Avoiding the next SNC Lavelin

On the movie Jurassic Park, Ian Malcolm, played by Jeff Goldblum, is an expert hired by Jurassic Park as part of the diligence process to approve the park as a public attraction. The concept of a live dinosaur park seemed a good idea at the time, according the the park’s creator.

One of the lines I liked in the movie was by Jeff Goldblum’s character, when he was asked if he was married. He replied “No, but I’m always on the lookout for a future ex-Mrs. Malcolm”. Can we, as investors, avoid the future ex-good stock idea? Like Jurassic Park, the original deal that the current Canadian Government tried to make with SNC Lavelin must have also seemed like a good idea at the time. Both the dinosaur park and the SNC deal ended bad. As even more evidence pours in regarding the interference (which is becoming more and more undeniable) by the PM of Canada in the SNC scandal, investors are becoming more wary of getting caught in another politically driven stock meltdown. Certainly, the SNC scandal, along with potentially more incriminating news linked to the PM of Canada to come out of the Norman scandal might cause some investors  to be wary of investing in companies who may have close ties to the current Government of Canada. 

One way to spot connections to the current GOC leaders is to examine political donations by corporations. I did a bit of research on the subject of political donations, and found that only Quebec allows for non disclosure of top donors to a political party.

This lack of disclosure may explain why a scandal like the SNC affair might be more inclined to emerge from that province. So too, do bailouts and “favours” provided by the GOC seem to appear more frequently to companies based in PQ. Here are the top 4 public companies supporting the current Liberal government through disproportionate donations to their party. I’ve included their charts:

Power Corp

Nice move!

Bombardier

Just another crash-n-burn for BBD

CanWest Global (not a public company)

SNC Lavelin

Back to multi-year support. No-mans land.

Bombardier (the second largest disclosing corporate donor) received a large taxpayer funded gift by the newly elected Federal government immediately after the election. SNC Lavelin were listed as the 4th largest in disclosed donations.  Here is an article in the Globe covering the subject.

Beyond the above noted stocks, there was an enquiry about a year ago into the marijuana industry and an unusual spike in volume and price. This was prior to the Fed announcement surrounding the anticipated rollout of its legalization in Canada. Given the strong connections to the current Federal government by the industry, there was some banter about unusual trading volume prior to the report surrounding the legalization dates. While nothing became of the enquiry, it was indeed an interesting situation to see the stocks spike as they did at that time.

My take on staying safe within the current political environment

My bottom line in looking at politically connected public companies: No one factor should influence your decision to trade a stock – including the unknown potential for political scandals. However, knowing all the facts before investing – including risks which may include political risk – should be taken into consideration.

14 Comments

  • Hello Keith,
    Very good commentary on SNC & Bombardier…

    I’m not sure what to make of this market. It just keeps going up.

    I remember your 3 day rule…now that the S&P 500 has been over 2800 for some time now, is time to jump in. I have been in cash since Dec. thinking this rally has no legs, yet, it just keeps going up.
    2400, 2500, 2600, 2700, 2800, next stop 2900, then?

    Reply
    • Thx Raymond
      Re the 3 day rule–yes, I am buying in, but as I note, only selectively
      2900 is certainly just overhead, so the old highs will be tested. Broken? I don’t know for sure–but likely tested
      The bank blog I did late last week does present an argument for prudence, amongst other things. We’re being very selective, as I said—be prudent and patient and buy selectively is my only advice.

      Reply
  • Hi Keith, Could the SPX form a head and shoulders pattern? If so, what should we watch for?

    Reply
    • Sally–its early to call that formation, you need a full Shoulder head shoulder then neckline break–but worth watching!

