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
CGI GROUP INC. $35 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 310.7 million; Market cap: $10.9 billion; Price-to-sales ratio: 1.1; No dividends paid; TSINetwork Rating: Extra Risk; www.cgi.com) is the lead contractor for the healthcare.gov website, which lets Americans shop for health insurance plans under the Affordable Care Act (or Obamacare).

Due to problems with the website, the U.S. government will not renew CGI’s contract when it expires in February 2014. Even so, the revenue from the renewal—about $90 million U.S.—is small next to the company’s annual revenue of $10 billion. Moreover, the website issues should have little long-term impact on the company’s reputation.

CGI Group is still a buy.

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SHAWCOR LTD. $39 (Toronto symbol SCL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 60.0 million; Market cap: $2.3 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.3%; TSINetwork Rating: Average; www.shawcor.com) expects its earnings to fall about 50% in the fourth quarter of 2013, compared to the third quarter.

That’s mainly because it completed most of a major pipeline-coating contract in Asia in the third quarter. As well, the operators of new pipeline projects in the North Sea and Brazil have delayed their start-up. As a result, ShawCor will now begin work on these contracts in the first quarter of 2014.

ShawCor is still a buy....
CANADIAN NATIONAL RAILWAY CO. $60 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 836.0 million; Market cap: $50.2 billion; Priceto- sales ratio: 4.8; Dividend yield: 1.4%; TSINetwork Rating: Above Average; www.cn.ca) expects that its operating ratio crept up to around 63% in 2013 from 62.9% in 2012. (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.)

CN continues to buy fuelefficient locomotives and run longer trains. These moves should cut its operating ratio to around 60% over the next three years.

CN is also benefiting from a lack of pipeline capacity, which is prompting oil producers to ship by rail. Higher demand for automotive equipment and building materials should also increase its shipping volumes. As a result, CN’s earnings should rise 13.2%, from a projected $3.10 a share in 2013 to $3.51 in 2014. The stock trades at a reasonable 17.1 times the 2014 estimate.
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BLACKBERRY LTD. $9.36 (Toronto symbol BB; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 524.6 million; Market cap: $4.9 billion; Price-to-sales ratio: 0.6; No dividends paid; TSINetwork Rating: Speculative; www.blackberry.com) has sold an additional $250 million worth of convertible debentures (all amounts except share price and market cap in U.S. dollars) to its largest shareholder, Fairfax Financial Holdings (Toronto symbol FFH).

Fairfax now holds $500 million of these debentures, which it can convert into BlackBerry common shares at $10.00 a share. If it did, Fairfax would own 17.6% of the total shares outstanding.

The extra cash should help the smartphone maker complete its restructuring, which includes cutting 40% of its workforce and focusing on corporate and government clients. However, the stock will remain volatile until its revenue and earnings improve.
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AGRIUM INC. $104 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 144.5 million; Market cap: $15.0 billion; Price-to-sales ratio: 0.9; Dividend yield: 3.2%; TSINetwork Rating: Average; www.agrium.com) makes nitrogen-based fertilizers from natural gas. That could weaken its earnings growth, because the particularly cold North American winter has pushed up gas prices.

However, Agrium uses hedging contracts to lock in gas prices, which cuts its risk. Moreover, it gets 70% of its revenue by selling seeds and fertilizers to farmers through its 1,250 stores in North America, South America and Australia. That further reduces its gas-price exposure.

Agrium is a buy....
CANADIAN TIRE CORP. $98 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 80.2 million; Market cap: $7.9 billion; Price-to-sales ratio: 0.7; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www. canadiantire.ca) recently sold 16.9% of CT Real Estate Investment Trust (Toronto symbol CRT.UN) through an initial public offering. CT REIT holds 72% of Canadian Tire’s real estate assets, including 255 stores and one distribution centre. The company received $279.3 million for these shares.

Meanwhile, Canadian Tire earned $145.5 million in the three months ended September 28, 2013, up 10.7% from $131.4 million a year earlier. Earnings per share gained 11.2%, to $1.79 from $1.61, on fewer shares outstanding. Sales rose 4.5%, to $3.0 billion from $2.8 billion.

Strong demand for automotive and kitchen products pushed up same-store sales by 2.0% at the company’s 491 Canadian Tire stores. Same-store sales rose 6.3% at its 415 sports outlets, partly due to the Pro Hockey Life chain, acquired in August 2013. Same-store sales at the 386-store Mark’s clothing chain gained 4.3%.
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MOLSON COORS CANADA INC. (Toronto symbols TPX.A $62 and TPX.B $62; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 183.9 million; Market cap: $11.4 billion; Price-to-sales ratio: 1.6; Dividend yield: 2.3%; TSINetwork Rating: Average; www.molsoncoors.com) continues to make progress integrating StarBev LP, which it bought for $3.4 billion in June 2012 (all amounts except share prices and market cap in U.S. dollars). StarBev owns nine breweries in central and eastern Europe.

These savings are helping Molson Coors offset slowing beer demand. In the third quarter of 2013, its earnings rose 7.7%, to $268.1 million from $248.9 million a year earlier. Due to more shares outstanding, earnings per share gained 5.8%, to $1.45 from $1.37. However, sales fell 2.0%, to $1.17 billion from $2.0 billion.

The class B shares have less voting power to elect directors than the class A shares, but they are more liquid and receive the same dividend.
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CANADIAN PACIFIC RAILWAY LTD. $164 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 175.4 million; Market cap: $28.8 billion; Price-to-sales ratio: 4.8; Dividend yield: 0.9%; TSINetwork Rating: Above Average; www.cpr.ca) is selling 26% of the track miles of its Dakota, Minnesota & Eastern (DM&E) railway, which carries grain, fertilizer and other products between Minnesota and South Dakota.

The company acquired DM&E in 2008 for $1.5 billion. It decided to sell this portion as part of its new plan to focus on its more profitable rail lines. It will receive $210 million U.S. when the deal closes later this year. That’s equal to 69% of the $331 million (Canadian), or $1.88 a share, that CP earned in the three months ended September 30, 2013.

CP Rail is a buy....
DUNDEE CORP. $19 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 54.1 million; Market cap: $1.0 billion; Price-to-sales ratio: 2.8; No dividends paid; TSINetwork Rating: Average; www.dundeecorp.com) owns businesses in the wealth management, real estate, natural resource and agriculture industries.

In the three months ended September 30, 2013, Dundee earned $2.6 million, or $0.01 a share. That’s a big drop from the $21.2 million, or $0.34 a share, it earned a year earlier. Dundee’s earnings fell on higher costs as it expands its agricultural businesses. Revenue fell 14.5%, to $41.2 million from $48.2 million.

Dundee is still a buy....