Market Terminology for
Dummies, Picking Some Winners, OTCBB
Re-Sales now OK, Capital Pool Corps Update and Events Update
Market Terminology for
Dummies:
I, like I'm sure many of you
do, receive a ton of email. Among the junk email, I get lots of jokes, usually
about men, women and sex. But, I really like the ones about lawyers and finance
the best. Here's a little stock market humor which was emailed to me recently.
It offers some definitions of commonly heard market terms. Thanks to whoever
initiated it. Maybe some of you can relate to these.
Momentum Investing
- The fine art of buying high and selling low.
Value Investing
- The art of buying low and selling lower.
Broker
- Poorer than you were in 1999.
P/E ratio -
The percentage of investors wetting their pants as this market keeps crashing.
Standard & Poor
- Your life in a nutshell.
Stock Analyst -
Idiot who just downgraded your stock.
Bull Market -
A random market movement causing an investor to mistake himself for a financial
genius.
Bear Market -
A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry
and the husband gets no sex.
Stock split
- When your ex-wife and her lawyer split all your assets equally between
themselves.
Market Correction
- The day after you buy stocks.
Insiders
- the only ones who know how to make market gains.
EBITDA
- Useless acronym used to allow firms to report a profit when there isn't really
one.
Liquidity Crisis - swimming
in red ink.
Market Cap - something
to protect us from bumping our heads too often.
Picking Some Winners
I recently challenged some Simon
Fraser University Engineering students to identify a B.C. company in which
they'd invest. I said, "You are given $5,000 to invest in one BC public
company (find one on the T-Net web site) - large or small. Which one did you
choose and why?" Here are their responses: (I hope that their atrocious
spelling and grammar, which I've mostly corrected, does not reflect on their
ability to pick some winners).
For $5,000 you can only buy one
or two hundred shares in the higher cap companies. So, I expected that many
would dig into the T-Net list of companies and find some speculative gems
trading in the pennies in which a $5K investment in a two bit stock would result
in owning 20,000 shares. Not so...they took the "safe" route, sticking
with the top 20 companies. My guess is that they'd rather not fritter away this
capital by speculating in the much riskier - and also potentially more rewarding
- microcaps. I really hoped that with a "free" $5k in hand, that
they'd be adventuresome and discover some real exciting early stage tech
deals.
Like most street investors,
they did not spend much time looking at the numbers - the usual financial
measures of performance and health. Instead, they went on gut feelings and
street talk.
Here are their
"picks" in order of popularity:
Ballard Power (TSE:BLD,
$82.80)
PMC Sierrra (NASDAQ:PMCS, U$32.30)
Macdonald Detwiller (TSE:MDA, $23.75)
Sierra Wireless (TSE:SW, $37.55)
Westport Innovations (TSE:WPT, $11.55)
Silent Witness (TSE:SWE, $10.60)
360Networks (TSE:TSX, C$1.93)
Ballard Power (TSE:BLD,
$82.80)
Ben comments: "In the last
year, Ballard has been in the news several times, announcing cooperative
deals with major auto companies, as well as collaborative research with other
alternative fuel companies. Although the first quarter statement shows that
their financial position has not improved much since last year, I believe that
Ballard is incurring excess costs right now while it is acquiring new
technologies and firms. As the demand for fuel cells increases over the next few
years, and judging by the impending energy crisis and the cost of fuel, the
demand will increase and the extra research costs will be justified in the next
few years. The stock may not go big in this year, but hanging onto it for 5-10
years will probably yield good results." (Ben, they'll welcome you as a
shareholder. Companies like patient investors. Too bad you can only buy an
odd-lot of 61 shares!)