      Reply
  • Hi Keith: You will do better if you confine yourself to Investment and cycling and not pretend to know everyhing in politics. Incomplete knowledge leads to wrong conclusions. Perhaps, you are not aware how our ex-PM Mulroney dealt with his JM and Solicitor Kim Campbell in ordering her to refer the case of Millgaard to the supreme court. In SNC case no rule was broken by PM, PMO and the clerk of the Privy Council. It was perhaps the immaturity, ego and stubbornness of the former JM and solicitor and her being not a team player and insubordination to the boss for not considering precedent.
    You write good investment blogs, please do not make them tainted. Thanks.

    Reply
    • With oil prices spiking up, the stocks are actually dropping in price. Is this not a bad sign if the stocks are not reacting? I was hoping for a seasonal buy to the end of April but now I wonder if I should just sell the ones I own.

      Reply
      • The prices of the producers are moving sideways after their initial run–today they are off but that’s not been a trend–I’ll sell on a break of support of the stocks I hold, which is not in play right now.

        Reply
    • We don’t have evidence of criminality. YET!!!! In my community public buildings are being condemned, bought and refurbished by private companies. A school that was not good enough for children was converted to apartments and had a second story put on it. Lots of extra schoolyard to build more apartments. Another old school was bought by an engineering firm for their offices. The city wants to demolish a 60 year old rink and build a twin pad. I have a construction background. In my opinion, the building needs lipstick and mascara and a new refrigeration unit. Consultants get paid a percentage of total cost. The bigger the build, the more money they make. No wonder politicians peddle infrastructure as a economic stimulant. I suspect big time kickbacks here.

      Reply
    • I wasn’t going to answer this, but in the end, decided I would offer a quick reply. I wont get into a lengthy discussion on this subject. And I will end it here, without replying to further discussion. No need to.
      First, I do not confess to know “everything” about politics. For that matter, nor do I know “everything” about, well, anything! That would be rather omicient of me to have such knowledge!
      Having said that, I know when I smell a rat, I know when I can visibly see rats abandon the sinking ship, and I know about the Milgaard case–which was 2 decades ago. The new boy promised that things would be different. They are different…they are worse. And yes, this ties into investing. Higher debt, lack of responsible action by the GOC, business-unfriendly policies including negative policies surrounding our pipelines, tankers and energy industry (a third of our GDP), higher taxes for productive members of this society -and on the poor and all consumers through carbon taxes and other levies–all to pay for unproductive spending, and selfish politics focusing on buying votes from unions and special interest groups. I wont even get into the wasted taxpayer money on personal vacations, saunas, power boats, nanny services..the list goes on. None of these help inspire confidence —despite a rising barrel of oil, the loonie has been falling…hard to rise when the GOC is fighting the very production that creates growth and jobs and a stable currency.
      That’s my rant–I’d encourage those with differing opinions to write their own blogs on why Justin is an ethical guy doing a great job. Perhaps I post opinions on subjects that some may not like. Call it the cost of not having to stare at a flashing amazon ad on this site.

      Reply
  • What do you make of SNC’s purchase of the pipeline and the term ‘future consideration’ as part of payment – vs the possibility that there will be prosecution of the company on bribery charges?

    Seems as if it’s semantics now, and they just haven’t announced a DPA

    Reply
  • Wow
    The biggest problem we have in this country is representation by population. If Quebec had a population of 3 million, the government would ignore this province, much like it does alberta. 8.3 million in Quebec makes a huge balance of power. Not to mention equalizing payments that are huge to Quebec. If snc lavalin was based in Vancouver, would this scandal ever have happened? Could go on but I hope my point has been made. You are right on keith.

    Reply
  • I am with you on JT. I know you do not normally talk about specific stocks. I am hoping you will make an exception. Oil prices are rising, despite rising oil inventories. However stocks like Encana for example got hammered today on big volumes. Not sure if maybe a large institution unloaded their shares. At what support level would you consider it has broken down?

    Reply
    • The producers are not keeping with the price of crude–but in the case of many of them (including ECA, which we do hold) they are still on their s/t trendline. ECA is – for example- flirting with its last low on the daily chart near $9, but has not broken it. So far, I am holding ECA. If it breaks the last low – out I go after 3 days below.

      Reply

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