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
Stocks to buy - John deere
Pat McKeough responds to many requests from members of his Inner Circle. Every week, his comments on the most intriguing questions of the past week go out to all Inner Circle members. Each week, we offer you a highlight from these Q&A sessions. This week, why the world’s largest farm equipment maker isn’t among our U.S. stocks to buy.

Q: How do you see things shaping up for Deere & Co.? Is it a buy? Thanks.

A: Deere & Co. (symbol DE on New York; www.deere.com) started up in 1837 when its founder, John Deere, began making polished-steel plows at his blacksmith shop in Grand Detour, Illinois.

Today, the company is the world’s largest maker of agricultural equipment, with plants in the U.S., Canada, France, Germany, Spain, South Africa, Mexico and Argentina. In addition to John Deere, its top brands include Frontier, Kemper, Green Systems and SABO.

Deere mainly sells these products through independent dealers and home-improvement chains like Home Depot and Lowe’s. It has three divisions:

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TEXAS INSTRUMENTS INC. $54 (Nasdaq symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.0 billion; Market cap: $54.0 billion; Price-to-sales ratio: 4.3; Dividend yield: 2.5%; TSINetwork Rating: Average; www.ti.com) gets 65% of its revenue from analog chips, which convert inputs like touch, sound and pressure into signals computers can understand. Manufacturers use these chips in a variety of products, such as cars, medical devices and appliances.

The company gets a further 20% of its revenue by making embedded processor chips, which perform mathematical calculations. Many clients supply their own software for these chips. This gives Texas Instruments an opportunity to form long-term relationships with these users, as it helps them adapt their software to the new chips. That makes these customers less likely to switch to other chipmakers.

Handheld calculators, specialized chips and licensing fees provide the remaining 15% of revenue.

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PEPSICO INC. $95 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.5 billion; Market cap: $142.5 billion; Price-to-sales ratio: 2.1; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.pepsico.com) earned $1.25 billion in the three months ended March 21, 2015, down 1.6% from $1.27 billion a year earlier. The company spent $1.1 billion on share buybacks in the latest quarter. As a result, earnings per share were unchanged at $0.83.

Sales declined 3.2%, to $12.2 billion from $12.6 billion. If you exclude businesses PepsiCo bought and sold in the past year, as well as unfavourable currency exchange rates (overseas markets supply 40% of the company’s sales), revenue rose 4.4%.

PepsiCo is still seeing strong demand for its snack foods, particularly in developing countries. However, soft drink sales have suffered as increasingly health-conscious consumers drink less soda.

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EBAY INC. $62 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $74.4 billion; Price-to-sales ratio: 4.2; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) has settled a long-standing dispute with classified advertising website Craigslist.

In 2004, eBay acquired a 28.4% stake in the privately held company for $32 million. However, Craigslist accused eBay of using its confidential information to launch a rival classified ad service in the U.S. in 2007. Under the settlement, eBay has sold its shares back to Craigslist for an undisclosed amount.

The deal should help speed up eBay’s plan spin off its PayPal online payments division as a separate company later this year. The remaining firm will focus on auction websites.

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MACY’S INC. $70 (New York symbol M, Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 336.4 million; Market cap: $23.5 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.1%; TSINetwork Rating: Average; www.macysinc.com) has formed a partnership with zTailors to provide tailoring services to customers who buy clothes from Macy’s websites.

For an extra fee, a tailor will come to the customer’s home or office for a fitting and complete the alterations within a week. If initial trials in three test cities are successful, Macy’s and zTailors will expand the service to all of the U.S. by the end of 2015.

Macy’s is a buy.

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INTEL CORP. $32 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 4.7 billion; Market cap: $150.4 billion; Price-to-sales ratio: 2.7; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.intel.com) has purchased Recon Instruments, a privately held Vancouver firm that makes heads-up displays for sports goggles and other specialized eyewear.

This is a small acquisition for Intel: the $175-million purchase price is just 9% of the $2.0 billion, or $0.41 a share, the chipmaker earned in the three months ended March 28, 2015. However, Recon’s technology will help Intel profit from rising sales of wearable devices, such as wristwatches that monitor heart rates and other biological data.

Intel is a buy.

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HONDA MOTOR CO. LTD. ADRs $33 (New York symbol HMC; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.8 billion; Market cap: $59.4 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.4%; TSINetwork Rating: Above Average; www.honda.com) is Japan’s second largest carmaker and the world’s biggest motorcycle manufacturer.

In its 2015 fiscal year, which ended March 31, 2015, Honda sold 4.36 million vehicles, up 0.9% from 2014. New models increased Asian sales by 10.8%, but sales fell 0.6% in the U.S., 1.2% in Europe and 7.0% in Japan. Motorcycle sales rose 4.4%. Unfavourable currency rates cut revenue by 8.3%, to $105.4 billion from $114.9 billion. Earnings per ADR declined 21.9%, to $2.42 from $3.10 (each ADR equals one common share).

The company expects its car sales to rise 8.0% in fiscal 2016, while motorcycle sales will gain 2.6%. That should lift its earnings to $2.68 per ADR, and the stock trades at 12.3 times that estimate. The $0.80 dividend yields 2.4%.

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TOYOTA MOTOR CO. ADRs $135 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.6 billion; Market cap: $216.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 2.4%; TSINetwork Rating: Above Average; www.toyota.com) is the world’s largest carmaker. In its 2015 fiscal year, which ended March 31, 2015, Toyota sold 8.97 million vehicles, down 1.6% from 2014. North American sales rose 7.4%, thanks to strong demand for sport utility vehicles. European sales gained 1.8%. However, sales fell 8.9% in Japan and 7.5% in other parts of Asia.

Revenue declined 3.4%, to $241.0 billion from $249.5 billion, but revenue improved 6.0% in Japanese yen. Cost cuts and favourable exchange rates boosted earnings per ADR by 4.6%, to $12.31 from $11.77 (each American depositary receipt equals two Toyota common shares).

The company expects its fiscal 2016 sales to decline by 72,000 vehicles, to 8.9 million. Even so, its efficiency improvements should push up its earnings by 2.4%, to $12.60 per ADR. The stock trades at just 10.7 times that estimate. The $3.22 dividend yields 2.4%

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FEDEX CORP. $173 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 283.8 million; Market cap: $49.1 billion; Price-to-sales ratio: 1.1; Dividend yield: 0.6%; TSINetwork Rating: Average; www.fedex.com) delivers packages and documents in the U.S. and 220 other countries through a fleet of 650 planes and 108,000 trucks and other ground vehicles.

The company recently agreed to buy TNT Express NV, a Netherlands-based courier that operates throughout Europe.

FedEx’s main rival, United Parcel Service (UPS), tried to buy TNT in 2012, but antitrust regulators rejected the deal because it would have given UPS too much of Europe’s courier market. Combined, FedEx and TNT would have about 17% of this business, so regulators will likely approve this purchase.

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