Amir would invest his $5,000 in
Ballard "since it has very good potential in the future. With all
the shortage of energy and the high prices of gas, it seems that we are heading
towards using alternative energy sources. And Ballard is the leading company in
the development of the fuel cell. It is partners with Daimler-Chrysler ( I hate
the new name...Chrysler, I think they never should have merged, but that is off
the topic) which gives Ballard a good share of the market. Also the current
price of the stock is $83 which is a good price since I strongly believe the
price will jump up once the car manufacturers start using fuel cells. The
company's shares are listed on the TSE and Nasdaq. The average volume is around
1 million which is good sign." (Amir - I'm not sure why you believe that
$83 is a good price. Are you just trying to convince yourself that you've made a
good buy, i.e. cognitive-dissonance reduction?)
Matt "believes that Ballard
is a strong company (they just acquired Textron Systems of Wilmington,
Massachusetts for 12.8 million) and fuel cells are going to be a HUGE part of
the world in the future."
Yang "would invest $5000
dollars in Ballard Power because it is the one company that I most
recognize in the media, and I think their product is a very important one. I
feel their work towards a no emission vehicle is important for our society and
environment. Once the technology is accepted globally the company will do
well." (Yang - some folks might criticize an investment decision based on
media popularity, but on the other hand, that's what drives demand for stock. It
amazes me how many tech CEOs believe that if they do a good job in managing
their companies and report good financing results, the market will look after
itself. Well, that just isn't so. Take a look at the media PR that even the
largest of companies put out. The small CDNX guys aren't very good at this -
notwithstanding the pure promotion plays).
Adam would invest in Ballard
because "they are not a tech/software stock so their stock price has not
been dropping too much as of late, as have some of the other stocks. They also
have a technology that will be in great demand in the near future since gas
prices are going up and the world's knowledge of the effects of air pollution
and global warming is increasing. This is a big company with a solid foundation
therefore its stock is not too risky and a worth while investment for about a
couple of years or so. This is not a stock that you buy one day and sell the
next." (Adam - I'd be interested in your definition of a "tech"
stock. Ballard is one of the techiest stocks I've ever seen!)
Daniel likes Ballard for
"the reason that they are a company that I believe shows a remarkable
potential to grow. I really believe their technology will become an extremely
valuable and sought after product as energy prices continue increase and people
begin see the advantages of alternative fuels. Of course, it may be some time
before their technology becomes enters mass production, however, this time will
come and I want to be sure I have shares at that time. So my investment would be
a long term investment." (Daniel - hang in there!)
Andrew is another Ballard
fan. He comments that "this company has such huge potential and opportunity
for growth that an investment of any money would bring great long-term success.
In my current financial situation, a long-term investment with modest growth is
what I am looking for. Also, since I have worked at Ballard in the past, I know
the company is headed in a positive direction and would have no problems putting
my money in it. On top of safe returns, I think that Ballard could become a
world-player in every segment of the economy and could bring tremendous growth
in the future." (Andrew - ah, ha! An insider's perspective! I think it is
comendable that you would state what your investment criteria are. Very few
people really know their risk-reward propensity.)
PMC Sierrra (NASDAQ:PMCS,
U$32.30)
David says, "I will pick PMC-Sierra.
PMC's stock has dropped from $44 to $32 in the past week. (actually I lost some
money on it already). Therefore, if I have 5000 dollars, I will buy PMC's stock
now and wait for it to go back to $44. Although PMC has been downgraded by
analysts lately and the analysts are holding less optimistic views on the
semiconductor sector, I think when the computer products and internet backbone
infrastructures reach capacity, the semiconductor industry will pick up again.
Therefore, I believe within 2-3 years, people will once again put more money
into computers and broadband internet devices. At that time, PMC will thrive
again just like last year when it's stock reached $250!" (David - if you
really believe in the company, an averaging down strategy makes good sense. But
just because it reached $250 before, does not mean it will ever get there
again.)
Nick likes PMC-Sierra
because "I think that at this time the stock is undervalued at $31. This
stock has been as high as $250 in the past. Clearly, at that point the stock was
overvalued. However, I do think that PMC will gain ground over the long time. I
think that now is a good time to buy this stock as the price is low." (Nick
- I find it interesting that you would think $31 to be a low price just
because the price was once much higher. I'm not sure that this is a good way to
make an investment decision. However, you'd be surprised at how many people look
at the world in this way. If you use this logic, cheap penny stocks which have
fallen from grace should look attractive to you.)
