Greencore (GNCGY), a sandwich and convenience foods manufacturer operating in Ireland and the United...
3 Canadian Stocks to Get Global Exposure
09/19/2011 7:00 am EST
Two miners and a tech name from Canada have outstanding fundamentals and strong stories, says Ryan Irvine, and he sees them well positioned for further gains. These companies do business globally, so their reach goes beyond the Great White North.
Kate Stalter: Today I’m on the phone with Ryan Irvine. He is the president and CEO of Keystone Financial, which specializes in small, micro, and mid-cap stocks.
Ryan, given that, I imagine you have some good insight into actionable ideas for investors in this current market. Tell us about some of those.
Ryan Irvine: Yeah, it’s definitely what we do. One of the things we’re looking at right now, one of the themes we’re playing, is the disconnect between the price of gold and the price of some underlying junior miners—the disconnect that we see in there, and the value that we believe is in these miners right now.
One of them specifically that we’re looking at is Monument Mining Limited (Toronto: MMY). It trades on the TSX Venture.
This company matches essentially all of the criteria that we look at when we look at junior producers. It has a great cash position, existing production, growth and production over the next 12 months, a low cash cost—or the cost it takes to get this company’s gold out of the ground. It has good cash flow generation and upside potential from the drill bit.
Monument produces out of two wholly owned principal projects in Malaysia. We consider Malaysia to be a strong emerging-market economy and a mining friendly district, which is important to us. It (Monument) commenced gold production in September of 2010 at its Selinsing gold mine in Malaysia.
Now, what we really like about this company are the valuations. We believe this company will earn around 12 cents per share next year, about 9 cents this year, and that’s fully diluted. It has a strong cash position in the bank of about 13 cents per share. We believe it will grow to around 35 cents per share next year, just through internally generated cash flow.
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You can buy the stock right now at between 60 cents and 70 cents per share. You strip out that cash that we believe that will be in the bank this time next year, about 35 cents, and you’re really buying the business for about 30 cents—for a company that we believe next year will earn 12 cents per share. That’s about 2.5 times earnings. That will be a true value play.
We like that, and we like the upside in terms of exploration potential with this company going forward. So it’s a low-cost junior producer with great valuations and upside potential, so it meets all our criteria.
Kate Stalter: Now you mentioned this stock trades on the Toronto exchange. How would US investors get exposure to this stock if they were interested?
Ryan Irvine: Well, most brokerages in the US will trade Toronto-listed companies, so any of your discount brokerages that you’re trading through should have ready access to trade on the TSX.
If not, you can, as a US buyer, open a brokerage through any of the discount brokerages in Canada. A company like TD Waterhouse or anything like that will allow you to trade as a US citizen.
Kate Stalter: There are a number, obviously, of resource-related stocks that are Canada-based. So are there any others, based anywhere in the world, that have caught your attention? That you think investors should take a look at?
Ryan Irvine: Well there’s another company, and it is, as well, listed on the TSX. It’s known as Endeavor Mining Corp. (Toronto: EDV). This company is producing. It matches the criteria to a large extent that we were just going over, in terms of Monument Mining.
It is a gold producer, but it is producing in West Africa, so we give it a little bit of a discount on a geopolitical scale, but it has an enviable balance sheet. It trades right now at $2.40. It actually has a $1.70 per share in cash in the bank, or 70% of its market cap is in cash. It is pending a merger right now with another junior gold company. Both are producers.
We based our recommendation on this stock on that merger going through. It’s a friendly takeover, so we believe it will go through. Once that merger has gone through, it has some very low valuations relative to its peers, which is what we like.
In late August, this company came out with a statement of a friendly merger with a company called Artemis Resources. The highlights of this merger would be that gold production following this coming year would be about 172,000 ounces from its two mines in West Africa. The cash cost from those mines would be about $575 per ounce.
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Kate Stalter: So, Ryan, you were talking about the precious metals. Are there any other sectors that you believe that investors should take a look at right now?
Ryan Irvine: Definitely. One of the themes we look at, and one of the themes you see in the market right now in uncertain times, is that cash is king.
Well, we extrapolate that to not just holding cash in your portfolio, but to holding investments in companies that hold a strong percentage of their market cap in cash.
So, cash-rich companies and all these companies that we look at, too, don’t have a cent of debt on their balance sheet.
One of the sectors right now that we find, that have cash-rich business, profitable companies as well, is in the technology segment. The first name would be Wi LAN Inc. (Toronto: WIN).
This company is an intellectual-property company. It has a patent portfolio, about 1,400 patents that it goes out and licenses. Its primary focus is in the wireless segment, but it has a number of other areas of the tech market that it focuses on.
This company has licensed its patent to such names as Broadcom (BRCM), Intel (INTC), LG, Motorola (MMI), NEC, Nikon, Nokia (NOK), Panasonic (PC), Research In Motion (RIMM), Samsung, and Sharp…just to name a few. So some of the Who’s Who in the tech world.
The investment highlights of this company: Like I said, strong cash position. This company has about $2 per share of cash in the bank, so that’s $250 million in cash. That’s about 30% of its market cap. It has strong exposure to the high-growth wireless market through its patent portfolio. It is pending a potential acquisition right now and it has attractive valuations.
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Revenues—we’re seeing extreme growth in revenue in this company. In its last quarter, they were up 137% to $28 million. Net income grew to 17 cents per share in the last quarter—that’s up from one cent per share—so that’s a tremendous growth in net income. We expect this company to earn around 64 cents per share next year.
You can buy the stock right now, about $7. That seems like around ten times earnings, but you should take out that $2 per share in cash, and really you’re paying about 6.5 to 7 times earnings, which is growth at a reasonable price, which we like.
This also pays a dividend of about 1.5% right now, so it has some return of capital, which we like as well. And, some great upside in terms of litigating its patent portfolio and some potential acquisitions.
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