Thomson and the two-tier market: after some impressive gains in the past year, shares of Thomson Corp. still have the potential to outperform

Money Digest, August, 1997 by Patrick McKeough

Some investors feel tempted to sell their shares in Thomson Corp. (TSE: TOC, C$30.00, Rating: Above average), which have risen 50% in a year. At first glance, shares seem expensive at 24 times this year's earnings, and at 1.5 times sales. To top things off, the company's earnings have stalled.

Thomson's traditional first-quarter loss rose to $0.16 per share in 1997, from $0.09 a year earlier. (All figures except stock price in U.S. funds.) The takeover of West Publishing gave Thomson a much larger customer base to which it can sell legal and regulatory information.

However, the acquisition pushed up costs for the media giant while adding little to current profit. As a result, some stock analysts predict Thomson may make little progress over 1996 earnings of $0.85 per share.

Thomson shares are expensive because investors have high expectations for its potential in specialized electronic publishing. Their optimism makes sense. Thomson's editorial and marketing expertise lets it make the most of today's communications technology. Thomson's Globe & Mail is also coming along nicely, thanks to a rebound in the Ontario economy and continued strength in Canadian financial markets.

Thomson could turn out to be one of those stocks that soars to outrageous peaks in the two-tier market we foresee for the next few years.

The stock is still a buy for longterm gains.