your decision can be framed like this: “Would I rather have these tickets now or $142 in ten years?” If you choose the tickets, then by all means, buy them.
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