Yola Looks North of the Border
07/23/2004 12:00 am EST
Yola Edwards, one of Canada's top technical analysts, is a contributing editor for Internet Wealth Builder and Top Stocks, providing technical analysis research on a variety of Canadian and North American equities. Here, she looks north of the border at two financial services firms.
"Our latest income pick of the month is Bank of Nova Scotia (BNS NYSE) or (CA:BNS-J Toronto), commonly referred to as Scotiabank. The bank one of Canada’s ‘big 5’ banks, with more international exposure than the rest. It serves about 10 million customers in some 50 countries around the world. Fundamentally, Scotiabank has an excellent dividend record. Payments to investors have increased every year since 1999 and at the beginning of this month management announced yet another hike of 5 cents a share, bringing the quarterly dividend to 30 cents ($1.20 annually), which works out to a yield of 3.37%. The quarterly dividend per common share is now more than 36% higher than last year. This marks the 22nd increase in the last 25 years. In June, Scotiabank reported record second-quarter earnings of $786 million up 32% from a year ago. On a per share basis, second-quarter profit climbed to 75 cents from 57 cents. It was the fourth consecutive quarter of rising profit for the bank. Return on equity, a key measure of profitability, rose to 21.8% from 17.2%.
"From a technical perspective, the stock looks attractive. Over the past 2-1/2 months, the stock has been in a corrective phase, consolidating its previous sharp advance. During the corrective process, it has formed a saucer bottom pattern, which appears close to completion. That means that the correction from its recent highs is nearing an end. (A very cautious investor might wait for the stock to fall back to what would be excellent support at its 10-month moving average, at about $34. However, if it doesn’t pull back, you would miss the buying opportunity). A close above $37.45 may be imminent and if BNS tops that level, it would suggest that the stock is ready to rally to its pattern’s technical target measurement of about $41.80 over the next three months. The 10-year monthly chart reveals a stock, which continues to find new highs after brief periods of consolidation and there is nothing to indicate any change in the pattern. Overall, Scotiabank offers excellent yield with the likelihood of more dividend increases in the future, as well as capital gains potential."
"Rockwater Capital (CA:RCC Toronto) is our latest speculator’s stock pick of the month. Rockwell made its debut on the Toronto Stock Exchange in January 1997. At that time, the company was a royalty revenue business earning its keep from providing venture capital to start-up companies. However, in 2002 under the new leadership of Robert Schultz as chairman and Bill Packham as president and CEO, the company changed its strategic direction and transformed itself into a financial services business, focused on opportunities in the asset management, wealth management, and capital markets business. Packham and Schultz were the dynamic duo that built Midland Walwyn (which was sold to Merrill Lynch in 1998 for $1.3 billion). Under their leadership, Rockwater has gone from a few dozen employees in 2002 to 500 employees through the acquisition of First Associates, a full-service investment dealer; Robert Caldwell Capital, an independent wealth management firm; and Yorkton Securities’ private client business. In July, Rockwater announced a 35% ownership stake in Fairway Capital, a high quality innovative investment products company offering structured products in both traditional and alternative asset categories.
"In May, the company reported record first-quarter earnings of $2.5 million or 2 cents per share on net revenues of $41.7 million compared with a loss of $2.9 million on revenues of $20.9 million in the first quarter of 2003. On a year-over-year basis, the company showed impressive revenue growth across all business units. Further, to eliminate its status as a 'penny stock', shareholders have approved a consolidation of the shares, which would make the equity look more attractive to investors. The company has a market capitalization of $145 million on 156.75 million shares outstanding. Technically, over the past 10-1/2 months the stock has traced out a bullish ascending triangle. Once the stock is able to close above the triangle’s upper trend line resistance area of about $1.20, the stage will be set for the price to advance to about $1.70. Since the triangle is about two-thirds complete, the stock should stabilize and begin its advance out of the pattern soon. I expect it could take about four months to reach its target price once it breaks out of the triangle. Rockwater is are only appropriate for risk-orientated investors seeking significant capital gains."