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Stock picker stuck to his bearish guns

David Tyerman had a 'sell' rating on nearly all the stocks he covered in the automotive, transportation and aerospace sectors


For David Tyerman, it took a lot of things going wrong for one thing to go right.

The analyst - now with Genuity Capital Markets but formerly of Scotia Capital Inc. - spent 2008 with "sell" ratings on almost every stock he covered. His outright bearishness was largely the result of the industries he watches: automotive, transportation and aerospace.

But there was a personal consolation prize to the ugly year - his decision to stick to the ratings led to his selection as one of Canada's Top 10 stock pickers of 2008 in the Thomson Reuters StarMine analyst awards.

"I don't know if I have any stocks that were up on the year in 2008," says Mr. Tyerman, who ranked third overall. "It's more that I had enough 'sells' and 'sector underperforms' on names that fell more than average that it kept my portfolio returns at decent levels."

The awards, which were handed out in Toronto last night, recognize stock analysts in three broad categories. Ten analysts were singled as top stock pickers, another 10 were recognized for being the top in earnings estimate accuracy. Dozens of others received awards for being at the top in stock picking and earnings estimate accuracy in their industries.

BMO Nesbitt Burns Inc. took home 17 awards, making it the No. 1 broker. RBC Dominion Securities Inc. and Scotia Capital tied for second with 14 awards, while TD Securities Inc. came in third with 13.

Adam Twa of Peters & Co. was named the No. 1 stock picker, and Cameron Doerksen of Versant Partners came in second. Mr. Tyerman came in third.

"I probably had more sells than any other analysts at the end of the year," Mr. Twa says. "That probably gave me a leg up."

The winners are chosen through a process that looks at specific industries, as determined by the Global Industry Classification Standard, and compares how each analyst's picks stacked up against the benchmark used for that industry.

If an analyst was long on a stock that gained on the year, they picked up points. If they were bearish on a stock that fell in value, they gained points. The weighted system allows the comparison between analysts working in different industries.

While the awards are an annual affair, this year's winners speak with a sense of shell-shock that is familiar to those who are forced to reminisce about one of the worst years in stock market history. The S&P/TSX composite, where most of the stocks these analysts follow trade, fell 35 per cent on the year.

"This is true for pretty much all the analysts - many stocks have fallen to levels that were pretty much unimaginable a few years ago," Mr. Tyerman says. "If you'd asked any of us two years ago if we would ever see valuations where they are today, everyone would have said it was absolutely impossible."

It wasn't just that stock prices were falling, says Scotia Capital's Tony Courtright, who took the No. 8 slot in the earnings estimate accuracy category and covers the somewhat predictable power and energy infrastructure sectors. Volatility made it almost impossible to generate a price target that made any sort of sense over the long term, he says.

"The value that these things trade at in the stock market has been extremely volatile," he says. "So you can have dead-on accuracy in terms of your fundamental analysis, but it all goes out the window when you have panic in the market."

Jason Granger, an analyst at BMO Nesbitt Burns who covers trucking and logistics and placed No. 9 in earnings estimate accuracy, says he's watched in frustration as stock valuations plummeted by 30 per cent one week, only to make up the ground a few weeks later.

It's especially difficult when trying to satisfy different stakeholders who are looking to him - and analysts in general - for some kind of guidance.

"There are different expectations across different groups and even different investor profiles," he says.

"You have momentum investors who are interested in the here and now, and investors buying and selling for three-years out. Trying to balance those interests is sometimes challenging, especially when everything we see in the media or on our computer screens focuses on right now."

Thomson Reuters StarMine analyst awards - Top 10 stock pickers (Canada)
RankAnalystBrokerReturnPrimary Coverage Industries
1Twa, AdamPeters & Co.20.9%Oil, Gas & Consumable Fuels
2Doerksen, CameronVersant Partners19.4%Diversified Industrials
3Tyerman, David *Scotia Capital16.4%Diversified Industrials; Auto Components
4Kenny, PatrickNational Bank Financial16.0%Chemicals & Utilities; Oil & Gas - Royalty Trusts
5Patel, MenalNational Bank Financial15.0%Oil & Gas - Royalty Trusts
6Martin, DavidDundee Securities11.1%Health Care
7Malhotra, Sumit **BAS-ML10.9%Commercial Banks; Financial Services
8Li, StevenRaymond James10.5%IT Equipment; Software & IT Services
9Shine, AdamNational Bank Financial9.3%Media; Diversified Industrials
10Doig, PeterScotia Capital8.7%Oil, Gas & Consumable Fuels; Energy Equipment & Svcs.
* Now at Genuity Capital Markets
** Now at Macquarie Capital Markets

© 2007 The Globe and Mail. All rights reserved.

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