Ten RRSP/TFSA Ideas
February 21, 2012 Telephone: (604) 689-5400
Ten RRSP/TFSA Ideas From Global Securities Corp. Our Top Ten Ideas These ideas span the risk spectrum from conservative to speculative. Reasons for investors to get off the fence – simulative monetary policy, earnings growth, valuation support, and solid balance sheets. Plus the risk of a European blow-up seems to be receding. Attractive value in some cyclical stocks and defensive names. Barbell approach remains the preferred strategy.
Top Ideas Conservative
Moderate
Speculative
Name Cost-less Collar Rogers Comm. Stryker AG Growth 7% 31DEC14 CanBanc Sherritt 8.25% 24OCT14 Nexen Canexus Guyana Goldfields Duluth Metals
Price N/A $37.80 $53.60 $106.00 $9.66 $109.40 $20.46 $7.74 $8.04 $2.43
Yield N/A 3.80% 1.60% 4.79% 7.30% 4.55% 1.00% 7.10% N/A N/A
Type Strategy Stock Stock Convert. Deb. Fund Bond Stock Stock Stock Stock
Ticker N/A RCI.B SYK AFN'Z CIC N/A NXY CUS GUY DM
RRSP/TFSA Ideas
Cost-less Collar
Cost-less Collar Option Strategy
Risk Rating
Investment Thesis With equity indexes, especially the US benchmarks, having rallied sharply from their October 4 lows to trade near multi-year highs, it may be a good time to consider cost-less collars to lock in gains and hedge downside risk.
Conservative Example 1 S&P 500 ETF (SPDR) Price March $137 Call March $130 Put Net debit / credit Example 2 BankAm Price March $8 Call March $8 Put Net debit / credit
2
SPY $136.67 $1.26 ($1.11) $0.15
Description The cost-less collar option strategy consists of writing covered calls on individual stocks or ETFs, and buying puts with the proceeds. Writing covered calls and buying puts are both RRSP/TFSA-eligible option strategies.
BAC $8.18 $0.42 ($0.26) $0.16
Rationale DJIA is trading near its highest levels since 2008; S&P 500 (Chart below shows SPDR units) up 27% from Oct. 4 low and ~0.6% away from a three-year high; Nasdaq Comp. up 28% since Oct. 4 and at 10year high. TSX Composite has been unable for days to break through stiff resistance at 200-day MA just above 12,500, but has finally done so today. Although volatility is more or less a wash with this strategy, it is easier to execute when volatility is low and markets are near interim highs (since puts are cheaper during such times).
$160.00
800
$140.00
700
$120.00
600
$100.00
500
$80.00
400
$60.00
300
$40.00
200
$20.00
100 12/2011
10/2011
08/2011
06/2011
04/2011
February 14, 2012
0 02/2011
$0.00
Volume (mm Shares)
Price (US$/Share)
Risks An upside surge in markets will result in the underlying stock s/ ETFs being called away. Trading commissions may be significant.
RRSP/TFSA Ideas
Rogers Comm.
3
Steady growth expected for Rogers
Risk Rating
Risks Intense competition may affect profit margins. BCE and Telus last week reported earnings that missed estimates largely due to device subsidies. ARPU and average monthly minutes of usage are in a declining trend. Financial impact of Rogers’ purchase of 37.5% stake in Maple Leaf Sports for $533 million in December is not yet known. 7
5 4 3 2 1 Jan-12
Dec-11
0
Volume (mm Shares)
6
Nov-11
February 21, 2012
$41.00 $40.00 $39.00 $38.00 $37.00 $36.00 $35.00 $34.00 $33.00 $32.00 $31.00 $30.00 Oct-11
13 $40.23 6.4%
Sep-11
2012E $3.30 11.45x $7.14 5.26x 2.10x
Price (C$/Share)
Number Of Analysts Avg. Target Price Implied Upside
2011 $3.11 12.15x $7.44 5.08x 2.15x
Aug-11
EPS P/E CFPS P/CF Debt/EBITDA
$1.42 3.8%
Jul-11
Div per Share (Annual) Div Yield
Rationale/Catalysts We believe Rogers may break out to upside of $52-week range of $33.29 - $39.86 sometime in 2012. Operating revenue for key Wireless segment rose 1% to $1.83 billion in Q3, due to record growth in postpaid subscriber base and increased adoption of wireless data services. Growth being driven by growing use of smartphone and wireless laptop devices. Smartphone subscribers = 52% of postpaid subscriber base at end-Q3 (up from 48% at end-Q2 and 37% a year ago). 2012 EPS growth forecast by analysts at 6.5%. Stock is trading at 11.5x FY12 forecast EPS of $3.30. Our price target = $41.
