How To Invest
In addition, Pat thinks then beginner investors should cultivate two important qualities: a healthy sense of skepticism and patience.
Investors should approach all investments with a healthy sense of skepticism. This can help keep you out of fraudulent stocks that masquerade as high-quality stocks. It will also keep you out of legally operated, but poorly managed, companies that promise more than they can possibly deliver.
If you are a new investor, you should also realize that losing patience can cause you to sell your best choices right before a big rise. All too often, investors buy a promising stock just as it enters a period of price stagnation. Even the best-performing stocks run into these unpredictable phases from time to time. They move mainly sideways in a wide range for months or years before their next big rise begins. (Stock brokers often refer to these stocks as “dead money.”)
If you lack patience, you run a big risk of selling your best choices in the midst of one of these phases, prior to the next big move upward. If you lose patience and sell, you are particularly likely to do so in the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.
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SPDR S&P 500 ETF $179.73 (New York symbol SPY; buy or sell through brokers; www.spdrs.com) holds the stocks in the S&P 500 Index, which consists of 500 major U.S. companies that are chosen based on their market cap, liquidity and industry group.
The index’s highest-weighted stocks are Apple, ExxonMobil, Microsoft, Procter & Gamble, Johnson & Johnson, J.P. Morgan Chase, IBM, Chevron, General Electric, Pfizer, Berkshire Hathaway, Google, AT&T and Wells Fargo. The fund’s expenses are just 0.10% of its assets.
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ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $23.86 (Toronto symbol XDV; buy or sell through brokers; ca.ishares.com) holds 30 of the highest-yielding Canadian stocks. Its selections are based on dividend growth, yield and payout ratio. The weight of any one stock is limited to 10% of its assets. The fund’s MER is 0.55%. It yields 4.1%.
The fund’s top holdings are CIBC, 6.8%; National Bank, 6.4%; Bonterra Energy, 6.4%; TD Bank, 5.9%; Bank of Montreal, 5.7%; Telus, 4.7%; Royal Bank, 4.6%; IGM Financial, 4.5%; Bank of Nova Scotia, 4.3%; and BCE, 4.0%.
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ISHARES S&P/TSX 60 INDEX FUND $19.25 (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a good low-fee way to buy the top stocks on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.17% of assets.
The index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few we wouldn’t include.
The index’s top holdings are Royal Bank, 8.3%; TD Bank, 7.3%; Bank of Nova Scotia, 6.4%; Suncor Energy, 4.5%; CN Railway, 4.1%; Bank of Montreal, 3.9%; Manulife Financial, 3.1%; Canadian Natural Resources, 3.1%; CIBC, 3.0%; BCE, 3.0%; Enbridge, 3.0%; Valeant Pharmaceuticals, 2.9%; TransCanada Corporation, 2.7%; Potash Corp., 2.4%; CP Rail, 2.1%; Telus, 2.0%; and Cenovus, 1.9%.
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The index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few we wouldn’t include.
The index’s top holdings are Royal Bank, 8.3%; TD Bank, 7.3%; Bank of Nova Scotia, 6.4%; Suncor Energy, 4.5%; CN Railway, 4.1%; Bank of Montreal, 3.9%; Manulife Financial, 3.1%; Canadian Natural Resources, 3.1%; CIBC, 3.0%; BCE, 3.0%; Enbridge, 3.0%; Valeant Pharmaceuticals, 2.9%; TransCanada Corporation, 2.7%; Potash Corp., 2.4%; CP Rail, 2.1%; Telus, 2.0%; and Cenovus, 1.9%.
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TELUS $37.34 (Toronto symbol T; Shares outstanding: 623.2 million; Market cap: $23.3 billion; TSINetwork Rating: Above Average; Dividend yield: 3.9%; www.telus.com) continues to benefit from heavy investments in its wireless networks.
Thanks to rising demand for smartphones and wireless data, Telus’s earnings rose 18.4% in the third quarter of 2013, to $0.58 a share from $0.49. It also increased its dividend by 5.9%. The new annual rate of $1.44 yields 3.9%.
However, Ottawa’s plan to cut wireless roaming fees adds to its risk. As well, the new free trade deal with Europe could open up Canada’s wireless industry to more foreign competition.
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Thanks to rising demand for smartphones and wireless data, Telus’s earnings rose 18.4% in the third quarter of 2013, to $0.58 a share from $0.49. It also increased its dividend by 5.9%. The new annual rate of $1.44 yields 3.9%.
However, Ottawa’s plan to cut wireless roaming fees adds to its risk. As well, the new free trade deal with Europe could open up Canada’s wireless industry to more foreign competition.
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GUGGENHEIM CHINA SMALL CAP ETF $27.17 (New York Exchange symbol HAO; buy or sell through brokers; www.guggenheimfunds.com) aims to track the AlphaShares China Small Cap Index, which is made up of all Chinese stocks that are legal for foreign investors and have market caps between $200 million and $1.5 billion.
The $264.2-millon fund’s top holdings are Youku Tudou, 2.0%; Tsingtao Brewery, 1.4%; BYD Co., 1.4%; China Everbright International, 1.4%; China Resources Gas Group, 1.3%; GCL Poly Energy International, 1.3%; Haier Electronics, 1.3%; Wuxi Pharmatech, 1.3%; Sino Biopharmaceutical, 1.2%; and Xinyi Glass Holdings, 1.3%.
