Toronto-based CIBC World Markets Inc., with $80 billion in assets under management, is one of Canada’s leading asset managers. It reported $16 billion in U.S. equity assets in its most recent 13-F filing for the June 2011 quarter, mostly in large-cap equities. About 60% of assets are in financials, and 15% each are in basic materials and energy sectors. The following summarizes its largest buys and sells and top holdings based on the most recent SEC 13-F filing for the June 2011 quarter:
Technology sector: Buy Research in Motion Ltd. (RIMM). CIBC added $70 million to its $62 million prior quarter position in RIMM, a Canadian manufacturer of BlackBerry handheld devices for the mobile communications market.
RIMM has admittedly been a gigantic train wreck of late. After a nearly perfect 100-fold run-up from a split-adjust $1.46 in 2003 to $148 in 2008, the stock has been in a downward spiral since mid-2008. It has corrected 80% from its highs, including losing almost $14.5 billion from its market-cap in the June 2011 quarter. In its core mobile handset market, it has been losing market share faster than a celebutante shedding clothes at a pool party. Furthermore, it has a dual-CEO management structure that seems ill-equipped to make the kind of changes that RIMM will have to in order to remain a force in the mobile handset market.
However, all that having been said, it still has 24.7% of the U.S. smartphone market, just a sliver behind Apple's (NASDAQ:AAPL
) iOS with 26.6%; Google’s (NASDAQ:GOOG) Android leads the market with 38.1% market share. The company has over $3 billion or $6 per share in net cash available, some of which it will use to buy back 5% of its shares. It is still generating cash every quarter at more than $700 million per quarter, and is projected to generate another $5 billion or $10 per share in cash over the next two years. Furthermore, the BlackBerry handsets are strong in the emerging markets, where RIMM has made significant inroads by selling cheaper handsets in the prepaid market. And while revenue and earnings may have flattened out in the $20-$22 billion and $5-$6 range, it is important to bear in mind that revenue and earnings were in the $1-$2 billion range and less than $1 the last time RIMM traded in the mid-$20s.
RIMM is no longer a growth story, at least unless management figures out a way to narrow the technology gap with Android and iOS. That would explain the steep drop in its price, as momentum and growth investors exit this once-heralded story stock. However, it may be a perfectly fine stock for a value investor to start accumulating shares. At its current $28 price, and with almost $6 per share in net cash, it trades at less than 5 price-to-earnings (P/E). Also, management just declared a stock buy-back plan to re-purchase up to 5% of the common shares, which may provide support to the stock. Furthermore, technically, the current $25 bottom corresponds to the break-out of the two-year base the company formed in 2004-2006, before the break-out, rising six-fold in the next two years. Furthermore, a number of positive catalysts can provide upside to the company, including:
- a possible management shake-up that abandons the dual-CEO structure and puts Mike Lazaridis in charge,
- the incorporation of QNX into BlackBerry handsets later this year narrows the technology gap, and slows down or even reverses recent market share losses
- an acquirer may buy the stock at a premium to the current trading price.
Based on all this, we believe that the recent $25 lows will most likely hold, and it is a good time to start accumulating the stock. We would start with a small position and add to it on dips in the $25 range or below. Energy sector: Buy Canadian Natural Resources Ltd. (NYSE:CNQ). CIBC added $90 million to its $2.03 billion prior quarter position in the sector. It added $29 million to its $422 million prior quarter position in Canadian Natural Resources Ltd., an oil and gas exploration and production company in Western Canada, the North Sea and offshore West Africa; it added $23 million to its $562 million prior quarter position in Suncor Energy Inc. (NYSE:SU), an oil sand and natural gas company operating in Canada and globally; and it added $19 million to its $214 million prior quarter position in Encana Corp. (NYSE:ECA), an oil and gas exploration and production company in British Columbia, Alberta, offshore Nova Scotia, WY, CO, LA, and TX.
Both CNQ and SU have a significant presence in the Athabasca oil sands deposits in northeastern Alberta, Canada. Colloquially known as tar sands, due to their similar appearance, odor and color to tar, they are more costly to extract than conventional oil and until recently were not even considered to be part of the world’s oil reserves. However, the recent strength and long-term optimistic outlook of the price of crude have made it very profitable to extract oil from the deposits.
CNQ trades at a forward P/E of 8, at the bottom of its historic P/E range. It has corrected recently due to damage and work disruption costs associated with the fire at its Coker unit at its Horizon Oil Sands facility in early January, and the forest fires in North Central Alberta. Although insurance covered most of the damages from the fire, the incident also resulted in a revenue decline of almost C$600 million due to work stoppages. Consequently, March 2011 quarter revenue was down nine percent year-over-year versus being up 10%-30% in the prior three quarters. This is an opportunistic decline due to a short-term incident, and the long-term fundamentals for the company continue to be promising. Besides trading at a low P/E, the company also offers a decent 0.9% dividend yield. Furthermore, it has strong reserves, with an estimated 2.9 billion barrels of synthetic crude oil from the oil sands alone, not including any international properties. Valuing these reserves conservatively in the $12-$15 per barrel alone would justify the current market capitalization. Analysts are bullish on the company, with eight of the eleven analysts rating it a buy/strong buy and the remaining three rating it at a hold.
Basic materials sector: Gold and silver Industry: Buy Barrick Gold Corp. (NYSE:ABX). CIBC added $75 million to its $2.27 billion prior quarter position in the sector. It added $17 million to its $433 million prior quarter position in Barrick Gold Corporation, a Canadian miner of gold and copper in Peru, Canada, U.S., Australia, Chile, and five other countries; it added $5 million to its $386 million prior quarter position in Goldcorp Inc. (NYSE:GG), a Canadian miner of silver, copper and gold throughout North America and South America; and it dropped the $9 million position in Silver Wheaton Corp. (NYSE:SLW), a Canadian buyer of purchase agreements for silver and gold from mining companies operating in Mexico, Sweden and Peru. Furthermore, it added $20 million to its $225 million prior quarter position in Teck Resources Ltd. (NYSE:TCK), a Canadian miner of coal, copper, zinc, molybdenum, gold and lead, mainly in Canada, the U.S. and Peru.
ABX trades at a forward 10 P/E, at the bottom of its historical 10-30 P/E range. It is also trading at a discount to its peer group; GG trades at 18 forward P/E and SLW trades at 16 forward P/E. Earnings have increased every year since 2004, and have increased recently from $1.90 in 2009, to $3.19 in 2010, and they are projected to keep rising to $4.65 in 2012, driven by higher gold sales volume and higher prices for both gold and copper. Analysts are extremely bullish on the stock, with a mean price target of $64 and a high target of $71, well above current $46 price. Of the 21 analysts covering the stock, 18 rate it a buy/strong buy and three a neutral. Furthermore, ABX also sports a strong balance sheet, and is in a position to take advantage of any acquisition or exploration and development opportunities as they may arise. The stock has recently pulled back 20% after a strong rally, and is a strong buy here.
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Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
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