White-hot Alcan shares lead strong results in May

June isn't looking so hot so far, but The Gazette portfolio had a great month in May.

The basket of 15 Quebec-based companies rose 6.6 per cent last month, almost two percentage points better than the Toronto Stock Exchange's composite index.

That boosted the 2007 returns through May to a scintillating 18.77 per cent.

"We'll take it," said manager Christine Decarie of Investors Group.

Eleven of the 15 stocks advanced in May, and three did so with double-digit jumps.

The strongest performer was aluminum producer Alcan Inc., which surged more than 40 per cent after a takeover offer from Alcoa Inc.

The cash and stock offer put a value of roughly $80 on each Alcan share, but the stock ended May at $92.

Management has recommended rejection and observers expect at least one rival bid for the company.

"We don't know the end of the saga yet. There's always interest in the mining names. They're generating a lot of cash because prices (for commodities) are at all-time highs," Decarie said.

She's likely to trim her Alcan position this month, but only because the weighting in the portfolio has swelled above nine per cent, not because she thinks the stock won't go higher.

Another strong mover last month was engineering firm SNC Lavalin. Shares were up 24 per cent.

Decarie said SNC took less of a hit than some investors expected on a money-losing power contract, and is in a sector that is expected to prosper from the worldwide need for infrastructure upgrading.

"It's seen as one of the companies with the expertise to build large infrastructure projects. Engineering companies in the U.S. are also trading at a premium these days."

At almost $40 a share, however, SNC is getting a little pricey, she said.

Atrium Biotechnologies - now called Atrium Innovations - was the other star performer in May, up 17.8 per cent.

Decarie said the company is generating good internal growth from both its nutrition/health and active-ingredient businesses, and investors are starting to pay attention.

Of the four stocks that retreated in the month, the biggest drop was recorded by Mega Brands, down 6.79 per cent.

The toy company reported a first-quarter loss of $24 million U.S. after having to spend an estimated $35 million to pull from retail shelves around the world all toys in its Magnetix line that were not in new packaging.

The company paid $13.5 million last year to settle four lawsuits and 10 claims in the U.S. stemming from incidents of children ingesting parts of the toy, which since was redesigned.

"A lot of investors are fed up and capitulating," said Decarie, who is not throwing in the towel. The second quarter probably will be weak as well because the sorting and restocking of product is still going on, but if the numbers start to rebound after that, Mega Brands should be okay, she said.

"They're hitting more bumps than I'd like to see, but they say the (Magnetix) product is still selling, so we'll see. The valuation is not high at all. If they get even a piece of it right, there's good pickup to be had on the earnings front."

Decarie, who under the rules of the portfolio can make changes only at the end of each month, elected to stand pat in May.

Launched in October 1997 with an imaginary $100,000, the portfolio ended the month worth $356,395.