Pat McKeough

A professional investment analyst for more than 30 years, Pat has developed a stock-selection technique that has proven reliable in both bull and bear markets. His proprietary ValuVesting System™ focuses on stocks that provide exceptional quality at relatively low prices. Many savvy investors and industry leaders consider it the most powerful stock-picking method ever created.

As early as 1980, Pat was recognized as #1 in the world of published investment advice by the Washington, DC–based Newsletter Publishers Association, and he was the first multi-year winner of The Globe and Mail’s stock picking contest.

Both CBS MarketWatch and The Hulbert Financial Digest recognized Pat as one of North America’s top stock analysts. The Wall Street Journal called him “one of only four investment newsletter advisors who have managed to serve their readers well over the long haul.”

A best-selling Canadian author, he wrote Riding the Bull, his 1993 book that predicted the stock-market boom of the last half of that decade. Through his many television appearances, he is well-known to investors for his insightful analysis and his candid, unpretentious style.

Bottom line: Pat’s conservative, reduced-risk strategy is a proven approach to safe investing.

BOMBARDIER INC. (Toronto symbols BBD.A $1.53 and BBD.B $1.46; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.2 billion; Market cap: $3.2 billion; Price-to-sales ratio: 0.2; Dividend suspended in February 2015; TSINetwork Rating: Extra Risk; www.bombardier.com) owns 50% of a joint venture in China that has won an order to build 15 high speed passenger trains for that country’s rail system. The company’s share of the $381- million U.S. contract is $190.5 million U.S., or 1% of its annual revenue.

Deals like this enhance the prospects of the railcar division as Bombardier prepares to sell part of it in an initial public offering later this year.

Bombardier is still a hold.

...
MAPLE LEAF FOODS INC. $22 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 140.8 million; Market cap: $3.1 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.5%; TSINetwork Rating: Average; www.mapleleaf.ca) gets 8% of its revenue by exporting packaged meats to the U.S., and the lower Canadian dollar makes these products cheaper to American buyers. The weak dollar also makes imported meats more expensive in Canada.

These benefits come while Maple Leaf takes steps to improve its long-term outlook, including a major restructuring involving closing older plants and shifting their operations to newer facilities. However, it could take a year or more before the company realizes the plan’s full benefits.

Maple Leaf Foods is a hold.

...
ANDREW PELLER LTD. $18 (Toronto symbol ADW.A; Income Portfolio, Consumer sector; Shares outstanding: 14.3 million; Market cap: $257.4 million; Price-to-sales ratio: 0.8; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.andrewpeller.com) is Canada’s second-largest producer of wines, after Constellation Brands.

The company continues to successfully launch new premium priced brands. In the first quarter of its 2016 fiscal year, which ended June 30, 2015, Peller’s sales rose 4.5%, to $83.1 million from $79.5 million a year earlier.

Earnings jumped 67.5%, to $6.7 million, or $0.48 a share, from $4.0 million, or $0.29. Without unusual items, such as losses on hedging contracts Peller uses to lock in foreign exchange rates, earnings gained 40.3%.

...
MOLSON COORS CANADA INC. (Toronto symbols TPX.A $91 and TPX.B $91; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 185.0 million; Market cap: $16.8 billion; Price-to-sales ratio: 3.0; Dividend yield: 2.4%; TSINetwork Rating: Average; www.molson coors.com) merged its U.S. brewing operations with those of rival SABMiller in July 2008 to form MillerCoors. Each company has a 50% voting interest in this joint venture, but Miller gets 58% of the profits, while Molson Coors gets 42%.

Since the merger, MillerCoors has saved roughly $1 billion by combining plants and distribution networks (all amounts except share price and market cap in U.S. dollars).

In the quarter ended June 30, 2015, lower raw material, packaging and fuel costs increased the company’s share of earnings from MillerCoors by 9.3% from a year earlier. However, unfavourable currency rates cut its Canadian earnings by 5.5% and its European profits by 21.5%. A restructuring in China also increased losses at its international operations by 56.8%.

...
PRECISION DRILLING CORP. $5.43 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 292.9 million; Market cap: $1.6 billion; Price-to-sales ratio: 0.8; Dividend yield: 5.2%; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract drilling services to land-based oil and gas producers, mainly in North America, through 329 rigs.

Even though low oil and gas prices have slowed drilling activity, demand for Precision’s Super Series rigs remains strong. That’s because these rigs can reach deeper pockets of oil than regular rigs.

The company recently received a order for a new Super Series rig. As a result, it now plans to spend $546 million on new rigs and other upgrades in 2015, up 7.9% from its previous estimate of $506 million.

