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
BCE INC. $52 (Toronto symbol BCE; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 839.6 million; Market cap: $43.7 billion; Price-to-sales ratio: 2.1; Dividend yield: 4.8%; TSINetwork Rating: Above Average; www.bce.ca) is buying Glentel Inc. (Toronto symbol GLN), which sells mobile phones and subscription plans through 494 Canadian stores, mainly under under the Wireless Wave banner. Glentel also has 735 U.S. outlets and 147 in Australia and the Philippines.

The company will pay $594 million (50% cash and 50% in BCE common shares) for Glentel’s outstanding shares. If you include Glentel’s debt, the entire deal is worth $670 million. BCE expects to complete it in the first quarter of 2015.

The Glentel stores will keep selling subscription plans from rival wireless carriers. However, BCE feels the new outlets will help it win more customers, particularly as Ottawa now limits mobile contract terms to two years or less.

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PRECISION DRILLING CORP. $6.31 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 292.8 million; Market cap: $1.8 billion; Price-to-sales ratio: 0.8; Dividend yield: 4.4%; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract drilling services to land-based oil and gas producers, mainly in North America. It operates 335 rigs.

In the quarter ended September 30, 2014, Precision’s revenue rose 19.7%, to $584.6 million from $488.5 million a year earlier. That’s mainly because producers in Western Canada and the U.S. require more rigs that can reach deeper pockets of oil and gas.

Earnings jumped 79.4% in the quarter, to $52.8 million, or $0.18 a share. A year earlier, Precision earned $29.4 million, or $0.10 a share.

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SHAWCOR LTD. $41 (Toronto symbol SCL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.5 million; Market cap: $2.6 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.5%; TSINetwork Rating: Average; www.shawcor.com) makes sealants and coatings that keep oil and natural gas pipelines from rusting. It also makes industrial products, like electrical wire and protective sheaths.

The company recently sold its 50% stake in a joint venture that operates a pipe-coating facility in Brazil for $29.7 million U.S. It also wrote down the value of its other Brazilian deepwater pipe-coating subsidiary by $28.5 million (Canadian).

As a result, ShawCor’s earnings dropped 92.3% in the third quarter of 2014, to $5.6 million, or $0.09 a share. Without the writedown and other unusual items, it earned $0.51 a share in the latest quarter. A year earlier, the company earned $73.0 million, or $1.21 a share. Revenue fell 10.7%, to $469.6 million from $525.8 million.

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FINNING INTERNATIONAL INC. $24 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 172.4 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.6; Dividend yield: 3.0%; 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 made by other firms. Finning’s clients are mainly in the mining, forest products and construction industries.

Weaker commodity prices have hurt demand for new gear in Canada and South America. That cut Finning’s earnings by 34.0% in the quarter ended September 30, 2014, to $0.33 a share from $0.50 a year ago. Without one-time items, including charges related to new tax laws in Chile and Argentina, Finning earned $0.50 a share in the latest quarter.

Overall revenue fell 6.2%, to $1.7 billion from $1.8 billion a year earlier.

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SNC-LAVALIN GROUP INC. $40 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 152.5 million; Market cap: $6.1 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.4%; TSINetwork Rating: Average; www.snclavalin.com) is narrowing its focus to engineering projects in the oil and gas, mining and water treatment industries.

As part of this plan, it recently paid $2.1 billion for U.K.-based Kentz Corp., which supplies engineering and construction services to oil and gas firms. Kentz increased SNC’s exposure to fastgrowing regions like the Middle East, Asia and Australia.

To pay for Kentz, SNC recently sold AltaLink, which distributes electricity in Alberta, for $3.1 billion.

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LINAMAR CORP. $66 (Toronto symbol LNR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.8 million; Market cap: $4.3 billion; Price-to-sales ratio: 1.0; Dividend yield: 0.6%; TSINetwork Rating: Average; www.linamar.com) started up in 1966 with just a single machine shop in Guelph, Ontario.

The company now has 45 plants in North and South America, Europe and Asia that make a variety of automotive parts, including cylinder heads, cylinder blocks, camshafts, crankshafts and connecting rods.

The company gets around 80% of its revenue and 70% of its earnings by making engines, transmissions and other precision-machined parts for automakers. In 2013, General Motors, Ford, Chrysler and Caterpillar accounted for 59.4% of its revenue.

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Income Investing
Every Wednesday, we publish our “Investor Toolkit” series. Whether you’re a new or experienced investor, these weekly updates are designed to give you our specific advice on successful investing. Each Investor Toolkit update gives you a fundamental piece of investing advice and shows you how you can put it into practice right away.

Tip of the week: “Financial institutions continue to create and market products like index-linked GICs that harvest many fees and commissions, but defy investment logic.”

Index-linked guaranteed income certificates (GICs) promise to safeguard a portion of investors’ portfolios. In volatile markets like the ones we’ve been experiencing, these products may seem like an appealing place to put some of your money.

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Investment Counsellor
Every Monday we feature “A Stock to Sell” as our daily post. With every stock or investment we recommend as a sell, we give you a full explanation of why we advise against investing in it at this time.

Exchange Income Corp. (symbol EIF on Toronto; www.exchangeincomecorp.ca) operates in two main areas: aviation and manufacturing.

The aviation business (63% of revenue) includes regional airlines Perimeter Aviation, Keewatin Air, Calm Air International, Bearskin Lake Air Service, Custom Helicopters and Regional One. These airlines serve communities in Manitoba, Ontario and Nunavut.

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BAXTER INTERNATIONAL INC. $67 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 542.0 million; Market cap: $36.3 billion; Price-to-sales ratio: 2.5; Dividend yield: 2.9%; TSINetwork Rating: Average; www.baxter.com) continues to expand overseas, which helps cut its exposure to the 2.3% excise tax it must pay on sales of medical devices as part of the Affordable Care Act (or Obamacare). In 2012, overseas markets supplied 58% of Baxter’s revenue.

The company recently completed its $3.7-billion purchase of Gambro AB, a Swedish dialysis-product maker. Gambro looks like a nice fit with Baxter’s intravenous pumps and other medical equipment. This division supplies 55% of its total revenue. The remaining 45% comes from its BioScience division, which produces vaccines and drugs.

In the three months ended September 30, 2013, Baxter’s revenue rose 8.5%, to $3.8 billion from $3.5 billion a year earlier. Gambro supplied $100 million of that total, which helped push up the medical products division’s sales by 10.2%. BioScience revenue rose 6.4% on strong demand for the division’s Advate hemophilia drug.
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