Jun-11
$37.80 $19.90 $0.00 $10.08
May-11
Price (C$/share) Market Cap($ bn) Cash ($mm) Debt ($bn)
Business Description Rogers is the largest Canadian provider of wireless voice and data communications services, and one of the leading players in the diversified communications and media space.
Apr-11
RCI.B, RCI TSX, NYSE Telecom
Mar-11
Symbol(s) Exchange(s) Industry
Investment Thesis A conservative stock for steady growth and above-average dividend yield.
Feb-11
Conservative
RRSP/TFSA Ideas
Stryker
4
Fundamentals improving for implant maker
Risk Rating
Moderate
$53.60 $20.42 $3.40 $1.77
2012E $4.11 13.04x $5.32 10.08x 0.69x 21 $61.36 14.5%
$30.00
3
$20.00
2
$10.00
1
$0.00
0 Jan-12
4
Dec-11
$40.00
Nov-11
5
Oct-11
$50.00
Sep-11
6
Aug-11
$60.00
Jul-11
7
Jun-11
February 21, 2012
$70.00
Volume (mm Shares)
Risks Sustained weakness in US economy may lead to continued postponement of elective surgical procedures. Lower US reimbursement rates for medical devices are a concern.
May-11
2011 $3.72 14.41x $3.71 14.45x 0.79x
Rationale/Catalysts Stryker may be well placed to overcome sector challenges such as postponement of elective procedures, lower reimbursement rates, a 2.3% tax to be imposed on medical devices from 2013, and stronger USD. Should benefit from an increase in elective procedures as US economy improves, as well as demographic trends. With US accounting for 63% of 2011 sales, has least exposure of peer group to stronger greenback (
Ten RRSP/TFSA Ideas From Global Securities Corp. Our Top Ten Ideas These ideas span the risk spectrum from conservative to speculative. Reasons for investors to get off the fence – simulative monetary policy, earnings growth, valuation support, and solid balance sheets. Plus the risk of a European blow-up seems to be receding. Attractive value in some cyclical stocks and defensive names. Barbell approach remains the preferred strategy.
Top Ideas Conservative
Moderate
Speculative
Name Cost-less Collar Rogers Comm. Stryker AG Growth 7% 31DEC14 CanBanc Sherritt 8.25% 24OCT14 Nexen Canexus Guyana Goldfields Duluth Metals
Price N/A $37.80 $53.60 $106.00 $9.66 $109.40 $20.46 $7.74 $8.04 $2.43
Yield N/A 3.80% 1.60% 4.79% 7.30% 4.55% 1.00% 7.10% N/A N/A
Type Strategy Stock Stock Convert. Deb. Fund Bond Stock Stock Stock Stock
Ticker N/A RCI.B SYK AFN'Z CIC N/A NXY CUS GUY DM
RRSP/TFSA Ideas
Cost-less Collar
Cost-less Collar Option Strategy
Risk Rating
Investment Thesis With equity indexes, especially the US benchmarks, having rallied sharply from their October 4 lows to trade near multi-year highs, it may be a good time to consider cost-less collars to lock in gains and hedge downside risk.
Conservative Example 1 S&P 500 ETF (SPDR) Price March $137 Call March $130 Put Net debit / credit Example 2 BankAm Price March $8 Call March $8 Put Net debit / credit
2
SPY $136.67 $1.26 ($1.11) $0.15
Description The cost-less collar option strategy consists of writing covered calls on individual stocks or ETFs, and buying puts with the proceeds. Writing covered calls and buying puts are both RRSP/TFSA-eligible option strategies.