Farnam is also "interested
in PMC because I think they are going exactly where market demands are
leading. They achieved such a big success in a short period (compare to other
company in their size). I knew they recently laid off about 13% of their
employee due to the market slow down, but I think this is only temporary and
they will go back up and rebuild their empire. The market is kind of slow now,
but I think [hope] that market will go back up and PMC-Sierra stock goes back as
high as it was [or at least close to that]." (Farnam - your honesty is
refreshing. Indeed, that's what most of us to when we invest - Hope!)
Bob wants to buy PMC-Sierra.
His reason: "Although the Nasdaq is dropping so much in the previous three
days and there is still much bad news floating in the market, I still think PMCS
should be a good choice for short-term buying. Since short-term buying can
ignore the P/E ratio and its revenue report (its upcoming revenue report is not
in the next month), after analyzing the 1 months average price is about $37 -
$40 and I believe it is at a good price to buy now ($32.53). There is a gap in
between those two prices. After considering the Nasdaq growing trend, I believe
it can rise to ~$38 within these two weeks if it is not accidentally downgraded
by those investing companies like Morgan Stanley and Salomon. And probably
Federal will lower the interest rate soon (25 basis points as the public
predicts), it MIGHT be able to simulate the market a little bit. Thus, PMCS is
ok to invest at this moment. The profit is about 15% after the trade is deal.
Once I have gained the profit, I can invest on other companies for short
term." (Bob - hmmm, I'm not sure what to say about this approach.)
Vincent "would buy PMC-Sierra
since it is in an area that will continue to see tremendous growth once a
recovery is in place. It is a worldwide leader in communication chips and the
need for bandwidth is only going to continue to grow, despite the oversupply
today. The semiconductor sector is cyclical and we are near the bottom today,
with all the pessimism going around." (Vincent - I'm with you!)
Macdonald Detwiller (TSE:MDA,
$23.75)
Dave says, "I would invest
my $5000 in Macdonald Detwiller. Aside from being the company I am
tracking, it seems to have showed good performance even throughout the recent
market slump. I think this is due to their very diverse market. They have
contracts throughout Canada, the US, and Europe, and don't just depend on one
sector (ie not just internet based) for their profitability. Besides their
online geographical database (which could be used by everyone from prospectors
to home buyers), they have major contracts with space agencies, and the US
Military (who has a bigger budget than the US military? Bush is president for at
least a few more years!)" (Dave - MDA is one of B.C.'s very first tech
companies. You're right about their diversity.)
Keith comments that he would
choose MacDonald Dettwiler "because it had a positive value for its
earnings/share and PE ratio. None of the other public companies in the top 5 had
positive values." (Keith - I was going to ask you what its numbers where,
but after you noted that none of the top 5 had earnings, I can see your point.)
Sierra Wireless (TSE:SW,
$37.55)
Troy's decision to invest in Sierra
Wireless Inc is based on these reasons: "1)Sierra is one of the top
runners in the industry it is in. I believe its product (wireless modem) will
have a huge market later on; 2)Although Sierra is not a big company yet, but it
is expanding at a REASONABLE rate. It has already built a solid fundation for
future development; 3)It has a very good group of crew members on board. People
in the company are smart, hard-working and very confident about the future of
the company; 4) The company is doing extremely well recently. Its first quarter
revenue this year increases more than 200% compared to the same time period last
year!" (Troy - I'm assuming that you mean foundation, but your typo is
fortuitous insofar as a good "fundation" - hey, maybe you coined a new
term here - is an important balance sheet item, i.e. indicator of financial
health, for any company. In SW's case, a quick look at the SEDAR
filing shows that it has $50 million in cash and short term investments.)
