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Personal Investment Project

Winter 2004

 

Contents

TSX Index and Cameco Stock Analysis

 Description

 S&P and TSX Index

 An index in stock terminology represents the state of the stock market based on the performance of certain stocks that make up this index.  How well the index performance’s gives a wide indication of the direction of the economy.  The TSE 300 Composite index or now referred to as the TSX Composite Index represents how the Toronto stock exchange performs.  Through the years it has consisted of 300 companies.  These companies vary from year to year as some of them no longer meet exchange requirements for size and liquidity. 

 In 2002, Standard and Poor’s Corp. of New York began managing this index.  New rules were imposed on the index including stricter size and liquidity requirements.  There was also no fixed number of stocks that had to be part of the index.  Since May 2002 the number of companies has dropped from 300 to 212 as of November of 2003.  Some of the current companies within this index include ATI technologies, Alcan, ATS, Bank of Montreal, etc.  All these companies make up sectors of the Canadian market including health care, financial, energy, industrial, materials and so on.

 For all the companies in the TSX index click here.

 Cameco Corporation

 Cameco supplies the world with approximately 20% of the worlds uranium demand.  They are the largest fuel supplier to the North American nuclear power plants due to their various mining and conversion facilities throughout North America.

 The company was created by a merger of two companies in 1988 – Saskatchewan Mining Development Corporation and Eldorado Nuclear Limited.

 Cameco is also 1/3rd owner and operator of Kumtor gold mind located in Kyrgyzstan, Central Asia. 

 

Annual and Annualized Rates of Return

 To calculate annual and annualized rates of return the equations below are used:

Annual rate = (Final Value - Initial Value + Dividend) / (initial value)

 Annualized rate = (n/pi [1+ k])1/n – 1

 Where n represents the number of annual interest rates and k represents the annual interest rate as calculated above.  Note that any dividend payments were not taken into account during the two index calculations, only the Cameco Corp. calculation. 

The values for the annual and annualized rates of return for Cameco and the two indexes are given in tables 1, 2, and 3 below.  The 52 week high and low are also given.  Plots of the 52 week high and low and closing price for all three items being analyzed are provided in figures 1, 2, and 3 below. 

 

 

 

 

 

 

Year

Close      (Cdn $)

Dividends Paid/stock

Annual Rate

Annualized Rate

52 week high

52 week low

1992

17.5

0.5

-

-

18.25

16.63

1993

28.5

0.5

65.71%

15.74%

28.5

17

1994

31.13

0.5

10.98%

11.66%

31.13

21.75

1995

50.75

0.5

64.63%

11.73%

51.75

29.5

1996

54.9

0.5

9.16%

6.45%

76.25

50.38

1997

46.4

0.5

-14.57%

6.07%

60

40

1998

27.45

0.5

-39.76%

9.96%

48.75

24.05

1999

21.95

0.5

-18.21%

24.03%

40.5

20.75

2000

26.95

0.5

25.06%

37.63%

28.25

14.5

2001

39.25

0.5

47.50%

42.10%

43

23.75

2002

37.48

0.5

-3.24%

39.48%

48.65

25.15

2003

74.75

0.6

101.04%

101.04%

77

29

Table 1 Cameco Corp Data 

Figure 1 Cameco Corp Returns in Dollars 

Year

Closing Values

Annual Rate

Annualized Rate

52 week high

52 week low

1992

3350.44

-

-

-

-

1993

4321.43

28.98%

8.50%

4609.9

4344.6

1994

4213.61

-2.50%

6.64%

4720.7

4527

1995

4713.54

11.86%

7.71%

5249

5114.6

1996

5927.03

25.74%

7.20%

6351.3

6061.7

1997

6699.44

13.03%

4.78%

7226.6

6700.2

1998

6485.94

-3.19%

3.47%

7837.7

7502.6

1999

8406.07

29.60%

4.86%

7309.9

6975.2

2000

8933.68

6.28%

-0.56%

11309.2

10153.1

2001

7688.41

-13.94%

-2.73%

11423.7

10188.9

2002

6614.54

-13.97%

3.40%

8418.6

7850.9

2003

8220.89

24.29%

24.29%

8276.8

7859.4

Table 2 S&P/TSX Composite Index data 

Figure 2 S&P/TSX Composite index returns in dollars 

S&P/TSX Total Return Index

 

Year

Closing Values as of Dec 31 (Cdn $)

