Shares of Research In Motion (RIMM – NASDAQ) have undergone a sharp correction in recent days. The market was not impress by RIM Q1 results despite a 23% increase in profits and revenues. After this correction, the gap between current valuation and it’s valuation from two years ago is nothing less than phenomenal! On July 3, 2008, the stock of the BlackBerry maker was trading at $ 115 U.S. or 51 times their $ 2.26 profit from fiscal 2008 (ended March 1, 2008). On July 2, 2010, becoming a RIM shareholder costs a whopping $ 48 equivalent to 11 times the EPS of $ 4.32 from fiscal 2010.

Valuing cyclical stocks is a very different discipline from valuing non-cyclical ones. We have read recently in the financial media that Potash stock ( POT – TSX) was clearly too expensive. This Canadian company is the largest potash producer in the world (potash is a basic component of fertilizer). The stock of Potash is said to be too expensive because of its price / earnings ratio of 20, a ratio supposedly too high for a cyclical stock. I am not an expert in the field, but I doubt that the “high PE ratio = expensive stock” equation is really the right way to evaluate a producer of raw materials such as Potash.

TMX Group has published disappointing 3rd quarter results. The  Toronto, Vancouver and Montreal  stock exchanges operator saw its revenues and profits fall 6% and 18% respectively. It would be easy to simply blame the recession, but it would obscure what appears to be the weakening competitive position of the company. Indeed, revenues from the Toronto Stock Exchange fell by 42% (from 26 million to 15 million) because of competition from new alternative trading system (ATS) such as Alpha, Chi-X and Pure Trading. This decrease was significantly higher than management had anticipated.

1. Description Fortress Paper (FTP - TSX) is a Vancouver company that specializes in the production of security papers (banknotes, passports, visas) and non-woven wallpaper  (the wallpaper that peels off easily). Although the company is Canadian, all of its operations are located in Europe. The production of security papers is done at the Landqart mill in Switzerland and the wallpaper production takes place at the Dresden mill in Germany. The company was created from scratch in 2006 by canadian businessman Chad Wasilenkoff when it took advantage of the rationalization of a company called Mercer International to purchase the paper mills of Landqart and Dresden.