This growth stock pick’s prudent U.S. expansion should pay off

Many Canadian firms have tried to expand into the U.S. over the years. Some, like Royal Bank of Canada (symbol RY on Toronto) have had difficulty in the United States. Other companies’ expansion efforts have failed miserably.

Canadian Tire (symbol CTC.A on Toronto) provides a memorable example of a failed U.S. expansion. In 1982, the retailer bought a chain of Whites automotive-retail stores in Texas. By 1985, Canadian Tire had lost $300 million on this purchase. That’s when the company decided to sell the division and retreat to Canada. Its stock price has since gone up more than 360%. Canadian Tire is one of the stocks we cover in our Successful Investor newsletter.

This growth stock pick’s U.S. strategy builds on its Canadian roots

In a just-published issue of Stock Pickers Digest, our advisory for aggressive investing, we update our buy/sell/hold advice on another Canadian company that’s expanding in the U.S.: Tim Hortons Inc. (symbol THI on Toronto.)

Tim Hortons operates 3,040 coffee-and-donut shops in Canada, and 587 in the U.S. Franchisees operate 99.5% of its stores.

Unlike Canadian Tire, Tim Hortons’ U.S. expansion strategy focuses on towns and cities that are close to the Canadian border, in states such as Ohio, New York and Michigan. That lets it profit from Canadian tourists and Americans who are already familiar with its brand.

Pat McKeough's ValuVesting System generated a whopping 383.9% return since 1995 (164.1% above the 219.8% gain of the S&P/TSX) in one of the most volatile markets in history. That means if you had invested $100,000 in 1995, you would have $483,900 today! Click here to learn more about how you can profit from Pat McKeough's The Successful Investor newsletter.

The company has also cut the risk of its U.S. expansion by moving into areas where there is already strong demand for similar products. For example, last year Tim Hortons opened 12 stores in New York City.

These new stores moved into outlets that were vacated by competitor Dunkin’ Donuts. That makes it more likely that many of Dunkin’s regular customers will switch to Tim Hortons instead of looking for another nearby Dunkin’ Donuts outlet.

Ice cream alliance further cuts Tim Hortons U.S. expansion risk

The growth stock pick’s alliance with the U.S.-based Cold Stone Creamery chain of ice-cream parlours continues to provide benefits. Under the deal, the two companies sell some of each other’s products in their stores. Tim Hortons now has 69 co-branded outlets in the U.S., and it is also selling Cold Stone’s ice cream in 13 of its Canadian stores.

In its latest quarter, the growth stock pick’s earnings jumped 21.0% from a year earlier. Sales rose 5.7%, partly because it continues to add new restaurants in Canada and the U.S. However, it also saw higher same-store sales in both Canada and the U.S.

Meanwhile, the company is selling its half of its jointly held Maidstone Bakeries business to Aryzta AG of Switzerland for $475 million. Maidstone will continue to supply donuts and other baked goods to Tim Horton’s stores in Canada and the U.S. at least through 2016.

Tim Hortons could use the proceeds to pay a special dividend, or buy back a large number of shares. Buybacks boost per-share earnings, and give remaining shareholders a larger stake in the company.

You can get our full analysis, including our clear buy/sell/hold advice, on Tim Hortons and 18 other aggressive stocks in the latest Stock Pickers Digest. What’s more, you can get this issue absolutely free. Click here to learn how.