Annual Rate

Annualized Rate

1992

6201.72

-

-

1993

8220.23

32.55%

10.57%

1994

8205.73

-0.18%

8.59%

1995

9397.97

14.53%

9.61%

1996

12061.95

28.35%

9.00%

1997

13868.54

14.98%

6.49%

1998

13648.84

-1.58%

5.14%

1999

17960.99

31.59%

6.54%

2000

19309.36

7.51%

1.06%

2001

16881.75

-12.57%

-1.01%

2002

14782.01

-12.44%

5.34%

2003

18732.48

26.72%

26.72%

Table 3 S&P/TSX Total Return Index data 

Figure 3 Total Return Index returns in dollars

 Highest Return

 The two graphs below (Figure 4 and 5) indicate the annual and annualized rates of return for Cameco Corporation, TSX Composite Index and TSX Total Return Index.  The two index returns have an almost identical trend as they are comprised of the same companies.  The annualized rates are very flat until they reach 2003 at which they move up significantly.  The annual rates of the indexes fluctuate up and down throughout the time period studied.  Cameco Corporation’s annualized rate shows a continuous increase throughout the time period studied. 

The highest return is given by Cameco Corporation using the annualized rate in 1993 of 15.74% when compared to the two other indexes, the TSX Total Return at 10.57% and TSX Composite at 8.50%.  This trend follows throughout the entire time period and as such Cameco would yield the highest return.

On an annual basis if the annual rates are averaged Cameco again comes out on top at 23.57% where the TSX Total Return follows at 11.77% and the TSX Composite in last place at 9.65 %.

Thus on both an annual and annualized basis Cameco Corporation comes out on top.

 

Risk Assessment

Looking at the annual rate returns Cameco Corporation fluctuates from a low of -39.76% in 1998 to a high of 101.04% in 2003.  This is a variance of 140.8%.  This high variance indicates that risk of investment is high throughout the time period studied in this company.  In comparison the Total Return Index has a variance of 45.12% (32.55%, -12.57%) and the Composite Index has a variance of 43.57% (29.60%, - 13.97%).  These are relatively a lower risk investment and have very similar variances with the Total Return which has a slightly higher risk.  This lower risk is due to the fact that the indexes are a collection of many companies and through diversification this lowers the risk significantly.   

 

Figure 4 Annual rates of return for all 3 items 

Figure 5 Annualized rates of return for all 3 items

 

Cameco Corporation Dividend Growth

 The dividend growth for Cameco Corporation is continuous from 1993 to 2002 at $0.5 paid out per share.  In 2003 this number increases by 20% to $0.6 per share.  The table for dividend growth is included in the appendix.

 Returns on $1000 Investment

 The graph below indicates the returns of the three items being analyzed with an initial investment of $1000 taking place on December 31, 1993.  There are no stock splits of Cameco Corporation.  It is apparent that the highest return in 2003 was by Cameco Corp. at $3012.32, next the Total Return at $2278.83 and finally the Composite Index at $1902.35.  The tables are included in the appendix; the computations were done in Microsoft Excel using the future value calculation shown in class.  Below is a sample calculation for the first year of the Total Return Index:

 Given:

Present Value, PV = $1000

Interest rate, k = -0.18% (for 1994)

Future Value Equation:

FV = PV (1+k) t

Where t = 1 year

FV = 1000 (1-0.018)1

FV = $ 982 (after 1 year, this would be the PV for the next computation)

If I were a conservative investor looking for stable returns I would invest in the Total Return Index.  It is well diversified and pays out dividends and thus will yield higher than the TSX Composite Index.  It offers minimal risk (see risk assessment above) and stable, increasing return over the time period.  Although history is not necessarily repeated in the future it is an indication of how the index has performed and gives the investor a “feel” for the stock.  This stock “feels” like it would give me stable returns, conservatively.   

 

Figure 6 Return on $1000 dollars invested in the 2 indexes and Cameco

 

Comparison of TSX Composite Index and TSX Total Return Index

 As indicated earlier and shown on the graphs above, the TSX Composite Index and the TSX Total Return Index have an almost identical trend pattern when looking at their annual and annualized rates of return over the time period.  This is due to the fact that both indexes are comprised of the same companies.  The difference between them being that the Total Return Index includes the dividends paid out by the companies along with the stock price returns. Therefore it is higher than the TSX Composite Index which only incorporates the stock price returns.  For this reason the Total Return index will always be higher or equal to the Composite Index.  It will be equal only if no companies pay out dividends that are part of the index.

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