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
A conservative, step-by-step Canadian guide: account choice, W-8BEN, FX cost cuts, first trade, and DRIP, built for steady dividend income.
MTS SYSTEMS CORP. $68 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 15.4 million; Market cap: $1.0 billion; Price-to-sales ratio: 1.8; Dividend yield: 1.8%; TSINetwork Rating: Average; www.mts.com) makes equipment and software that manufacturers use to test the behaviour of materials, machines and structures. This helps its customers reduce errors and costs. Like 3M (see page 1), MTS is also spending more to develop new products.

In the fiscal year ended September 28, 2013, MTS’s revenue rose 5.0%, to $569.4 million from $542.3 million a year earlier. Earnings fell 5.4%, to $3.49 a share from $3.69, partly due to a 4.2% jump in research spending. MTS now devotes around 4% of its revenue to developing new products.

The company expects its fiscal 2014 earnings to improve to $3.55 to $3.70 a share. The stock trades at a reasonable 18.8 times the midpoint of that range.
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ENCANA CORP. $18 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 740.1 million; Market cap: $13.3 billion; Price-to-sales ratio: 2.2; Dividend yield: 1.6%; TSINetwork Rating: Average; www.encana.com) plans to spend $2.4 billion to $2.5 billion on its properties in 2014. That’s down from the $2.8 billion it will likely spend in 2013.

Encana will devote 75% of its 2014 spending to five properties: Montney (B.C.), Duvernay (Alberta), DJ Basin (Colorado), San Juan Basin (New Mexico) and the Tuscaloosa Marine Shale (Louisiana).

These fields produce significant amounts of oil and natural gas liquids (NGLs), such as butane and propane. The company expects oil and NGLs to supply 75% of its cash flow by 2017, up from about 35% today.
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C.R. BARD INC. $166 (New York symbol BCR; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 74.9 million; Market cap: $12.4 billion; Price-to-sales ratio: 3.9; Dividend yield: 0.5%; TSINetwork Rating: Above Average; www. crbard.com) makes over 15,000 medical devices in four main areas: oncology products that detect and treat various types of cancer (28% of 2013 sales); vascular products, like stents and catheters (27%); urology goods, such as drainage and incontinence devices (26%); and surgical tools (16%). Other medical products supply the remaining 3%.

The company’s products are typically only used once, so customers must continually buy new ones.

Acquisition targets fit well

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RESTAURANT BRANDS INTERNATIONAL INC. $35 (New York symbol QSR; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 483.3 million; Market cap: $16.9 billion; Priceto- sales ratio: 0.7; Dividend yield: n.a.; TSINetwork Rating: Average; www.rbi.com) is the new company formed by the merger of Tim Hortons Inc. (old symbol THI) and Burger King Worldwide (old symbol BKW).

Restaurant Brands is the world’s third-largest fast-food chain, after McDonald’s and Yum Brands, with 14,000 Burger King restaurants and 4,590 Tim Hortons outlets in 100 countries. In all, these locations have annual sales of over $23 billion.

Roughly 72% of Tim Hortons shareholders opted to receive 3.0879 shares of the new company for each Tim Hortons share they held. A further 26% chose the default option of $65.50 (Canadian) in cash plus 0.8025 of a Restaurant Brands share, while 2% picked the all-cash option of $88.50 (Canadian) a share.

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FRONTIER COMMUNICATIONS CORP. $6.36 (Nasdaq symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 1.0 billion; Market cap: $6.4 billion; Price-to-sales ratio: 1.4; Dividend yield: 6.6%; TSINetwork Rating: Average; www. frontier.com) recently completed its $2.0-billion purchase of AT&T’s traditional phone business in Connecticut. It now has 3.0 million customers in 28 states.

By combining these operations with its existing systems, Frontier has already cut its annual costs by $150 million. That should rise to $200 million a year by the end of 2017.

Thanks to these expected savings, Frontier has increased its quarterly dividend by 5.0%, to $0.105 a share from $0.10. The new annual rate of $0.42 yields 6.6%.

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CONAGRA FOODS INC. $37 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 424.5 million; Market cap: $15.7 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.conagrafoods .com) owns 50% of a plant in the Netherlands that makes frozen potato products; Holland-based Meijer Frozen Food owns the other 50%.

The partners now plan to increase this facility’s capacity by mid-2016. That will help them meet fast-food chains’ rising demand for french fries.

The joint venture has enough cash flow to cover the expansion’s $150-million cost, so ConAgra won’t have to commit any additional funds.

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STANLEY BLACK & DECKER INC. $94 (New York symbol SWK; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 156.7 million; Market cap: $14.7 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.2%; TSINetwork Rating: Average; www.stanleyblack anddecker.com) earned $249.1 million in the third quarter of 2014, up 12.7% from $221.1 million a year earlier. Earnings per share rose 11.5% to $1.55 from $1.39, on more shares outstanding.

Sales gained 5.2%, to $2.9 billion from $2.8 billion, as Stanley released new tools for consumers and industrial users. It also raised its prices. That offset lower sales of building-security systems, particularly in Europe, and the negative impact of currency exchange rates.

Stanley Black & Decker is a buy.

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ABB LTD. ADRs $21 (New York symbol ABB; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 2.3 billion; Market cap: $48.3 billion; Price-to-sales ratio: 1.2; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.abb.com) makes transformers, transmission systems and circuit breakers for power utilities. The Switzerland-based firm also produces automation systems and robotics that its industrial clients use to improve their productivity.

In the three months ended September 30, 2014, ABB’s revenue fell 6.8%, to $9.8 billion from $10.5 billion a year earlier. That’s mainly due to slowing demand for transmission gear in Europe. Earnings declined 12.1%, to $734 million from $835 million. ABB continues to buy back shares and recently earmarked $4 billion for future repurchases. Due to fewer shares outstanding, earnings per ADR fell 11.1%, to $0.32 from $0.36 (each American depositary receipt represents one ABB common share).

The company aims to improve its profitability by selling non-essential businesses. It’s also turning down riskier, lessprofitable orders. These moves should boost its earnings per ADR from a projected $1.20 in 2014 to $1.41 in 2015. The stock trades at 14.9 times the 2015 forecast. The $0.77 dividend yields 3.7%.

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GENERAL ELECTRIC CO. $24 (New York symbol GE; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 10.0 billion; Market cap: $240.0 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.8%; TSINetwork Rating: Above Average; www.ge.com) recently agreed to form a major new alliance with France’s Alstom SA, a leading maker of electrical-transmission equipment and parts for power plants.

Under the deal, GE will form three 50/50 joint ventures with Alstom. One will combine the companies’ electrical grid operations, while a second will focus on products for renewable energy projects, like offshore wind farms. The third will hold Alstom’s nuclear-equipment division.

In all, GE will pay $10 billion when the Alstom deal closes in 2015. The new operations it brings should add about $0.07 a share to GE’s annual earnings, starting in 2016.

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