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.

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If you want to find out how to hire a stock broker who meets your needs, you need to watch out above all for conflicts of interest
BANK OF NOVA SCOTIA $66 (Toronto symbol BNS; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 1.2 billion; Market cap: $79.2 billion; Price-to-sales ratio: 3.6; Dividend yield: 4.1%; TSINetwork Rating: Above Average; www.scotiabank.com) has now purchased 51% of the credit card operations of Cencosud S.A., Chile’s largest retailer, for $280 million U.S. The deal made the bank Chile’s third-largest credit card issuer.

Meanwhile, Bank of Nova Scotia earned $1.73 billion, or $1.42 a share, in its fiscal 2015 second quarter, which ended April 30, 2015. That’s up 1.6% from $1.70 billion, or $1.39, a year earlier. Revenue rose 3.7%, to $5.9 billion from $5.7 billion.

Earnings at the Canadian banking division (48% of the bank’s total) rose 0.7%, mainly because it sold most of its shares in mutual fund provider CI Financial (Toronto symbol CIX) in 2014. If you exclude CI and adjust for a change in tax rates, this division’s earnings rose 9% on improving loan and deposit growth.

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POTASH CORP. OF SASKATCHEWAN $38 (Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 834.2 million; Market cap: $31.7 billion; Price-to-sales ratio: 4.8; Dividend yield: 4.9%; TSINetwork Rating: Average; www.potashcorp.com) is thinking about selling its minority stakes in foreign fertilizer producers Israel Chemicals and SQM (Chile). However, it plans to keep its interests in Sinofert (China) and Arab Chemicals (Jordan).

As of March 31, 2015, these four holdings had a book value of $2.8 billion U.S. A sale would free up cash for dividends or share buybacks. However, last year’s record crop harvests continue to depress potash prices.

Potash Corp. is a hold.

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PRECISION DRILLING CORP. $8.76 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 292.8 million; Market cap: $2.6 billion; Priceto- sales ratio: 1.2; Dividend yield: 3.2%; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract drilling services to land-based oil and gas producers, mainly in North America. The company operates 323 rigs.

Falling oil prices have cut drilling activity in Canada and the U.S. by about 50% in the past six months. As a result, Precision’s revenue fell 23.8% in the first quarter of 2015, to $512.1 million from $672.2 million a year earlier. Earnings declined 76.3%, to $24.0 million, or $0.08 a share, from $101.6 million, or $0.35.

The Supreme Court of Canada recently upheld a lower court ruling in an Ontario income tax dispute involving one of Precision’s subsidiaries. As a result, the Ontario government repaid $55 million of the taxes Precision remitted in 2008, along with interest, for a total of $69 million. The cash will help Precision pay for its plan to spend $506 million on capital upgrades in 2015, down 33.0% from $754.9 million in 2014.

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SHAWCOR LTD. $39 (Toronto symbol SCL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.5 million; Market cap: $2.5 billion; Price-to-sales ratio: 1.3; Dividend yield: 1.5%; TSINetwork Rating: Average; www.shawcor.com) makes sealants and coatings that keep oil and natural gas pipelines from rusting. This business supplies 90% of its revenue. The remaining 10% comes for making industrial products, like electrical wire and protective sheaths.

Last year, the company won contracts to coat underwater pipelines for the South Stream Pipeline project, which pumps natural gas from Russia under the Caspian Sea to Turkey. From there, other pipelines pump the gas to Italy and into Europe. The pipeline’s operators suspended construction in late 2014, but they have recently restarted the project. ShawCor now expects to complete these jobs in the second half of 2015. The company has resumed work on one contract worth $65 million. A second job, worth $60 million, is still suspended. Meanwhile, ShawCor’s revenue fell 1.5% in the three months ended March 31, 2015, to $471.9 million from $479.1 million a year earlier. That’s mainly because the company coated fewer pipelines. However, favourable exchange rates added $16.2 million to its revenue in the latest quarter.

Earnings fell 39.0%, to $37.8 million, or $0.58 a share, from $61.9 million, or $1.03. Aside from the lower revenue, ShawCor completed a highly profitable contract in the year-earlier quarter. These were the main reasons for the lower earnings.

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FINNING INTERNATIONAL INC. $25 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 172.4 million; Market cap: $4.3 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.finning.com) is the world’s largest dealer of tractors, bulldozers and trucks made by Caterpillar Inc. (New York symbol CAT).

It also sells heavy equipment from other manufacturers. Finning’s clients are mainly in the mining, forest products and construction industries. The company recently paid $230 million for Saskatchewan Caterpillar distributor Kramer Ltd. The deal that will add $275 million to Finning’s annual revenue.

To put these figures in context, Finning’s revenue fell 9.4% in the three months ended March 31, 2015, to $1.5 billion from $1.7 billion a year earlier. That’s mainly because weak prices for copper and other metals hurt mining equipment demand in Canada and South America. Part of Finning’s response to the lower sales has been to exit Uruguay, which accounts for $30 million U.S. of yearly revenue.

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SNC-LAVALIN GROUP INC. $46 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 152.1 million; Market cap: $7.0 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.2%; TSINetwork Rating: Average; www.snclavalin.com) fell to $36.24 in March 2015 after the RCMP charged the company and two subsidiaries for using bribes to win construction deals in Libya between 2001 and 2011.

These are the same allegations that prompted SNC to replace its senior executives in 2012 and bring in a new program to enforce ethical practices. The company plans to fight these charges.

Meantime, SNC has continued to win public works contracts, including one for building a new bridge in Montreal and another for a transit line in Toronto. That’s why the stock has recovered to its current level.

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ANDREW PELLER LTD. $17 (Toronto symbol ADW.A; Income Portfolio, Consumer sector; Shares outstanding: 14.3 million; Market cap: $243.1 million; Price-to-sales ratio: 0.8; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.andrewpeller.com) is a great example of a key part of our three-pronged investing strategy, which is to downplay stocks in the broker/media limelight (the other two are to invest mainly in well-established companies, and spread your money across the five main economic sectors).

Peller is Canada’s second-largest wine producer, after Vincor International, but few brokers cover it due to its relatively small market cap. Even so, it has a long history of rising earnings and dividends.

In its 2015 fiscal year, which ended March 31, 2015, Peller’s sales rose 6.0%, to $315.7 million from $297.8 million in 2014. That’s mainly because it launched several new products, including its skinnygrape spritzers and Panama Jack cocktails.

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FORTIS INC. $36 (Toronto symbol FTS; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 277.5 million; Market cap: $10.0 billion; Price-to-sales ratio: 1.7; Dividend yield 3.8%; TSINetwork Rating: Above Average; www.fortisinc.com) began supplying electricity to St. John’s, Newfoundland, in 1885. The company is now the main power utility in Newfoundland and PEI.

In the past decade, Fortis has used acquisitions to expand to other parts of Canada. In May 2004, it paid $1.5 billion for regulated power companies in Alberta and B.C. In May 2007, it added Terasen (now called Fortis BC Energy), which distributes natural gas to nearly one million customers in B.C. Fortis paid $3.7 billion for this business.

The company is also buying utilities outside Canada. In June 2013, it paid $1.5 billion U.S. for CH Energy Group, which delivers electricity to 300,000 clients in New York State’s Mid-Hudson River Valley. CH doesn’t own power plants; instead, it buys power from other producers. It also distributes natural gas to 77,000 users.

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Dynavax may have a successful hepatitis drug in the works, but clinical setbacks and high costs make us view it as a high risk investment.