A Window on Westmount Ville Marie

This is perhaps little consolation, but as my mother used to say, "Misery loves company." The broad Canadian stock market index is down about 16% from the (all time) high for the year, but a look beneath the surface of the TSE 35 Index shows the damage of which you are probably painfully aware!

TSE 35 Index		Current	52 week		% change
Company	Ticker Symbole	Price	high	low	high
TSE 35 Index	TXO	359.55	427.10	325.71	-15.82%
Imasco	IMS	28.15	30.30	19.25	-7.10%
Canadian Tire CL. A	CTR.A	40.50	45.00	25.05	-10.00%
Bombardier CL B	BBD.B	20.00	22.45	12.63	-10.91%
Suncor Energy Inc.	SU	48.55	55.40	40.50	-12.36%
Thomson Corp.	TOC	40.00	46.00	31.00	-13.04%
TransAlta Corporation	TA	21.85	25.40	16.90	-13.98%
Canadian National Railway	CNR	80.30	96.00	63.60	-16.35%
Northern Telecom	NTL	82.55	100.25	56.80	-17.66
Royal Bank	RY	74.75	92.20	60.85	-18.93%
Noranda Forest	NF	8.10	10.20	7.25	-20.59%
Bank of Montreal	BMO	67.50	87.00	51.90	-22.41%
Seagram	VO	51.45	67.50	43.25	-23.78%
Canadian Pacific	CP	34.65	45.90	31.90	-24.51%
National Bank of Canada	NA	23.75	32.00	16.90	-25.78%
Barrick Gold Corp	ABX	24.95	34.90	21.50	-28.51%
Bank of Nova Scotia	BNS	32.00	44.70	27.88	-28.41%
Alcan Aluminium	AL	37.90	53.35	35.10	-28.96%
Dofasco	DFS	21.30	30.45	20.25	-30.05%
Nova Corp.	NCX	22.00	31.75	22.05	-30.71%
Toronto-Dominion	TD	51.30	74.75	39.50	-31.37%
TransCanada PipeLines	TRP	23.40	34.65	21.85	-32.47%
Petro-Canada	PCA	20.00	29.85	19.25	-33.00%
Abitibi-Consolidated	A	17.50	26.60	16.40	-34.21%
Talisman Energy	TLM	36.65	55.25	35.00	-33.67%
Canadian Occidental	CXY	26.10	40.80	25.00	-36.03%
CIBC	CM	36.45	59.80	35.05	-39.05%
Laidlaw	LDM	14.35	23.50	13.80	-38.94%
Placer Dome	PDG	15.75	27.30	14.95	-42.31%
Renaissance Energy	RES	18.20	37.10	17.30	-50.94%
Teck Corporation	TEK.B 13.45	28.75	12.90	-53.22%
Inco Limited	N	16.00	41.45	15.60	-61.40%

by Andrew de Courcy-Ireland

Tuesday, August 11, 1998

We have reduced our TSE 300 EPS estimates for 1998 and 1999 to 315 and 365 respectively. Previously these were 330 and 375.

• This follows the latest round of earnings reports, revised guidance, and analyst estimate changes. This is also within the context of several changes amongst our industry analysts that has impacted - not in every case negatively please note - the bottom-up numbers. Additionally, we had previously given bottom-up estimates a significant haircut in producing the overall results, so the impact is muted to a degree. From a top-down perspective, Scotia Economics has reduced the 1998 estimates of profit growth (from 5% to 3.5%) but left 1999 intact at 7.5%.
• Overall, we do not have an overly negative view on profits. We do not subscribe to the profit recession scenario. Numbers have come down, but we still see scope for growth for 1998 and 1999 overall. This remains a function of a number of big weighted stocks managing to post positive comparisons on an operating basis. Names include Barrick, Placer, Abitibi, Donohue, Imasco, Bombardier, Nortel, Magna, CNR, telcos (notably BCE), Thomson, the key retailers, and most banks. Seagram also represents a positive swing factor for 1999. We additionally have a constructive stance on base metals (e.g. an Alcan 1999 estimate of $2.95), which along with selected golds and papers provides some buoyancy to natural resource numbers. In terms of the biggest weighted decline in earnings estimates, energy and banks are the key sectors - banks with reduced growth, energy providing some earnings recovery in 1999, but to levels that typically will fail to match 1997 levels.
• In terms of valuation, we continue to foresee new multi-decade lows in long bond yields next year, allowing a top end P/E of 23X. The low end P/E is pegged at 18x. Both numbers are one P/E point reductions from our previous benchmarks. This sets up a TSE range of 6570 to 8395. The 12-month ahead target (which migrates from June to September) accordingly slips mildly from 8250 to an even 8000.
• The near-term market prospect admittedly remains poor. From a macro standpoint, Asia will be a lingering problem, economic figures will be confused by the GM strike as well as Asia, the earnings (and perhaps outright) recession scenario will overhang markets, and the Canadian dollar may still prompt an increase in short-term interest rates. This being said, stocks have retrenched a substantial 15% and attractive situations are bubbling to the surface. We maintain a positive medium-term view.