Victor "will invest in Sierra
Wireless because its products, wireless modems for laptops and PDAs, will be
in huge demand as new wireless technologies are implemented to allow high speed
wireless Internet." (Victor, that's probably true, but don't forget about
the competition.)
If you want the inside scoop on
Sierra Wireless, come on out to the Vancouver Enterprise Forum's annual dinner
(see below for more info) to hear it's CEO.
Westport Innovations (TSE:WPT,
$11.55)
Jason has "decided to
invest my $5000 in Westport Innovations. I chose this company because
venture capitalists financed this company which indicates that it may have good
growth potential in the future." (Whoa, Jason - they're not always right.
Although in this case, I would tend to concur with you.)
Arthur "would invest in Westport
Innovations Inc. I think that interest and belief plays a stronger role for me
than profit alone in an investment. I have interest and a small background
knowledge in their development of cleaner diesel engines. I also like their goal
to reduce pollutant from emissions of cars. The market value of their research
should also be noted. The timely research into a more economical transportation
during the "energy crisis" currently seems to have a promising future.
Aside from my choice and explanation, I understand I still don't have the skills
to really invest $5000 with that little thought!" (Arthur - thanks for your
honesty - but don't worry - most of us are just like you - more skill and a
crystal ball will always help.)
Silent Witness (TSE:SWE,
$10.60)
Jessica "has chosen to
invest the $5000 in Silent Witness. This is the company that I am
following. This is also the company that I would like to work for. I think that
their product is very up-and-coming, so I believe that their stock can only go
up from here. Their stock is currently trading a $10.60 so with $5000 I could
buy roughly 471 shares." (Jessica - investing in your employer makes good
sense. Why work for a dog?)
360Networks (TSE:TSX,
C$1.93)
Leung picked 360Networks
because "I think the stock price (around U$1.21) is low because investors
today are worried that 360networks can't deliver its product soon and these
investors are short term investors. I think that 360networks can't deliver today
but will deliver in the future and its stock price will rise. 360networks, in my
opinion, is a good long term investment." (Leung, I like optimism and long
term players, but don't let too much optimism cloud your judgment. But, because
there are so many worriers about 360, you may just be right.)
OTCBB Re-Sales now OK
Readers of this column will
know that I'm not a big OTCBB fan. Remember - this is what many promoters refer
to as the NASDAQ OTC (Over-the-Counter) board. Calling it Nasdaq is quite a
stretch. In any event, many B.C. shareholders of such stocks have bee, in fact,
selling their holdings illegally (securities rules are so complex, I'll bet that
anyone who's active in the industry has at one time or another done something
"illegal". But, that's another subject.
In any event, the BC
Securities Commission has now decreed that "B.C. SHAREHOLDERS MAY NOW
LEGALLY SELL OTCBB PRIVATE PLACEMENT STOCK, IF CONDITIONS MET". The new
ruling, BCI 72-502, reverses the position held by the BCSC until now that it was
"protecting the public" by not allowing British Columbia shareholders
to sell their shares acquired through a private placement in a non-B.C.
reporting issuer even outside British Columbia.
For details, Link to http://www.cwilson.com
Capital Pool
Corporation (CPC) Update
In this column, I
keep track of Capital Pool Corporation ("CPC") companies (see
chart below) as defined by the CDNX because they may provide funding and
management to, and in the process acquire, technology companies. They provide
companies with an alternative to traditional venture capital financing. CPCs are
the continuation of the former VCP and JCP programs on the Vancouver (VSE) and
Alberta Stock Exchanges.
The future of the
CPC program is uncertain with the TSE takeover of the CDNX in that more red tape
is likely to be created. It already takes too long to get a deal done. Let's
face it, these are nickel and dime deals and shouldn't be vetted to death by
regulators. Use the "red-herring", approach!
