Investment Comment Falconbridge among lasting values

As the world’s stock markets continue to suffer the aftershocks of the infamous Black Monday, a number of major brokerage houses have published glossy booklets advising investors to keep on buying.

“Despite apparent uncertainties, we believe that significant rewards are available to those investors who recognize both the long-term potential of our economy and the historic investment opportunity that now prevails,” says an October 19th Perspective, by Toronto-based Midland Doherty.

However, in a recent warning shot to market watchers, the Bank Credit Analyst advises potential investors to take a rather different stance.

Published in Montreal, The Bank Credit Analyst provides monthly advice to investors, based on a continuous appraisal of money and credit flows.

While the “Black Monday” debacle appears to have caught this economic watchdog by surprise, it had this to say about current stock market climate:

“It would be unwise to underestimate the significance of the stock market debacle. The once-in-a- lifetime crash which has ushered in a bear market in stocks has shifted the balance of risk and reward in favor of investing in the bond market.

“The bubble has burst, the trend is down, valuation is still poor and the chance of a nasty bear market is high,” it says. Rallies induced by rapid liquidity injections, falling interest rates and oversold market conditions could prove very explosive and seductive.

Still, investors are advised to keep in mind that it is a bear market — perhaps one destined to be very severe and, therefore, it is premature to be re-entering the market.

Nevertheless, Midland Doherty believes that significant rewards are available to investors who recognize both the long term potential of the economy and the historic investment opportunity that now prevails.

With reports that Dominion Securities is preparing for layoffs at its Toronto offices, such advice could be construed as mere self- preservation but the recommendation could be worth noting.

In its Oct 19 Perspective report, Midland Doherty recommends a number of conservative stocks that it says represent not only good value, but also solid long term growth potential.

They include Falconbridge Ltd. which traded recently on the Toronto Stock Exchange at $19 in a 52-week range of $31.25 and $16.13.

According to Midland Doherty, Falconbridge’s effective cost cutting programs, its steady commodity, diverse commodity base and strong earnings growth makes it a long term bet with potential.

That view is supported by Julian Baldry of Toronto-based Nesbitt Thompson Deacon who recommends Minnova Inc. In August, 1986, Kerr Addison Mines bought the controlling block of Minnova shares from Falconbridge for $120,375,000.

To reflect the separation of Falconbridge Ltd. from its subsidiary Corporation Falconbridge Copper, the name was changed to Minnova Inc.

Baldry says the two companies appear to be well matched. Both have strong cash positions, limited debt exposure and very decentralized management philosophies.