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.

Posts by the author
MANITOBA TELECOM SERVICES INC. $27 (Toronto symbol MBT; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 78.5 million; Market cap: $2.1 billion; Priceto- sales ratio: 1.2; Dividend yield: 4.8%; TSINetwork Rating: Average; www.mtsallstream.com) recently completed a strategic review of its operations. As a result, it now plans to cut 25% of the workforce at its Allstream division, which sells telephone, Internet and other communication services to businesses across Canada.

In addition, the company will cut Allstream’s capital spending by 20% to 30% in 2015. Manitoba Telecom expects these moves to save it $50 million annually by the end of 2016.

In addition, it will contribute $120 million to its underfunded employees’ pension plan, eliminating the need for additional payments over the next two years. The company has also cut its dividend by 23.5%. The new annual rate of $1.30 yields 4.8%.

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ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $44 and ACO.Y [class II voting] $44; Income Portfolio, Utilities sector; Shares outstanding: 115.1 million; Market cap: $5.1 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.atco.com) holds 53.2% of Canadian Utilities (see page 53). The company also owns 75.5% of ATCO Structures & Logistics, which makes temporary buildings for construction, mining and energy exploration firms; Canadian Utilities owns the other 24.5%. In the three months ended March 31, 2015, the company earned $94 million, or $0.82 a share. That’s down 26.0% from $127 million, or $1.10. Revenue declined by 12.6%, to $1.1 billion from $1.2 billion.

Lower earnings at Canadian Utilities hurt ATCO’s profits. As well, the structures business completed two big contracts in late 2014. As a result, this division’s earnings fell by $11 million in the latest quarter.

However, ATCO recently started working on a $125-million contract to build worker shelters at the Wheatstone liquefied natural gas project in Western Australia. It expects to finish these buildings by the end of the year.

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CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $37 and CU.X [class B voting] $37; Income Portfolio, Utilities sector; Shares outstanding: 264.5 million; Market cap: $9.8 billion; Price-to-sales ratio: 2.8; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.canadian utilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. owns 53.2% of the company.

Canadian Utilities plans to spend $5.8 billion on upgrades between 2015 and 2017. It will devote $5.1 billion of that to its regulated operations, including $1.2 billion to make Alberta’s power grid more reliable.

The remaining $700 million will go to unregulated businesses, including $500 million for new power lines in the Fort McMurray area. The company owns 80% of a joint venture that will build this project. Quanta Services (New York symbol PWR) will own the remaining 20%. Meanwhile, Canadian Utilities earned $174 million, or $0.61 a share, in the three months ended March 31, 2015.

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ENBRIDGE INC. $61 (Toronto symbol ENB; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 855.0 million; Market cap: $52.2 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.enbridge.com) gets 90% of its revenue from pipelines that pump oil and natural gas from Western Canada to Eastern Canada and the U.S. The remaining 10% mainly comes from distributing gas to 2.1 million consumers in Ontario, Quebec, New Brunswick and New York State.

The company plans to spend $44 billion on new pipelines and expansions between 2014 and 2018. It completed $9.8 billion worth of that total in 2014 and expects to finish another $8.7 billion worth this year. Enbridge has already secured shipping contracts for $34 billion worth of these projects, which cuts its risk.

These outlays exclude the $6.5-billion Northern Gateway pipeline, which would pump crude from Alberta to the B.C. coast. Regulators have approved the line, but it still faces a number of political and other hurdles. If Enbridge decides to build Northern Gateway, it could begin operating in 2019.

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LINAMAR CORP. $82 (Toronto symbol LNR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 65.1 million; Market cap: $5.3 billion; Price-to-sales ratio: 1.3; Yield: 0.5%; TSINetwork Rating: Average; www.linamar.com) rose to an all-time high of $84.13 after reporting record first-quarter results.

In the three months ended March 31, 2015, sales rose 22.5%, to $1.3 billion from $1.0 billion a year earlier. That’s partly because Linamar recently bought hot-forging businesses in the U.S. and Germany for $107.6 million.

These operations bring expertise that will improve the company’s ability to make specialized parts. That will make its transmissions lighter and quieter, with less vibration.

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TRANSCANADA CORP. $53 (Toronto symbol TRP; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 709.0 million; Market cap: $37.6 billion; Priceto- sales ratio: 3.8; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www.transcanada.com) operates a 68,000- kilometre pipeline network that pumps natural gas from Alberta to Eastern Canada and the U.S. The company’s pipelines supply 20% of North America’s natural gas needs. In 2014, they provided 48% of TransCanada’s revenue and 53% of its earnings.

The company also owns or invests in 21 power plants in Alberta, Ontario, Quebec and the northeastern U.S. In all, these facilities have over 11,800 megawatts of generating capacity. This division supplies 37% of revenue and 26% of earnings.

The remaining 15% of TransCanada’s revenue and 21% of earnings comes from its oil-pipeline division, which it started up in 2011. This business mainly consists of the Keystone pipeline, which pumps crude from Alberta to refineries in Illinois, and a distribution hub in Cushing, Oklahoma. Keystone accounts for 20% of Canada’s crude exports to the U.S.

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Pharmaceutical drugs are the biggest growth area for Johnson & Johnson today, as its strong brand helps it sustain a strong dividend yield.
RIOCAN REIT $30.05 (Toronto symbol REI.UN; Units outstanding: 315.8 million; Market cap: $9.5 billion; TSINetwork Rating: Average; Dividend yield: 4.7%; www.riocan.com) continues to hit new all-time highs, even with the closure of the Future Shop chain.

Electronics retailer Best Buy (New York symbol BBY) recently closed 66 of its 131 Future Shop outlets in Canada and will convert the remaining 65 to Best Buy stores.

There are only 10 Future Shops in RioCan’s malls, so these closures and conversions should have little impact on its results. Combined, 32 Best Buy and Future Shop stores rent space from RioCan, accounting for just 1.5% of its 2014 rental revenue.

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CANADIAN REIT $45.51 (Toronto symbol REF.UN; Units outstanding: 72.6 million; Market cap: $3.4 billion; TSINetwork Rating: Extra Risk; Dividend yield: 3.8%; www.creit.ca) owns 198 properties, including retail, industrial and office buildings, across Canada and in Chicago. These holdings contain 24.9 million square feet of leasable area. The trust’s occupancy rate is 95.1%.

In the three months ended December 31, 2014, Canadian REIT’s revenue rose 1.7%, to $108.5 million from $106.7 million a year earlier. Cash flow per unit gained 4.2%, to $0.75 from $0.72.

In 2014, the trust added one industrial property in Toronto and another in Edmonton for a total of $42.3 million. That followed $199.1 million of purchases in 2013 and $401.9 million in 2012.

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