Once again we are conducting our quarterly review and re-evaluating the stocks on our Watched List to see if we want to keep following them.

We sometimes err in our recommendations and sometimes circumstances change and a stock that had been behaving well starts to  head south.

We're also looking for ways to improve our selection and culling criteria and you'll find a review of our previous paring jobs elsewhere. For this effort we are following much the same plan, dropping stocks that meet all three of the following three criteria:

•  It did not make the Top 500 in September or declined 5 RS points
•  It is in a sustained downtrend (3 months)
•  It has a loss in the most recent quarter or earnings have dropped 50% or more or it has had two consecutive quarters of declining earnings.

And we are dropping any stocks we've had for over a year that have failed to grow by 25% or have had for two years and have failed to grow by 50%. We are making exceptions for stocks that are in a current up trend or are growing earnings.

The table below gives the complete picture. We are dropping four stocks that we believe have either run their course or are going nowhere. They are CIBC, Draxis Healthcare, Chartwell Technology, and Mad Catz Interactive. There are a few that are  just marginal keepers in our list but we're not ready to write them off yet.

We are making an exception for AlarmForce which has had two consecutive quarters of declining earnings, is in a current downtrend and dropped off the Top 500 list in September. The reason we're keeping it on our list is because revenues have been growing year over year quite strongly and the earnings decline has been minor, less than 10% this quarter and less than 2% the previous quarter. Earnings actually grew but EPS declined because a new share issue diluted the stock. Barring further dilution, the EPS should grow from here.

Ainsworth Lumber is marginal but we are keeping it because the prospects for lumber remain strong due to the rebuilding of the Gulf States after the recent hurricanes. Earnings have been affected by adverse foreign exchange and the Canadian dollar has been gaining against the US dollar again so it is a big question mark. Nevertheless we will give Ainsworth another quarter on the Watched List. 

Big Rock Brewery is in an up trend currently so we are hanging on to it as well.

It should be noted, of course, that because we are dropping them from our Watched List doesn't necessarily mean they are poor stocks.  We've dropped stocks before only to see them catch fire and soar subsequently. It just means that I no longer consider the upside odds very good. I may add one or more back in at a later date.

Note: T = turnaround from loss to profit, L means the company had a loss in the most recent quarter, * means quarterly earnings per share not available.

Dropped (with YTD and Total Gain in brackets) are CIBC (0.51%, 9.75%), Draxis Healthcare (-9.73%, -11.07%), Chartwell Technology (-35.67%, -23.04%), Mad Catz Interactive (-53.49%, -53.49%)

Dropped in Q2 (with YTD and Total Gain in brackets) are Axcan Pharma (-19.97%, -32.08%), Calian Technology (-18.22%, 218.18%), Cinram (+6.19%, -9.02%), Ketch Resources Trust (-32.86%, +4.01%), Westjet (+13.84%, -34.91%)

Dropped in Q1 were Cott Corporation (-0.98%, +43.37%), Zenon Environmental (-10.49%, -2.60%), Coolbrands International (-1.68%, -12.68%), QLT Inc. (-19.45%, -31.34%)

The information in this table was derived using the Portfolio Tracking feature at globeinvestor.com