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
BLACKBERRY LTD. $8.44 (Toronto symbol BB; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 524.6 million; Market cap: $4.4 billion; Price-to-sales ratio: 0.4; No dividends paid; TSINetwork Rating: Speculative; www.blackberry.com) lost $965 million, or $1.84 a share, in the three months ended August 31, 2013 (all amounts except share price and market cap in U.S. dollars). That’s mainly because it wrote down the value of its unsold Z10 touchscreen smartphones by $934 million. A year earlier, it lost $229 million, or $0.44 a share. Revenue fell 45.0%, to $1.6 billion from $2.9 billion.

The company has accepted a $9.00 U.S.-a-share takeover offer from Fairfax Financial Holdings (Toronto symbol FFH). However, it’s unclear if Fairfax can complete the deal. That’s why the stock is trading at 9.8% below the offer price.

Due to its worsening financial condition, we’ve cut BlackBerry’s TSINetwork Rating from “Average” to “Speculative.”
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CGI GROUP INC. $36 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 310.9 million; Market cap: $11.2 billion; Price-to-sales ratio: 1.2; No dividends paid; TSINetwork Rating: Extra Risk; www.cgi.com) is Canada’s largest provider of computer outsourcing services. CGI helps its clients automate routine functions, like accounting and buying supplies. That makes them more efficient and lets them focus on their main businesses.

CGI was our Stock of the Year for both 2010 and 2011. We first recommended it as our top choice at $15, which works out to a 140.0% gain.

The company continues to benefit from its August 2012 purchase of U.K.-based outsourcing firm Logica. Thanks to Logica, CGI earned $200.4 million in its 2013 third quarter, which ended June 30, 2013. That’s up 115.3% from $93.0 million a year ago. Due to more shares outstanding, per-share earnings rose 80.0%, to $0.63 from $0.35.
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CANADIAN PACIFIC RAILWAY LTD. $134 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 175.0 million; Market cap: $23.5 billion; Price-to-sales ratio: 3.9; Dividend yield: 1.0%; TSINetwork Rating: Above Average; www.cpr.ca) transports freight between Montreal and Vancouver and connects with hubs in the U.S. Midwest and Northeast. It gets 25% of its revenue from the U.S.

CP was our top pick for 2012 at $69. Since then, the stock has jumped 94.2%.

The company continues to improve its efficiency, mainly with more efficient locomotives, better tracks, and software that optimizes train loads and speeds. In the quarter ended June 30, 2013, CP’s earnings soared 144.7%, to $252 million from $103 million a year earlier. Per-share earnings gained 138.3%, to $1.43 from $0.60, on more shares outstanding.
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TECK RESOURCES LTD. $26 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 576.3 million; Market cap: $15.0 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.5%; TSINetwork Rating: Average; www.teck.com) is a leading producer of metallurgical coal, a key ingredient in steelmaking. It also produces copper and zinc.

The stock is down 29.7% from $37 when we named it our top pick for 2013. That’s mainly because slowing industrial activity, mainly in Asia, has hurt commodity prices.

In quarter ended June 30, 2013, earnings fell 50.5%, to $197 million, or $0.34 a share. These figures exclude unusual items, such as foreign exchange losses and writedowns. A year earlier, Teck earned $398 million, or $0.68 a share.
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MANITOBA TELECOM SERVICES INC. $29 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 67.8 million; Market cap: $2.0 billion; Price-to-sales ratio: 1.3; Dividend yield: 5.9%; TSINetwork Rating: Average; www.mts.ca) fell 10% after the federal government blocked its recent deal to sell its Allstream subsidiary to an Egyptian billionaire.

Allstream provides integrated telephone, Internet and other communication services to over 50,000 businesses across Canada, as well as government agencies. Ottawa felt that selling Allstream to a foreign investor could risk national security.

If you disregard costs related to the sale, Manitoba Telecom now expects to earn $1.15 to $1.45 a share in 2013. Without Allstream, it probably would have earned around $1.75 a share. The stock trades at a high 22.3 times the midpoint of the new range.
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AGRIUM INC. $87 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 147.0 million; Market cap: $12.8 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.6%; TSINetwork Rating: Average; www.agrium.com) has expanded its retail operations in the past few years.

This business is now the world’s largest seller of seeds, fertilizers and other products to farmers, with over 1,200 stores in North America, Australia, Argentina, Chile, Uruguay and Brazil. In 2012, the retail division accounted for 65% of Agrium’s revenue and 32% of its earnings.

In addition, Agrium makes nitrogen-based fertilizer at four wholly owned plants in Canada and one in the U.S. It also owns 50% of a nitrogen facility in Argentina and 26% of one in Egypt. Operating in these countries adds risk, but these plants only account for a small part of Agrium’s revenue. In addition, this division makes potash and phosphate fertilizers.
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MANULIFE FINANCIAL $18.66 (Toronto symbol MFC; Shares outstanding: 1.8 billion; Market cap: $33.7 billion; TSINetwork Rating: Above Average; Dividend yield: 2.8%; www.manulife.ca) sells life and other forms of insurance, as well as mutual funds and investment-management services. It operates globally and has $567 billion of assets under management.

Excluding one-time items, Manulife’s earnings per share rose 3.3% in the three months ended June 30, 2013, to $0.31 from $0.30. That fell short of the consensus estimate of $0.34. Revenue rose slightly, to $6.50 billion from $6.42 billion.

Insurance sales were down 3%, mostly due to lower sales in Asia, where sales were unusually high a year earlier ahead of tax changes. That offset stronger demand for mutual funds and investment products.
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CENOVUS ENERGY $30.31 (Toronto symbol CVE; Shares outstanding: 755.8 million; Market cap: $23.3 billion; TSINetwork Rating: Average; Dividend yield: 3.2%; www.cenovus.com) operates three heavy oil projects in Alberta and one in Saskatchewan. It gets about half its output from the oil sands. Conventional oil and natural gas wells supply the other half. The company’s reserves should last 23 years.

In the three months ended June 30, 2013, Cenovus’s production rose 2.2%. The increase helped push up revenue to $4.5 billion from $4.2 billion. However, higher operating costs from new projects caused the company’s earnings to decline 8.1%, to $0.34 from $0.37. Cash flow per share fell 5.7%, to $1.15 from $1.22.

Cenovus’s outlook is positive, and it plans to spend $3.3 billion to $3.7 billion annually over the next 10 years to increase its production.
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ENERPLUS CORP. $17.05 (Toronto symbol ERF; Shares outstanding: 200.3 million; Market cap: $3.4 billion; TSINetwork Rating: Extra Risk; Dividend yield: 6.3%) produces an average of 90,037 barrels of oil equivalent a day (54% gas and 46% oil).

The company’s properties are mainly in Alberta, Saskatchewan, B.C., North Dakota and Montana, as well as the Marcellus Shale, which passes through Pennsylvania, New York, Ohio and West Virginia.

In the three months ended June 30, 2013 Enerplus’s cash flow per share rose 37.8%, to $1.02 from $0.74 a year earlier. Production increased 9.6%, oil prices gained 11.6% and gas prices jumped 79.6%.
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