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
Learn the metrics that define “safe” stocks, including cash flow, payout ratios, debt, and moats, plus TFSA/RRSP tips for Canadian dividend investors.
FORTIS INC. $31 (www.fortis.com) recently completed its purchase of CH Energy, which distributes power in New York State. If you exclude costs related to this purchase and other unusual items, Fortis’s earnings fell 11.1% in the second quarter of 2013, to $0.32 a share from $0.36. Hold.
MANITOBA TELECOM SERVICES LTD. $33 (www.mts.ca) recently agreed to sell its Allstream subsidiary, which provides integrated telephone, Internet and other communication services to over 50,000 businesses across Canada. Manitoba Telecom will get $405 million when the sale closes later this year....
PENGROWTH ENERGY CORP. $5.90 (Toronto symbol PGF; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 517.7 million; Market cap: $3.1 billion; Price-to-sales ratio: 1.9; Dividend yield: 8.1%; TSINetwork Rating: Average; www.pengrowth.com) produces oil and natural gas in Western Canada and off the Nova Scotia coast. Gas accounts for about 60% of its production; the other 40% is oil.

Rising shale gas production in Canada and the U.S. increased supplies and cut prices from $8.19 per thousand cubic feet in 2008 to $2.38 in 2012. As a result, Pengrowth’s cash flow per share fell 67.1%, from $3.65 in 2008 to $1.20 in 2012.

Due to writedowns and other unusual items, Pengrowth’s earnings have been erratic. Earnings dropped from $1.58 a share (or a total of $395.9 million) in 2008 to $0.32 a share (or $84.9 million) in 2009. Earnings rebounded to $0.76 a share (or $230.3 million) in 2010 but fell to just $0.03 a share (or $12.7 million) in 2012.
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CAE INC. $11 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 261.0 million; Market cap: $2.9 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.8%; TSINetwork Rating: Average; www.cae.com) has won a contract from the U.S. Air Force to train pilots to operate Predator and Reaper remotely piloted aircraft (also called drones).

This five-year deal is worth $100 million U.S. That’s small next to CAE’s annual revenue of $2.1 billion (Canadian). However, this deal should help the company win more training contracts, particularly as the U.S. military uses more drones instead of costly manned fighters.

CAE is a buy....
FINNING INTERNATIONAL INC. $22 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.9 million; Market cap: $3.8 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.finning.com) sells and services heavy equipment made by U.S.-based Caterpillar Inc. (New York symbol CAT). Its main customers are in the oil, mining, forest products and construction industries.

Lower prices for copper and other commodities are prompting mining companies to cut back on equipment purchases. As a result, Finning’s revenue fell 8.2% in the three months ended June 30, 2013, to $1.6 billion from $1.8 billion a year earlier. Flooding in Alberta also delayed some deliveries. However, demand remains strong in South America. Earnings fell 2.2%, to $0.45 a share from $0.46.

The company’s long-term prospects remain bright. Weak commodity prices will probably prompt Finning’s clients to make their current gear last longer. That should spur demand for its repair and maintenance services, which now supply 50% of its revenue. Finning also earns higher profit margins from services than selling new equipment.
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ENBRIDGE INC. $43 (Toronto symbol ENB; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 826.0 million; Market cap: $35.5 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.enbridge.com) is extending its Woodland pipeline, which will let it pump more bitumen from the recently opened Kearl oil sands project in northern Alberta to refineries and other pipelines in Edmonton. Imperial Oil (see above) owns 71% of Kearl; Exxon owns the remaining 29%.

The company will spend $1.3 billion on this project, which should begin operating in the third quarter of 2015.

Enbridge is a buy.
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IMPERIAL OIL LTD. $42 (Toronto symbol IMO; Conservative Growth Portfolio; Resources sector; Shares outstanding: 848.0 million; Market cap: $35.6 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.1%; TSINetwork Rating: Average; www.imperialoil.ca) has teamed up with its parent company, ExxonMobil Corp. (New York symbol XOM), to buy 226,000 acres of undeveloped oil sands properties near Fort McMurray, Alberta. (Exxon owns 69.9% of Imperial.)

Imperial will hold 27.5% of these properties, while Exxon will own the remaining 72.5%. Imperial’s share of the $751-million cost is $206.5 million. That’s equal to 63% of the $327 million, or $0.38 a share, that the company earned in the second quarter of 2013.

Purchases like this will help Imperial increase its daily production from 276,000 barrels of oil equivalent (including gas) in the latest quarter to 600,000 barrels by 2020.
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BELL ALIANT INC. $27 (Toronto symbol BA, Conservative Growth Portfolio, Utilities sector; Shares outstanding: 229.1 million; Market cap: $6.2 billion; Price-to-sales ratio: 2.2; Dividend yield: 7.0%; TSINetwork Rating: Average; www.bellaliant.ca) sells telephone and Internet services to 2.4 million customers in Atlantic Canada and rural parts of Ontario and Quebec. It also sells wireless services through an alliance with BCE (see left).

The company continues to replace its copper-wire cables with fibre optic lines. That’s letting it sell more high-speed Internet and digital TV services, which is offsetting falling demand for land lines. (Traditional phones still supply 52% of its overall revenue.)

In the three months ended June 30, 2013, Bell Aliant’s revenue rose 0.6%, to $691.8 million from $687.7 million a year ago. Earnings fell 10.8%, to $0.66 a share from $0.74. If you exclude a charge related to an early debt repayment and other unusual items, per-share earnings would have fallen 4.9%, to $0.39 from $0.41.

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SNC-LAVALIN GROUP INC. $41 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 151.6 million; Market cap: $6.2 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.2%; TSINetwork Rating: Average; www.snclavalin.com) replaced most of its senior management following the discovery of $56 million U.S. in unusual payments it made in 2011 to help win Libyan construction contracts. SNC has also strengthened its oversight and compliance procedures in response to allegations that it used bribes to win certain contracts in Quebec.

These issues haven’t stopped the company from winning new deals. For example, MEG Energy (Toronto symbol MEG) recently hired SNC to design a new processing facility at its oil sands operation in Alberta.

However, SNC lost $37.7 million, or $0.25 a share, in the three months ended June 30, 2013. That’s mainly due to a $70.1-million charge related to delays building an oil-and-gas project in Algeria. The company also set aside $47.0 million to cover potential losses on a project in Libya that it stopped working on in 2011. A year earlier, SNC earned $31.7 million, or $0.21 a share.
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