...
BANK OF NOVA SCOTIA $59 (Toronto symbol BNS; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 1.2 billion; Market cap: $70.8 billion; Price-to-sales ratio: 3.3; Dividend yield: 4.7%; TSINetwork Rating: Above Average; www.scotiabank.com) earned $1.85 billion in its fiscal 2015 third quarter, which ended July 31, 2015, up 2.8% from $1.80 billion a year earlier. Earnings per share rose 3.6%, to $1.45 from $1.40, on fewer shares outstanding.

However, revenue fell 5.6%, to $6.1 billion from $6.5 billion, mainly because the bank sold most of its shares in mutual fund provider CI Financial (Toronto symbol CIX) in 2014.

Earnings at the Canadian banking division (49% of total profits) rose 14.9% on improving loan and deposit growth. The international division (30%) saw its earnings rise 10.5%, thanks to strong loan demand in Latin America and favourable currency exchange rates.

...
TECK RESOURCES LTD. $9.15 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 576.2 million; Market cap: $5.3 billion; Price-to-sales ratio: 0.6; Dividend yield: 3.3%; TSINetwork Rating: Average; www.teck.com) and Goldcorp Inc. (Toronto symbol G) have agreed to merge their copper projects in Chile into a new 50/50 joint venture by the end of 2015.

The new venture will hold Teck’s proposed Relincho mine and Goldcorp’s El Morro project. The two properties are just 40 kilometres apart, so there are plenty of opportunities to cut overlapping costs. For example, the partners plan to transport ore from El Morro to Relincho for processing.

It would cost $3.5 billion U.S. to build these mines and related infrastructure (Teck’s share is $1.75 billion U.S.). However, their combined reserves would last 32 years.

...
CANADIAN TIRE CORP. $121 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 72.8 million; Market cap: $8.8 billion; Price-to-sales ratio: 0.7; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.canadiantire.ca) owns 495 Canadian Tire stores, which sell automotive, household and sporting goods. Franchisees run most of these outlets. Other operations include 297 gas stations and 91 PartSource auto parts stores. Canadian Tire has acquired a number of specialty retailers in the past few years.

These chains include Mark’s Work Wearhouse (since shortened to Mark’s), which sells casual and work clothing through 378 stores, and the Forzani Group, which sells sporting goods and athletic clothing through 433 stores, mainly under the Sport Chek and Sports Experts banners.

As part of a new growth plan, Canadian Tire is upgrading its stores and growing online. It plans to spend $575 million a year on these initiatives from 2015 to 2017.

The cost of these upgrades, plus higher wages, cut the company’s earnings by 2.3% in the three months ended July 4, 2015, to $166.0 million from $169.9 million a year earlier. Earnings per share gained 1.3%, to $2.15 from $2.12, on fewer shares outstanding.

The latest quarter also included just 80% of the company’s financial services division after it sold a 20% stake to Bank of Nova Scotia (Toronto symbol BNS) last year. The deal cut $0.18 a share from Canadian Tire’s latest earnings.

...
METRO INC. $35 (Toronto symbol MRU; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 245.5 million; Market cap: $8.6 billion; Price-to-sales ratio: 0.6; Dividend yield: 1.3%; TSINetwork Rating: Average; www.metro.ca) operates 600 grocery stores and 250 drugstores in Quebec and Ontario.

The company is benefiting from the 75% of privately held bakery Première Moisson it bought last year. Metro paid $101.6 million for its stake in this business, which has 23 stores and three plants in Quebec. Rising food prices are also boosting its sales and earnings.

In its fiscal 2015 third quarter, which ended July 4, 2015, Metro’s earnings gained 13.1%, to $163.5 million from $144.5 million a year earlier. It spent $203.0 million on share buybacks in the quarter, causing earnings per share to rise at a faster pace of 18.5%, to $0.64 from $0.54.

Sales rose 6.1%, to $3.8 billion from $3.6 billion. Same store sales gained 4.3%. Metro also owns 5.7% of Alimentation Couche-Tard (Toronto symbol ATD.B), which operates convenience stores in North America, Scandinavia and Eastern Europe and is a recommendation of Stock Pickers Digest, our newsletter for aggressive investing. Due to a special charge, Metro’s share of Couche-Tard’s earnings fell to $8.7 million in the latest quarter from $9.1 million a year earlier.

The company is in a strong position to keep making acquisitions and buying back shares. Its long-term debt of $1.1 billion is a low 13% of its market cap, and it holds cash of $5.1 million. The stock trades at 17.2 times the $2.03 a share Metro will likely earn in fiscal 2015. The $0.47 dividend yields 1.3%.

...