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Media Co-op Investor: November

Getting (radio) Active with Cameco and Piping Mad for TransCanada

by Gwalgen Geordie Dent

Cameco stock
Cameco stock

Welcome to Media Co-op Investor!

The Media Co-op Investor Series aims to help the general public understand the stock market, how it works and the major companies which benefit from it.

Every two weeks we examine an element or term in the stock market, how the Toronto Media Co-op has done fake-investing in companies on the Toronto Stock Exchange as well as highlighting specific large Canadian Companies, why their price has gone up and down and what they are all about.

To learn more go here.

This Weeks Term:  Mutual Funds

One of the most common types of investments for Canadians, mutual funds are basically pools of money that people invest their money into.  These pools usually have a focus (military companies, oil companies, manufacturing, etc.) and invest in a variety of companies and financial instruments including, stocks, bonds, and commodities.  They are considered to be unique in their popularity in Canada and US.

Most often, the fund will be administered by a manager or management group who will invest the pool of money in the hopes of trying to get a safe, but sizable return.   

Mutual funds have helped bring more and more Canadians into the stock market since their rise in the 1970's.  They have become a common investment for Canadians through their RRSP's and other investments mainly because management is done by somebody else and the returns have been higher than a other 'safe' investments like bonds.

Mutual funds, though still risky, are often thought to be safer that investing in individual stocks.  Depending on the fund, they can invest in multiple companies or financial instruments, meaning a bad day for one company will have a reduced risk.  Also, instead fees being charged for each individual investor, they are shared by the pool as a whole, helping to reduce costs.  

However, as safe as they may seem, mutual funds rise and fall with the stock market.  Various debates have raged as to whether or not they provide a better on average return than individual investing.  Some studies have suggested that individual investing is better, while others say the mutual funds are better over the long term.

A company we profiled last week, the Power Corporation of Canada, owns IGM Financial, which has the largest mutual fund group in Canada.  The Royal Bank of Canada is also a major player in the Canadian mutual fund game.   

What we invested in this week

This week we tracked the largest Canadian mining and energy stocks.  We theoretically-bought about $1000 worth of each company on September 15th.

How we did this week

Amazing!  All our stocks are doing well, but while consumer stocks are up a paltry 1.8% and financials only slightly better with an increase of 2.5%, our mining and energy stocks are up  a whopping 7.5%!  Interest rates on a term deposit at my bank meanwhile would be less than 1%.  So we're raking in lots of theoretical dollars.

Compare these stocks to the S/P 500 and we outperformed them on Friday, for the week as a whole and are pretty close to their average since mid-September.

Sadly, the fact that this is happening is actually a really bad sign.  

Generally, oil and mining stocks go up under three circumstances:

1.  Economies are booming so much that there is an ever growing need for more oil and minerals.
2.  There is a shortage in a commodity (oil, gas, gold) causing the price to go up.
3.  People are fleeing other stocks and bond classes trying to get their hands on materials cause they're afraid of a major economic collapse.

While US stimulus spending has artificially kept the economy going in the US, they lack something which is needed to get the US out of trouble: an economic plan.  Past US booms have been fueled by imperialist expansion, war and arms spending, manufacturing, high-tech exports, the dot-com bubble and, in the last ten years, the housing market and explosion in financial services.   While past post-boom US crashes have resulted in an infrastructure being created (factories, arms sales, web-commerce) this latest whoopsie of financial collapse has created only a bunch of worthless financial paper.

On account of this, as stimulus money dries up, the vacuum also known as the US economy has no industry to drive growth.  The US government has been pushing hard for Germany, Japan and China to increase domestic demand (have their populations buy more and save less) in the hopes that they will start buying US exports in the hopes of reviving the US manufacturing sector which has been hallowed out for the last 30 years.  Meanwhile the US government agreed at the G20 in Toronto, along with the other nations, to reign in their spending and enact austerity budgets with the hope that all the debt being created will some day be paid back.

Surprise, surprise: Germany, Japan and China are still exporting like mad, the US government just spent another $600 Billion printing money to lower the value of the US dollar (trying to get those exports up again), and all the high-five'in measures that were agreed to in Toronto have unravelled at the G20 meeting in South Korea rendering the Toronto G20 even more useless than it was before.   

