This stock’s new pipelines could produce steady gains for the conservative investor

A key part of our three-part tsinetwork.ca investment strategy is to diversify by spreading your money out across the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities).

(The other two parts are to stick with well-established, dividend-paying companies, and downplay stocks in the broker/public-relations limelight.)

Generally speaking, stocks in the Resources and Manufacturing & Industry sectors expose you to above-average volatility, and stocks in the Utilities and Canadian Finance sectors entail below-average volatility. Consumer stocks fall somewhere in the middle.

Most investors should have investments in most, if not all, of these five sectors. The proper proportions depend on your circumstances and whether you’re an aggressive or a more conservative investor.

A conservative investor may put more emphasis on utilities

If you’re an income-seeking or conservative investor, you may want to place more emphasis on Utilities. That’s because these firms’ operations (such as power plants and pipelines) generate steady cash flows that give them plenty of flexibility to pay dividends and invest in new growth projects. That helps cut their risk, and makes them well-suited to the conservative investor.

TransCanada Corp. (symbol TRP on Toronto), a company we’ve analyzed for many years in our Successful Investor newsletter, is a good example of a utility that’s fuelling growth through new projects. We updated our buy/sell/hold advice on TransCanada’s in our February 18, 2011, Successful Investor hotline.

The majority of TransCanada’s revenue and earnings come from its 60,000-kilometre pipeline network. Through these pipelines, TransCanada pumps natural gas from Alberta to eastern Canada and the U.S. The company also owns, or has stakes in, 10,900 megawatts of power generation. That includes Bruce Power LP, a nuclear power facility in Ontario, and the Ravenswood Facility, which serves New York City.

You want to protect your "safe money" — the part of your portfolio you're counting on for the future — yet you want to earn more than you're getting from the bank. That's where my Canadian Wealth Advisor newsletter comes in. I'll show you several proven ways to protect and grow your safe money. Click here to learn how you can get started right away.

New pipelines are increasing TransCanada’s capacity

The largest of TransCanada’s new growth projects is the Keystone pipeline, which now pumps crude oil from Alberta’s oil sands to refineries in Illinois. Its next phase will extend Keystone from Oklahoma to refineries and ports along the U.S. Gulf Coast. A final phase will run from Alberta to Nebraska.

Regulatory delays and higher-than-expected construction costs have pushed the entire project’s estimated cost to $13 billion U.S from $12 billion U.S. The company expects to complete all of Keystone by mid-2013.

TransCanada also recently built a natural-gas pipeline in Wyoming, which began operating in January 2011. Another pipeline, to pump natural gas from the Horn River basin in northeastern B.C. to TransCanada’s main Alberta system, should be ready in 2012.

TransCanada’s long-term debt of $18 billion seems high. In our February 18, 2011, Successful Investor hotline (which you can immediately view when you take a one-month free trial to The Successful Investor), we look to see if the cash flow from the company’s operations gives it enough flexibility to absorb the interest costs and invest in new projects.

(Note: If you are a current Successful Investor subscriber, please click here to view Pat’s recommendation. Be sure to log in first.)

A wide range of stocks for the conservative investor

If you’re a conservative investor, TransCanada is one of several stocks you should be considering. You could pick others from the companies we recommend in our Conservative Growth Portfolio, which you also get when you subscribe to The Successful Investor.

This portfolio gives you 30 of our top conservative selections divided by economic sector. As well, each stock carries our TSINetwork.ca rating. (Our top rating is Highest Quality, followed by Above Average, Average, Extra Risk, Speculative and, at the bottom of the scale, Start-up.)

We recommend that conservative investors invest mainly in stocks from our “Average” or higher TSINetwork.ca ratings, which make up the bulk of our portfolios.

You can get our full Conservative Growth Portfolio, our in-depth analysis of TransCanada and our latest buy/sell/hold advice on dozens of other stocks when you subscribe to The Successful Investor. Best of all, you can get one month free when you subscribe now. Click here to learn how.