Question: Does anyone ever consider Canadian stocks like PWI or TRP? They have been good to me. — Dave
Jonathan Hoenig: Many investors seem to be considering Canadian stocks given their dramatic returns of late. The S&P/TSX Composite index is up 21.6% YTD, far outpacing the Dow, Nasdaq or S&P 500.
Canadian stocks tend to be highly correlated with commodities and natural resources, one of the main reasons why they've been so profitable this year. Indeed, both of your picks have benefited from this trend. TransCanada Corp. (TRP) is a utility with interests in electricity and natural gas. PrimeWest Energy Trust (PWI) is an open-ended energy trust focused on natural gas and crude oil. Both utilities and energy trusts were among the best performing sectors in 2005.
My favorite pick among Canadian stocks is North American Palladium, Ltd. (PAL), a Toronto-based mining company that specializes in platinum group metals. My hedge fund currently holds a position in PAL. Investors wanting more diversified exposure to Canadian stocks might consider iShares MSCI Canada Index Fund (EWC), an exchange-traded-fund heavily invested into Canadian energy, banking and insurance issues. Royal Bank of Canada (RY), Manulife Financial (MFC) and Suncor Energy (SU) are among the Fund's top holdings.
Question: If I believe large-cap growth is the place to be in 2006, which index fund should I be looking into? — Jim (Green Bay, WI)
Jonathan Hoenig: There used to be a time when targeting a particular corner of the market, such as large-cap growth, would have meant having to sift through hundreds of stocks to assemble your own portfolio of names. To achieve proper diversification, you'd have to buy dozens of stocks, paying a fat commission to a broker each time.
In recent years, the popularity of indexing has prompted financial service firms to create ready-made portfolios that focus on everything from small cap value stocks to real estate, biotech or even bonds. Using exchange-traded funds, you can get targeted exposure in one simple transaction.
For large-cap growth, one option is iShares Morningstar Large Growth Index Fund (JKE), which holds popular favorites such as Microsoft, Johnson and Johnson and Intel. The fund trades about 20,000 shares a day and has returned roughly 4.23% YTD. For more of an emphasis on technology, you might consider iShares Russell 1000 Growth Index Fund (IWF), which holds Amgen, Cisco and Intel along with General Electric, Procter and Gamble and other widely held large-cap names. This is also a more liquid option, trading well over 1,000,000 shares a day.
Question: Precious metals are looking rather nice right now. Gold topped the $500 per troy ounce mark (it will teeter while some take profits). Do you think this is an economic indicator? Where do you see gold leveling off? Historically, when our economy goes south, have we seen precious metals go north? Thanks in advance. — Sandy (Florida)
Jonathan Hoenig: Why invest in gold? The best-articulated case for gold I've read was written by none other than Alan Greenspan more than 35 years ago. In an essay later reprinted in Ayn Rand's "Capitalism: The Unknown Ideal," Greenspan outlined how, "in the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value." So while the investment seems obscure and somewhat impractical, history suggests that an ounce of gold will have value long after Citigroup and Merck are long gone.
Personally, I don’t spend too much time estimating where a security might “level off”. As long as a market continues to tick higher, that’s all the validation I need in order to maintain a position. The fact is that gold and most other precious metals are very much "in season" right now. Both copper and platinum have recently traded at all-time highs, and gold prices recently touched levels not seen since 1982.
Thankfully, trading gold has become a snap thanks to the successful introduction of two exchange-traded-funds (ETFs) that track the price of the metal nearly tick for tick. StreetTracks Gold Shares (GLD), which started trading on the New York Stock Exchange last November, and the iShares Comex Gold Trust (IAU), are designed to track the spot price of physical gold, with a share representing one-tenth of a troy ounce of gold, less expenses.
In any market, the big moves take time. But I do believe gold will eventually surpass its early 1980s highs of $800/ounce. To that end, I'm putting my money where my mouth is: My hedge fund currently holds positions in both gold bullion and gold-related securities.
Question: Loral Space and Global Crossing have both just come out of bankruptcy and are currently trading public shares again. Are they good Investments? — George
Jonathan Hoenig: When it comes to a company's capital structure, shareholders sit at the bottom of the ladder. In the event of a bankruptcy, they are almost always left with nothing but worthless stock. After reorganization, the company's creditors (bondholders) are given "new" shares, which, depending on the stock, can sometimes become hot investments. Case in point is Sears Holdings (SHLD), which, after emerging from bankruptcy in 2003, has seen its shares rise from 15 to over 120.
At this point, it doesn't appear as if a similar rise is underway at either of the names you are considering. Global Crossing (GLBC) is down some 45% from its January 2004 reissue and Loral Space (LORL), which again began trading earlier this year, has been largely flat. For my money, I believe there are more compelling buys in today's market and would pass on putting new money to work in either.
Question: What is your opinion of Target? — Fred
Jonathan Hoenig: Target (TGT) is an inspiring American success story that stretches back to 1902 when George Dayton opened Goodfellows (later Dayton's Dry Goods) in downtown Minneapolis. In 1962, the company entered discount merchandising by opening the first Target store, notable at the time for its emphasis on aesthetic and functional design. Over the years, they've made frugality hip, forging successful partnership with designers such as designers such as Michael Graves, Isaac Mizrahi and Amy Coe. There are now 1400 Target stores in 47 states, earning over $12 billion in revenue each quarter.
While discount retailers aren’t among the market's favored sectors right now, Target continues to show remarkable strength, outpacing all major indices in 2005. I'm not buying the stock for my hedge fund right now, but would hold shares previously purchased and set stop-loss orders below $48. Best of luck!
Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC and is a markets columnist for Smartmoney.com. He appears regularly on FNC's business program Cashin' In.