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.
IBM $161.82 (New York symbol IBM; Shares outstanding: 997.6 million; Market cap: $197.9 billion; TSINetwork Rating: Above Average; Dividend yield: 2.7%; www.ibm.com) is handing over its computer chip manufacturing operations to Globalfoundries Inc. IBM will not receive any payment for these assets. Instead, it will pay Globalfoundries $1.5 billion to take over this money-losing business. IBM has also agreed to buy chips from Globalfoundries for the next 10 years.

This move is part of IBM’s plan to focus on its more profitable computer services and software divisions, which should spur its earnings as the economy rebounds. Meanwhile, its $4.40-ashare dividend seems safe and yields 2.7%.

IBM is a buy.

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CANADIAN REIT $49.40 (Toronto symbol REF.UN; Units outstanding: 69.3 million; Market cap: $3.4 billion; TSINetwork Rating: Extra Risk; Dividend yield: 3.5%; www.creit.ca) owns 198 properties, including retail, industrial and office buildings, across Canada and in Chicago. These holdings contain almost 24.1 million square feet of leasable area. The trust’s occupancy rate is 95.3%.

In the three months ended June 30, 2014, Canadian REIT’s revenue rose 3.5%, to $102.0 million from $98.6 million a year earlier. Cash flow per unit gained 4.2%, to $0.74 from $0.71.

Canadian REIT added $191.1 million worth of new buildings in 2013. That followed $401.9 million of property purchases in 2012, including a 50% stake in Calgary Place, a 575,000-square-foot office and retail complex, for $156.0 million. So far this year, it has made one acquisition: a 261,000-square-foot industrial property near Toronto’s Pearson International Airport for $29.3 million.

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ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $35.46 (Toronto symbol AP.UN; Units outstanding: 74.6 million; Market cap: $2.7 billion; TSINetwork Rating: Extra Risk; Dividend yield: 4.0%; www.alliedreit.com) owns 138 office buildings, mostly in major Canadian cities. These mainly Class I properties contain over 9.9 million square feet of leasable area.

Class I refers to 19th- and early-20th-century light industrial buildings that have been converted to retail space. They usually feature exposed beams, interior brick and hardwood floors.

Allied bought $400 million of properties in 2012 and $182.4 million worth in 2013. In the first half of 2014, it added six more for $110.0 million.

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ISHARES MSCI JAPAN INDEX FUND $11.76 (New York Exchange symbol EWJ; buy or sell through brokers; us.ishares.com) is an ETF that tries to match the return of the Morgan Stanley Capital International (MSCI) Japan index.

The fund has now regained all of the ground it lost in the recent market downturn. Its latest rise came after the Japanese government and the Bank of Japan announced huge increases in their economic stimulus programs.

Under Prime Minister Shinzo Abe’s so-called “Abenomics” strategy, the Bank of Japan has pumped money into the country’s economy. However, consumer spending has remained sluggish, especially after the government raised the sales tax to 8% from 5% on April 1, 2014.

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BCE INC. $51.08 (Toronto symbol BCE; Shares outstanding: 778.1 million; Market cap: $41.8 billion; TSINetwork Rating: Above Average; Dividend yield: 4.8%; www.bce.ca) is Canada’s largest provider of telephone, Internet and wireless services. It also offers satellite and Internet TV across the country.

In the three months ended September 30, 2014, BCE’s earnings per share rose 10.7%, to $0.83 from $0.75 a year earlier. Revenue increased 1.9%, to $5.2 billion from $5.1 billion.

Revenue from wireless services (31% of the total) rose 7.0%. The company’s network upgrades continue to attract new wireless subscribers. It’s also gaining from rising use of smartphones, for which it charges higher service fees than regular cellphones.

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CAE INC. $15 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 265.3 million; Market cap: $4.0 billion; Price-to-sales ratio: 1.8; Dividend yield: 1.9%; TSINetwork Rating: Average; www.cae.com) gets 55% of its revenue by selling flight simulators and pilot-training services to commercial airlines. Another 40% comes from simulators and training for military clients, mainly in the U.S.

CAE gets the remaining 5% of its sales by making medical-simulation products, such as mannequins, for training nurses and medical students.

Steady growth in revenue, earnings

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RIOCAN REAL ESTATE INVESTMENT TRUST $27 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 308.9 million; Market cap: $8.3 billion; Price-to-sales ratio: 5.8; Dividend yield: 5.2%; TSINetwork Rating: Average; www.riocan.com) continues to open new malls and, with partners, mixed-use properties with office and residential space. The trust is also selling less profitable properties.

In the third quarter of 2014, RioCan’s net leasable area shrank by 2.5%, to 71.6 million square feet from 73.5 million a year earlier. But thanks to strong demand from retailers, it’s renewing leases at higher rental rates. That’s why its cash flow rose 7.4% in the latest quarter, to $131 million from $122 million. Cash flow per unit gained 5.0%, to $0.42 from $0.40, on more units outstanding.

The units trade at a reasonable 15.9 times RioCan’s expected 2014 cash flow of $1.70 a unit. The $1.41 distribution yields 5.2%.

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POTASH CORP. OF SASKATCHEWAN $38 (Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 829.7 million; Market cap: $31.5 billion; Price-to-sales ratio: 4.5; Dividend yield: 4.2%; TSINetwork Rating: Average; www.potashcorp.com) has agreed to invest $52 million in its sulphuric acid plants in the U.S. (all amounts except share price and market cap in U.S. dollars).

These improvements, part of a settlement with environmental regulators, will cut these facilities’ emissions. Potash Corp. will also pay a $1.3-million fine.

The total cost of $53.3 million is equal to 17% of the $317 million, or $0.38 a share, the company earned in the three months ended September 30, 2014. The latest earnings are also down 11.0%, from $356 million, or $0.41 a share, a year earlier. Sales rose 8.0%, to $1.6 billion from $1.5 billion, as higher potash volumes offset an 8.5% drop in average prices.

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IGM FINANCIAL INC. $48 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 251.7 million; Market cap: $12.1 billion; Price-to-sales ratio: 4.3; Dividend yield: 4.7%; TSINetwork Rating: Above Average; www.igmfinancial.com) is Canada’s largest independent mutual fund company. Power Financial (Toronto symbol PFC) owns 58.7% of IGM.

In the three months ended September 30, 2014, IGM’s earnings rose 13.6%, to $219.7 million, or $0.87 a share. A year earlier, it earned $193.4 million, or $0.77. Revenue increased 12.4%, to $750.2 million from $667.5 million. Gross sales of mutual funds rose 4.4%, while redemptions fell 26.6%.

IGM should earn $3.30 a share in 2014, and the stock trades at a reasonable 14.5 times that forecast. It also raised its dividend by 4.7%. The new rate of $2.25 a share yields 4.7%.

IGM Financial is a buy.

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