The 50 Best Small Cap Stocks for Canadians, 2003 Edition

Sarah Robertson is the editor of the Canadian Book Review Annual.

“Our intent, in [the 50 Best] series,” writes Lori Bamber, “is to
… provid[e] the tools you need to design a well-diversified equity
portfolio, either on your own or with the help of a trusted investment
advisor.” Each book comprises a foreword by John Bart, president of
the Canadian ShareOwner Group, a general introduction by the author(s),
profiles of 50 stocks that meet criteria established by the 50 Best
advisory board, a brief glossary, and an index. The four-page stock
profiles consist of a table that ranks the stock on three growth
criteria (share price, revenue, and earnings per share), background
information on the company, a discussion of challenges and
opportunities, a brief summary and table of financial highlights, and a
chart illustrating stock-price highs and lows from (in most cases) 1992
to 2001. June 2002 is the cutoff point for information in all four
books.

The large cap, blue-chip Canadian and U.S. companies profiled in The 50
Best Stocks for Canadians are categorized by industry sector: consumer
and health care, energy and natural resources, financial services,
industrials and conglomerates, technology and communications. The same
industry-sector format is used for the small and mid-cap companies
covered in The 50 Best Small Cap Stocks for Canadians. The companies in
The 50 Best Global Stocks for Canadians are divided into four groups
(Asia, Australia, Japan, and Mexico; Canada and Europe; U.S. domestic;
and U.S. large cap multinationals), while the U.S. and Canadian stocks
in The 50 Best Science and Technology Stocks for Canadians are arranged
by broad market sector: biology, medicine, and environment; energy and
resources; industry; information technology; and telecommunications.

The ability to service debt, a key factor in any company’s
survivability, has been severely compromised by the credit crunch that
followed the bursting of the stock-market bubble in mid-2000. All four
50 Best books emphasize growth at the expense of balance sheet issues.
There’s no mention, for example, of the excessive debt loads of
profiled companies like Bombardier and CAE. The danger of ignoring debt
is illustrated by Marco den Ouden’s profile of power giant Calpine
Corporation: he acknowledges the company’s “significant debt load”
but holds out hope for an eventual stock recovery, “perhaps to its
former highs” of $58US (in late 2002, Calpine shares traded as low as
$1.55US). Also dismaying is the lack of attention, in all four books, to
corporate governance issues such as executive compensation, board
independence, and expensing of stock options. Company-specific risks get
short shrift as well. For example, in The 50 Best Stocks for Canadians,
the Quebecor World profile ignores the “PK factor” (the discount on
Quebecor World stock resulting from the toxic management style of Pierre
Karl Péladeau, president and CEO of parent Quebecor Inc.), while the
Nexen profile disregards the geopolitical risks associated with the
energy company’s substantial operations in the Middle East country of
Yemen. Shortcomings aside, the 50 Best series is a helpful starting
point for the do-it-yourself investor. The 10-year stock-price charts
are especially welcome.