Aggressive Stocks – 4 Buys & 1 Hold

We feel most investors should hold the bulk of their investment portfolios in securities from wellestablished companies. However, you may also want to hold some aggressive stocks.

Most of our aggressive recommendations have a strong hold on niche markets. This approach cuts your risk by zeroing in on companies like these five, whose strong long-term prospects will help them overcome the inevitable downturns. However, we see only four of them as buys at this time.

ARBOR MEMORIAL SERVICES INC. $30 (Toronto symbol ABO.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 10.6 million; Market cap: $318.0 million; SI Rating: Average) owns 41 cemeteries, 27 crematoria, three reception centres located on cemetery premises and 93 funeral homes in eight provinces.

Arbor gets most of its revenue from advance sales of cemetery plots and memorial services. It holds this cash in trust until it performs a service. Meanwhile, it earns interest income from this cash. Interest income typically accounts for just under 10% of Arbor’s total revenue.

In its third fiscal quarter ended July 31, 2007, revenue rose 8.1%, to $57.7 million from $53.4 million a year earlier. Most of the increase came from higher demand for funeral services, as well as value-added services such as receptions and catering. Sales of new cemetery plots rose 7.3%. Earnings in the quarter crept up to $0.40 a share from $0.39.

Arbor’s thin-trading shares are up 30% in the past year. The stock now trades at 15.0 times the $2.00 a share it should earn in fiscal 2007. The $0.07 dividend yields 0.2%.

The long-term outlook for Arbor is bright. Demand for funeral services is growing as the population ages. A shortage of land available to expand cemeteries or build new ones will let Arbor charge higher prices, and make it harder for new competitors to entry the industry.

Arbor is a buy.

THE WESTAIM CORP. $0.37 (Toronto symbol WED; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 94.1 million; Market cap: $34.8 million; SI Rating: Speculative) has two main subsidiaries: wholly owned iFire Technologies Corp. is developing a new, cheaper way to make flat-panel displays; 74.8%-owned Nucryst Pharmaceuticals Corp. (Toronto symbol NCS) makes medical products that prevent infection in burns and wounds. Based on current prices, Nucryst now accounts for $0.36 per Westaim share.

Westaim was the technology development subsidiary of fertilizer producer Viridian Inc., a one-time recommendation of ours. In 1996, Viridian handed out its Westaim shares to its own shareholders as a special dividend.

In the second quarter of 2007, Westaim’s losses fell to $0.08 a share from $0.13 a year earlier, thanks to a gain on sale of real estate. Revenue fell 4.3%, to $6.7 million from $7.0 million.

iFire recently restructured its operations. That should give it more time to perfect its manufacturing process, and attract a partner to share costs.

The outlook for Nucryst is also improving. Although a new agreement with UK-based medical device maker Smith & Nephew plc will probably hurt future royalty payments, cost controls and revenues from the upcoming launch of a new skin cream should help offset this.

Westaim is far riskier than most of our recommendations. But it’s still debt free, and it has about $55.6 million or $0.59 a share in cash.

Westaim is a hold.

TRANSCONTINENTAL INC. $21 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; 84.5 million; Market cap: $1.8 billion; SI Rating: Average) is the largest commercial printer in Canada, and the sixth-largest in North America. It’s also a leading publisher of community newspapers and magazines, and provides direct marketing services.

In August 2007, Transcontinental agreed to pay $103.3 million for PLM Group Ltd., Canada’s fourth-largest commercial printer. PLM’s four facilities near Toronto specialize in direct marketing catalogs and flyers.

Demand for direct marketing services like PLM’s is growing strongly, particularly as new “Do Not Call” rules could make it harder to contact potential customers through telemarketing.

To put the cost to acquire PLM in perspective, Transcontinental’s earnings in its third fiscal quarter ended July 31, 2007 rose to $0.34 a share (total $28.4 million) from $0.33 a share ($28.3 million) a year earlier. These figures exclude restructuring costs and other one-time items. Revenue grew 3.3%, to $546.5 million from $528.9 million.

Transcontinental had just $46.8 million ($0.54 a share) in cash at July 31, so it will have to borrow the cash it needs to buy PLM. That will increase its long-term debt, from 0.4 times equity to about 0.5 times. But PLM is profitable, and the extra cash flow should let Transcontinental steadily pay down the extra debt.

The company should earn $1.62 a share in its current fiscal year, and the stock trades at just 13.0 times that figure. The $0.28 dividend yields 1.3%.

Transcontinental is a buy.

HART STORES INC. $4.00 (Toronto symbol HIS; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 13.6 million; Market cap: $54.4 million; SI Rating: Speculative) operates 76 midsized department stores, mainly in Eastern Canada.

Hart prefers to focus on smaller cities that larger department stores tend to avoid. In the past two years, the company has focused most of its expansion efforts on Ontario, where it now has 11 stores.

Thanks to three new stores, Hart’s sales in its second fiscal quarter ended August 4, 2007 rose 4.3%, to $41.1 million from $39.4 million a year earlier. Same-store sales grew just 0.1%. Earnings rose 14.3%, to $0.16 a share from $0.14.

Long-term debt is just 16% of equity, so Hart has plenty of flexibility to keep expanding. It plans to open five new stores by the spring of 2008. Hart also has $2.8 million ($0.21 a share) in cash.

Insiders own about 57% of the shares, which hurts Hart’s liquidity. However, the shares trade at 10.0 times forecast fiscal 2008 profit of $0.40 a share. The $0.10 dividend yields 2.5%.

Hart Stores is a buy.

DUNDEE CORP. $23 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 75.4 million; Market cap: $1.7 billion; SI Rating: Average) is reorganizing its operations, and selling certain assets. Dundee is a holding company with subsidiaries in three main areas: wealth management, real estate and resources.

Dundee’s main subsidiary is 56.3%-owned DundeeWealth Inc., which offers wealth management services and owns the Dynamic family of mutual funds.

In September 2006, Dundee- Wealth launched Dundee Bank of Canada, a Schedule I Chartered Bank. DundeeWealth has now agreed to sell Dundee Bank to Bank of Nova Scotia for $260 million. Scotiabank has also purchased new shares of DundeeWealth for $348 million. That gives Scotiabank an 18% stake.

The deal also gave Scotiabank an option to increase its ownership in DundeeWealth to 20%, as well as first refusal rights on Dundee Corp.’s stake in DundeeWealth. Dundee Corp. continues to control more than 50% of DundeeWealth.

Subsequent to the Scotiabank transaction, DundeeWealth became the target of a hostile all-stock takeover offer from CI Financial Income Fund. Dundee Corp. has rejected this offer.

Dundee Corp. also owns 24% of zinc mining firm Breakwater Resources Ltd. Breakwater’s stock moved up recently on speculation that Dundee Corp. may now be interested in selling its stake. Unlike the DundeeWealth offer, Dundee Corp. may welcome a takeover bid for Breakwater. Selling investments like Breakwater would cut its risk, and remove some of its holding company discount.

Dundee Corp. is a buy.