Today, Ireland went the way of Greece collapsing either under the weight of its own bad decisions, or being crashed intentionally by players in the bond markets as Grecian government ministers were suggesting during their crisis.

Back in Canada, the Potash Corp. takeover bid we talked about in September was finally squashed while the Canadian government sold 2% of the original 11.7% of shares of the back-in-the-stock-market General Motors for $1 Billion.  They paid $9.5 Billion for the stake last year.

Todays Companies: Cameco Corporation and TransCanada Corp.

What better time to discuss Cameco Corporation than right after anti-nuclear activist Dr. Helen Caldicott has declared Port Hope, Ontario a "tragedy" for the low-level radioactive contamination that the town deals with.

Cameco is the worlds largest publicly traded uranium company and the second largest producer of uranium in the world.

Like Potash Corp, the company is a cash cow that owes its free-marketeering thanks to the Saskatchewan government who founded it and the first-nations who own its resources according to treaties 4 and 6.  

Started as a crown corporation in Saskatchewan, it was privatized completely in 2002.

It has major mines in Saskatchewan, the US and Kazakhstan, while much of its uranium is refined in Ontario in Blind River and, you guessed it, Port Hope.

As expected of most companies involved in nuclear activities, Cameco has had to deal with its fair share of controversy.  In 2007, Port Hope operations were shut down when contaminated soil was found.   The same year, the head of the Canadian Nuclear Safety Commission (CNSC), the nuclear industry regulator, said the CNSC lost faith in Cameco, after their the Cigar Lake mine flooded twice in 2006 and again in 2008.  Flooding had occurred in 2003 in another mine.

A Cameco mine in Wyoming was cited for environmental violations by the Wyoming Department of Environmental Quality in 2008.  That same year, more environmental concerns were raised at a mine in Crawford, Nebraska.    Eight years before in Kazakhstan, concerns were raised that a Cameco plant leaked cyanide with 500-800 people reported to be poisoned.   Meanwhile, mines bought in Western Australia by Cameco, came under fire for even more environmental concerns in 2009.  

George Ivany joined the board of Cameco after he left the presidency of the University of Saskatchewan. Before that he was the president of Simon Fraser University.  Victor Zaleschuck, another director, is the Cameco chair.  He's is the former CEO of Nexen Inc. (another TSX S/P 60 comapany).  He currently sits on the board of Nexen Inc and Agrium Inc.

We bought shares of Cameco for $27.47 back in September.  They are up to $36.02 for an increase of 31%(!) or $256.

While Cameco mines away for uranium, TransCanada Corporation is busy pipping oil all over North America.  

TransCanada owns or operates 59,000 km of oil pipelines in North America which connect almost every major gas supply area.

TransCanada invoked the ire of Oakville residents in June of this year by planning to construct a major gas-fired coal power plant.  Concerns over major explosions which rocked Toronto in 2008 and Middletown, Connecticut in 2010 fueled opposition.

Later in October, Hillary Clinton highlighted TransCanada's role in Tar sands production, by suggesting that they were all but assured to et approval for the Keystone XL pipeline which would send Tar Sands oil all the way to Texas for refinement.  Opponents of the pipeline have highlighted the potential for ecological disaster if a spill, similar to one that happened from an Enbridge pipe in Michigan, were to occur.  They have also raised concerns about effects on the groundwater underneath the pipeline itself being affected.   

In 2006, Alaska Governor Sarah Palin gave TransCanada a license and subsidies to build a massive pipeline linking oil from Alaska to the rest of the US.

In 2008, the Lubicon First Nation in Alberta attempted to push shareholders to challenge the companies plan to build a major pipeline across Lubicon territory at the companies AGM.

Directors of the TransCanada board have been involved with the Mulroney and Harper governments and crrent directors have sat or sit on the boards of CanWest, Quebecor, Shell, New Brunswick Power, Exelon Corporation, Metro Inc., Ecana, Royal Bank of Canada, Molson Coors Brewing Company, Fairmont Hotels and Resorts, Inco Limited and the C. D. Howe Institute.

We bought shares in TransCanada for $38.10 in September.  Clinton's comments in October drew criticism from many and pushed the stock lower.  It is down to $35.98 for a loss of 5.6% or $53.    

Archive

September: Potash Corp

September #2: Suncor and ARC Energy Trust

October: Shoppers Drugmart and Barrick Gold

October #2: Scotiabank and Power Corporation of Canada


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