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Sell in May and go away?

Market timing devices are usually nonsense - except, perhaps, when it comes to this year's summer trading season. Also, updates on Precision Drilling and Agrium

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Apr 30, 2014

by Max Fawcett

Yes, market timing is usually a fool’s errand, and yes, the “sell in May and go away” stratagem proved to be a disastrous one last year for anyone who followed it. But with market s still long overdue for a meaningful correction, that seasonal play might be the right one in 2014. At least, that’s the read that Bank of America technical research analyst Stephen Suttmeier is making.

As MarketWatch’s Wallace Witkowski noted in a piece yesterday, Suttmeier estimates that there’s a 23 per cent chance of the broader stock market shedding a fifth of its value some time before October. “The biggest risk for the upcoming six-month period (May through October), according to Suttmeier’s data, is for a correction greater than 10 per cent but less than 20 per cent,” Witkowski writes. “There’s a one-in-three chance of that happening. Then again, the risk of a 20 per cent correction is a one-in-three chance during the April through September period, and a better than one-in-four chance during the March through August period.”

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If you’re not lightening up on your exposure to equities, you might want to shift some of that capital over into Agrium (TSE:AGU) based on the top picks of two recent guests on BNN’s Market Call. John Zechner, the chairman at J Zechner Associates, has been buying it recently at $103, and thinks the sector as a whole has finally put in a bottom. “The stocks have historically traded in line with corn futures, which have risen off multi-year lows,” he said. “Agrium has one of the lowest valuations in the sector and is vertically integrated to reduce earnings fluctuations. [It’s] well diversified among various nutrients and still has long-term cost advantage in nitrogen fertilizers.” GlobeInvest Capital Management’s Peter Brieger, meanwhile, noted that “a jewel in the company’s crown is its growing international retail business, which represents a major positive diversification from the fertilizer business.”

And while you might have missed the recent run for Precision Drilling (TSE:PD), AltaCorp Capital’s Dana Benner thinks there’s still more juice left in that particular orange for investors. On its most recent conference call, the company’s management noted that rising commodity prices, increased financings of junior E&Ps and the buildout of LNG (and need to refill natural gas storage basins) could produce a 15 per cent year-over-year growth in Canadian drilling activity in the second half of 2014. Precision is well-levered to those trends and that activity, and its day rates have already started to tick up. As Benner noted, “tension in the market from higher activity is likely to lead to further pricing and margin increases.” He increased his price target to $18 and stuck an “outperform” rating on its shares, noting that “Precision remains a highly prospective name in our space.”

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