Since the program
was launched, more than 250 CPCs have been formed and more than 30 have
completed their so-called Qualifying Transactions (QT). It takes at least a year
- usually longer - for a CPC to find a suitable takeover candidate and another
six months to a year for a deal to be finalized. One way to expedite the
process is to eliminate the need for a special shareholders meeting to approve
the deals - leave it up to the CPC boards.
The only new addition to the
list this month is Peterborough Capital Corp., a CPC from Alberta. The
fact that this is the ONLY addition may indicate that CPCs are decreasing in
popularity.
Since the previous update at
the end of April, the following companies have come to trade: Abenteuer
Resources Corp., Capalta Inc., Entertainment Royalties Inc., Gateway Enterprises
Ltd., Karma Capital Corp., Legend Capital Corp., Longview Petroleum Corporation,
Marquette Capital Corp., Medical Ventures Corp., Semco Technologies Inc., and
Wrangler West Capital Corp.
Since the previous update, Avalon
Works Corp. and New Xavier Capital Corp. have been removed from the
list because they have completed their QTs.
Check our Capital
Pool Corporation chart (in .pdf format) for a complete list of the CDNX's
CPC and VCP companies, thanks to David Ing of Pacific International
Securities.
An introductory article explaining
CPCs may be found at www.bctechnology.com/statics/mvolker-jun
Local
Happenings
Next month, the Vancouver
Enterprise Forum will be holding its end-of season Annual Celebration
Dinner wrap-up event on June 19th. The subject is: Wireless Data in BC:
Twenty Five Years to Overnight Success. The keynote speaker this year is David
B. Sutcliffe, President, Chief Executive Officer and Director of Sierra
Wireless (TSE:SW). Mr. Sutcliffe has been the President and Chief Executive
Officer of Sierra Wireless since 1995. He has over 20 years of experience in the
high technology industry. Prior to joining Sierra Wireless he was a President
and Chief Executive Officer of Xillix Technologies (TSE:XLX) Corp. and
prior to that was the Vice-President and Business Unit Manager at the Mobile
Data Division of Motorola.
Sierra Wireless is a leading
provider of wireless data communications hardware and software products. The
company's mission is to be the world leader in wireless data modems and enabling
software. In this global, high growth industry, Sierra Wireless is the wireless
enabler for laptops and Personal Digital Assistants (PDAs), providing wireless
access to the Internet for people using these portable information devices.
Details and registration information on the event are at www.vef.org.
The BC
TIA Annual Awards Gala honoring the industry's best and brightest
will take place on June 13th. Join in the party and discover which companies
have the best chance of emerging as BC's next Pivotal Corporation or PMC-Sierra.
In past years, CEOs have used this venue to voice their displeasure with BC's
government. We won't be hearing that again!
Some year, these two
organizations will co-ordinate their calendars so that we don't have to get
stuffed twice within a one week period!
For a complete calendar on
technology events, check T-Net's
Events page.
Got a hot idea?
Check out New Ventures BC. The New Ventures BC
Competition is an annual event open to all BC residents, with prizes totaling
$125,000 - which is believed to be the largest of its kind in North America.
Individuals with a new business idea can attend seminars and networking
information sessions that will give them the chance to turn their idea into a
successful startup. A number of these are scheduled to take place during the
month of May. Check www.newventuresbc.com
for details.
SFU's TIME Centre is
open for business - business folks, that is. TIME is an acronym for Technology,
Innovation, Management, and Entrepreneurship. TIME supports the growth and
development of the tech industry in B.C. TIME features a "Business Centre"
(looks like an airport business lounge) which is open to technology
entrepreneurs and business people to use as a drop-in downtown office facility.
Need to plug-in? Make some calls? Do some work? Hold a meeting? Why hang out at
MacDonald's when you can work productively at the TIME Centre? Drop by and check
it out! It is located at SFU's downtown Harbour Centre campus at 515 West
Hastings St. More information can be found at www.sfu.ca/time.
PS - there are some great facilities for holding your company's AGM.
For a convenient printable, pdf version of this
column, click
here.
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