BAC $8.18 $0.42 ($0.26) $0.16
Rationale DJIA is trading near its highest levels since 2008; S&P 500 (Chart below shows SPDR units) up 27% from Oct. 4 low and ~0.6% away from a three-year high; Nasdaq Comp. up 28% since Oct. 4 and at 10year high. TSX Composite has been unable for days to break through stiff resistance at 200-day MA just above 12,500, but has finally done so today. Although volatility is more or less a wash with this strategy, it is easier to execute when volatility is low and markets are near interim highs (since puts are cheaper during such times).
$160.00
800
$140.00
700
$120.00
600
$100.00
500
$80.00
400
$60.00
300
$40.00
200
$20.00
100 12/2011
10/2011
08/2011
06/2011
04/2011
February 14, 2012
0 02/2011
$0.00
Volume (mm Shares)
Price (US$/Share)
Risks An upside surge in markets will result in the underlying stock s/ ETFs being called away. Trading commissions may be significant.
RRSP/TFSA Ideas
Rogers Comm.
3
Steady growth expected for Rogers
Risk Rating
Risks Intense competition may affect profit margins. BCE and Telus last week reported earnings that missed estimates largely due to device subsidies. ARPU and average monthly minutes of usage are in a declining trend. Financial impact of Rogers’ purchase of 37.5% stake in Maple Leaf Sports for $533 million in December is not yet known. 7
5 4 3 2 1 Jan-12
Dec-11
0
Volume (mm Shares)
6
Nov-11
February 21, 2012
$41.00 $40.00 $39.00 $38.00 $37.00 $36.00 $35.00 $34.00 $33.00 $32.00 $31.00 $30.00 Oct-11
13 $40.23 6.4%
Sep-11
2012E $3.30 11.45x $7.14 5.26x 2.10x
Price (C$/Share)
Number Of Analysts Avg. Target Price Implied Upside
2011 $3.11 12.15x $7.44 5.08x 2.15x
Aug-11
EPS P/E CFPS P/CF Debt/EBITDA
$1.42 3.8%
Jul-11
Div per Share (Annual) Div Yield
Rationale/Catalysts We believe Rogers may break out to upside of $52-week range of $33.29 - $39.86 sometime in 2012. Operating revenue for key Wireless segment rose 1% to $1.83 billion in Q3, due to record growth in postpaid subscriber base and increased adoption of wireless data services. Growth being driven by growing use of smartphone and wireless laptop devices. Smartphone subscribers = 52% of postpaid subscriber base at end-Q3 (up from 48% at end-Q2 and 37% a year ago). 2012 EPS growth forecast by analysts at 6.5%. Stock is trading at 11.5x FY12 forecast EPS of $3.30. Our price target = $41.
Jun-11
$37.80 $19.90 $0.00 $10.08
May-11
Price (C$/share) Market Cap($ bn) Cash ($mm) Debt ($bn)
Business Description Rogers is the largest Canadian provider of wireless voice and data communications services, and one of the leading players in the diversified communications and media space.
Apr-11
RCI.B, RCI TSX, NYSE Telecom
Mar-11
Symbol(s) Exchange(s) Industry
Investment Thesis A conservative stock for steady growth and above-average dividend yield.
Feb-11
Conservative
RRSP/TFSA Ideas
Stryker
4
Fundamentals improving for implant maker
Risk Rating
Moderate
$53.60 $20.42 $3.40 $1.77
2012E $4.11 13.04x $5.32 10.08x 0.69x 21 $61.36 14.5%
$30.00
3
$20.00
2
$10.00
1
$0.00
0 Jan-12
4
Dec-11
$40.00
Nov-11
5
Oct-11
$50.00
Sep-11
6
Aug-11
$60.00
Jul-11
7
Jun-11
February 21, 2012
$70.00
Volume (mm Shares)
Risks Sustained weakness in US economy may lead to continued postponement of elective surgical procedures. Lower US reimbursement rates for medical devices are a concern.
May-11
2011 $3.72 14.41x $3.71 14.45x 0.79x
Rationale/Catalysts Stryker may be well placed to overcome sector challenges such as postponement of elective procedures, lower reimbursement rates, a 2.3% tax to be imposed on medical devices from 2013, and stronger USD. Should benefit from an increase in elective procedures as US economy improves, as well as demographic trends. With US accounting for 63% of 2011 sales, has least exposure of peer group to stronger greenback (