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SPDR S&P CHINA ETF $79.24 (New York Exchange symbol GXC; buy or sell through brokers; www.spdrs.com) aims to track the S&P China BMI Index, which is made up of all publicly traded Chinese stocks available to foreign investors. Right now, SPDR S&P China ETF holds 239 stocks.
The $888.0-million fund’s top holdings are China Construction Bank, 6.8%; Tencent Holdings, 6.2%; China Mobile, 5.8%; Industrial & Commercial Bank, 5.8%; Baidu, 4.6%; Bank of China, 3.5%; CNOOC Ltd., 3.4%; PetroChina, 2.6%; China Life, 2.6%; and China Petroleum & Chemical, 2.2%.
The ETF was launched on March 19, 2007. It has a 0.59% MER and yields 2.1%.
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The $888.0-million fund’s top holdings are China Construction Bank, 6.8%; Tencent Holdings, 6.2%; China Mobile, 5.8%; Industrial & Commercial Bank, 5.8%; Baidu, 4.6%; Bank of China, 3.5%; CNOOC Ltd., 3.4%; PetroChina, 2.6%; China Life, 2.6%; and China Petroleum & Chemical, 2.2%.
The ETF was launched on March 19, 2007. It has a 0.59% MER and yields 2.1%.
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TRANSCANADA CORP. $46.71 (Toronto symbol TRP; Shares outstanding: 707.0 million; Market cap: $33.4 billion; TSINetwork Rating: Above Average; Dividend yield: 3.9%; www.transcanada.com) now estimates that it will cost $5.4 billion U.S. to build the Keystone XL pipeline, which would pump crude from the Alberta oil sands to refineries on the U.S. Gulf Coast. That’s up from $5.3 billion U.S.
TransCanada hopes the U.S. government will approve Keystone XL in early 2014. If so, it could start up in 2016.
If the company has to cancel Keystone XL, it will probably have to write off the $2.0 billion U.S. that it has already invested in it. That’s equal to about 50% of the company’s annual cash flow, but it’s still a manageable amount.
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TransCanada hopes the U.S. government will approve Keystone XL in early 2014. If so, it could start up in 2016.
If the company has to cancel Keystone XL, it will probably have to write off the $2.0 billion U.S. that it has already invested in it. That’s equal to about 50% of the company’s annual cash flow, but it’s still a manageable amount.
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VERESEN $13.86 (Toronto symbol VSN; Shares outstanding: 200.9 million; Market cap: $2.8 billion; TSINetwork Rating: Average; Yield: 7.2%) owns pipelines, power plants and gas-processing facilities across North America. A major holding is 50% of the Alliance gas line, which runs 3,000 kilometres between Chicago and Fort St. John, B.C. Enbridge owns the other 50%. Veresen also owns the Alberta Ethane Gathering System, and Veresen and Enbridge together hold 85.4% of the Aux Sable NGL plant.
In February 2012, Veresen paid Encana Corp. $920 million for the Hythe/Steeprock natural gas gathering and processing complex. Encana signed a long-term deal to buy most of this facility’s gas.
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PEMBINA PIPELINE $34.42 (Toronto symbol PPL; Shares outstanding: 313.0 million; Market cap: $10.8 billion; TSINetwork Rating: Average; Div. yield: 4.9%; www.pembina.com) owns pipelines that carry half of Alberta’s conventional oil, 30% of Western Canada’s natural gas liquids (NGLs) and almost all of B.C.’s conventional oil.
In the quarter ended September 30, 2013, Pembina’s revenue rose 34.9%, to $1.2 billion from $870.9 million a year earlier. The gains came from pipeline expansions and Provident Energy, which Pembina bought for $3.2 billion last year. Provident extracts, transports and stores NGLs.
Cash flow jumped 41.7%, to $188.7 million from $133.2 million. Cash flow per share gained 32.6%, to $0.61 from $0.46, on more shares outstanding.
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In the quarter ended September 30, 2013, Pembina’s revenue rose 34.9%, to $1.2 billion from $870.9 million a year earlier. The gains came from pipeline expansions and Provident Energy, which Pembina bought for $3.2 billion last year. Provident extracts, transports and stores NGLs.
Cash flow jumped 41.7%, to $188.7 million from $133.2 million. Cash flow per share gained 32.6%, to $0.61 from $0.46, on more shares outstanding.
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ENCANA CORP. $20.28 (Toronto symbol ECA; Shares outstanding: 740.2 million; Market cap: $15.0 billion; TSINetwork Rating: Average; Dividend yield: 1.4%; www.encana- .com) is one of North America’s largest natural gas producers.
However, rising shale gas production has cut prices from $11.50 U.S. per thousand cubic feet in 2008 to just $3.63 today.
That’s prompting Encana to cut its reliance on gas by narrowing its focus from around 30 properties to five: Montney (B.C.), Duvernay (Alberta), DJ Basin (Colorado), San Juan Basin (New Mexico) and Tuscaloosa Marine Shale (Louisiana).
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However, rising shale gas production has cut prices from $11.50 U.S. per thousand cubic feet in 2008 to just $3.63 today.
That’s prompting Encana to cut its reliance on gas by narrowing its focus from around 30 properties to five: Montney (B.C.), Duvernay (Alberta), DJ Basin (Colorado), San Juan Basin (New Mexico) and Tuscaloosa Marine Shale (Louisiana).
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