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Stock Trading: What I am Watching and Why

Posted by admin on May 3, 2007 in Investment Products

I paid my taxes on-line last week and, thankfully, it wasn’t that bad! I decided to use some money ear-marked for taxes to pay down the mortgage and do some investing (I’ll blog about the pay down mortgage vs. contribute to 401k/RSP debate at a later date).

With respect to stock investing, this is what I have my eye on now and why (as usual, any discussion about stocks is for informational purposes only and not a recommendation or advice of any kind; kindly conduct your own due diligence):

1. Shoppers Drug Mart (TSX: SC): RBC Capital Markets reported today that Shoppers (as its known in Toronto) has the highest level of profitability among all drug store chains in North America (strangely, the second highest chain is the Canadian owned Jean Coutu Group- must be something about the public health care system here!) . Shoppers is also doing two things that would be the envy of most retailers: (1) increase same store sales (meaning that the company is more productive in their existing locations) and (2) growing average sq. footage per store (meaning its expanding at the same time; as a sidenote, if you like retail stocks follow closely the same store sales numbers- there is a direct correlation between stock increase/decrease and same store sales increase/decrease). Finally, its dividend has been increasing- always a good indicator of a healthy company.
2. General Electric (NYSE: GE): (I own GE and hoping to buy more) GE use to be known as a slow growth business (chemicals & insurance) but under Jeffrey Immelt (successor to Jack Welch) it has converted its business model to fast growth businesses which (to paraphrase Immelt) China cannot compete with and/or undercut pricing and profit margins. GE has made major investments in the following industries: water, health care and infrastructure (including clean power)- all areas of future growth. Meanwhile, its a multi-billion dollar company consistently increasing its earnings at 8-12% year over year while increasing dividends. This is a great defensive stock with the only issue being a recent increase in stock price.
3. Royal Bank of Canada (TSX: RY): I am not particularly concerned about recent analysis that Canadian banks have become over-valued. RBC is a cash machine. Net income for the 1st quarter 2007 is up 27% from the same time last year. Its dividend payout ratio (even after a 15% increase) is at 35% (as of end of 1st quarter 2007) which means it still has some room to increase dividends given industry averages (a dividend payout ratio is what % of earnings is paid out to shareholders; Canadian banks have a dividend payout ratio in the range of 40-50%) and it just bought back 7.6 million shares. All good signs that the company is cash rich and doing well. I am looking at RBC for another reason; I deal with a lot of banks for clients and RBC is EVERYWHERE- in personal banking, insurance, mutual funds, wealth management etc. etc. They have more sales people on the street than any other competitor by a large margin; they are aggressive and focused on growth. They also are the most innovative of all the banks in finding new ways to attract new clients and have existing clients buy more product/services (RBC was one of the 1st banks I know of in Canada to hire “hunters and gatherers”- a mobile sales executive with the sole goal of poaching other bank’s clients and feeding them into the operational divisions).

Just a side-note- remember how everyone in Canada bashed RBC when they first bought what is now known as RBC Centura? Some analysts wanted RBC to sell their American operations. Today, their American operations are profitable. Just goes to show what a little patience and good management can do.

No posts on Friday- have a great weekend.