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Will discs still pay? What about Martha?

DEAR DOCTOR

CD sales are down, yet Cinram's share price has more than doubled since last year and is up more than 1,000% since 2001. Do you think it's still a buy?

--Discman, Kingston

DEAR DISCMAN

Some investors are getting nervous about Cinram, and you can understand why. First, there are the old records, cassette tapes and videos lying around so many people's homes--how long before CDs and DVDs go obsolete (and you have to buy Dark Side of the Moon in yet another format)? You also have to wonder if Cinram's share price climbed too far, too fast since last August, when it announced it would buy Time Warner Inc.'s CD and DVD manufacturing and distribution businesses for $1.05 billion (U.S.). Still, other things about Cinram are so positive, it's hard not to like it as a holding for the next couple of years.

Yes, industry-wide CD and videotape sales have slowed in recent years, but DVD sales have soared. Cinram's total revenue climbed to $1.2 billion last year from $884 million in 2002. DVDs swelled to 47% of the total, from 28%. Cinram predicts its revenue will double this year as a result of the Time Warner deal and new contracts with MGM Studios' North American DVD and VHS division and EMI Group PLC.

The key is not to pay too much now for expected increases in revenue and profits over the next year or two. At $26 a share recently, Cinram has traded at about 20 times its 2003 earnings per share--the limit many value investors like to pay. But that price is only about 12 times forecast earnings per share for 2004, and 10 times the estimates for 2005.

Longer term, however, some caution is in order. David McFadgen, an analyst at Toronto's Sprott Securities, says that overall growth in DVD sales will likely slow in 2005. Plus, price competition is already intense, particularly with Wal-Mart selling DVDs so cheap. "If your volume is growing in single digits and your pricing is declining double digits, then you've got a problem," he says. Also, while downloading movies on-line--legally or illegally--is slow, the technology will improve, providing more competition for DVDs.

In short: There's probably some upside left for Cinram, but not much.

DEAR DOCTOR

My boyfriend and I live together common-law. I used the federal Home Buyers' Plan to borrow money from my RSP to purchase the house. He hasn't used the plan before. We want to buy a home together. Can we use the plan again?

--Hitched, Montreal

DEAR HITCHED

There are many downsides to marriage, including the common-law kind, and this is yet another one: Neither of you can use the plan this time around.

The plan is designed to help first-time home buyers. It allows you to borrow money from your RSP, free of tax and interest payments, for your first home purchase. To qualify, you or your spouse must not have owned a home and lived in it as your principal residence for at least five years before submitting your application. You are a second-time buyer, so that disqualifies you. Although your boyfriend hasn't used the plan before, he shares beneficial ownership of your house. That rules him out too.

If you're really strapped for cash, one or both of you could actually withdraw money from your respective RSPs. But that is highly inadvisable--early withdrawals are subject to stiff withholding taxes immediately, ranging from 21% to 35% in Quebec and 10% to 30% in the rest of Canada. The withdrawal will also be added to your taxable income. Another option: You could just split up and wait five years.

DEAR DOCTOR

Should I buy shares in Martha Stewart Living Omnimedia?

--Homebody, Charlottetown

DEAR HOMEBODY

Let's take one negative--Martha herself--out of the equation. Okay, recent pessimistic forecasts from brokerage firm analysts aren't encouraging either. Yet if almost everyone is beating up on a stock, it might be time to do the opposite--a George Costanza investing strategy. Of course, we're getting into risky territory here, so it's best to use fun money only.

First, maybe the 23% dive in the company's share price on March 5, the day a jury found Stewart guilty on four charges, is a good thing. The share price stabilized at a relatively low $10 (all currency in U.S. dollars).

The company has four lines of business--television shows, magazines, household products sold in stores and on-line merchandising. Total revenue declined sharply in 2003, to $246 million from $296 million in 2002, and earnings per share--the profit numbers investors look at--have slumped from 48 cents in 2001 to a loss of four cents last year. Looking ahead, some analysts are also worried that some TV and merchandising contracts won't be renewed.

Yet the company's balance sheet is strong--$166 million in cash and virtually no debt. That cash alone is a cushion worth almost $3.50 a share. Analysts have also speculated that someone may want to take the company private, which would likely put upward pressure on the share price.

Regardless of what happens to Stewart, her aesthetic still appears to have value. Can a brand prosper without its originator? Ask the folks at Loblaw about President's Choice. Any one remember Dave Nichol?

DEAR DOCTOR

I don't understand the differences between a broker, a financial adviser and a financial planner. And now my insurance agent is trying to sell me mutual funds. Who does what, and who regulates them?

--Bewildered, Thornhill, Ont.

DEAR BEWILDERED

The optimist's answer: They all just want to help you--really. The skeptic's answer: They all cost money, but they extract it in different ways.

Brokers are intermediaries who will buy or sell a stock, bond, mutual fund or other security for you in return for a commission. A discount brokerage firm doesn't provide advice. A full-service broker is supposed to provide you with ongoing advice, and might charge more than double the commission a discount brokerage charges. Brokers are generally regulated by provincial securities commissions and the Investment Dealers Association of Canada, the brokers' lobby group and self-regulatory organization.

The titles "financial adviser" (or the loftier-looking "adviser") and "financial planner" are used by all sorts of people, including brokers, bank employees and mutual fund sellers. Advisers and planners generally try to help you with a more complete financial strategy. They can be paid by commission on investments they sell, fee-for-service (including some fee-only advisers who don't sell securities) or a combination of the two.

About 16,000 advisers and planners nationwide are members of Advocis, the brand name of the Financial Advisors Association of Canada. It offers courses for members and has a detailed code of conduct. Advisers who sell mutual funds are regulated by the Mutual Fund Dealers Association of Canada (MFDA), which has been recognized by most provincial securities commissions. The MFDA does not, however, regulate mutual funds themselves, and may not regulate staff at fund companies that sell directly to the public. Insurance agents are regulated by the Financial Services Commission in Ontario and by insurance councils in other provinces. Insurance agents can also be licensed to sell mutual funds.

There are no mandatory qualifications for advisers or planners, but the Certified Financial Planner and Chartered Life Underwriter have become industry standards. You'll also want someone who understands your finances and makes you feel comfortable. Finally, make sure that all fees are explained--and that your adviser delivers what you paid for.

Send your questions to Portfolio Doctor, Report on Business magazine, The Globe and Mail, 444 Front St. W., Toronto, Ont. M5V 2S9. E-mail: portfoliodoctor@globeandmail.ca

© 2007 The Globe and Mail. All rights reserved.

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