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TORSTAR CORP. $6.14 (Toronto symbol TS.B; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 80.2 million; Market cap: $492.4 million; Price-to-sales ratio: 0.4; Dividend yield: 8.6%; TSINetwork Rating: Average; www.torstar.com) recently stopped publishing its Metro free daily commuter newspapers in seven smaller cities: Hamilton, Kitchener, London, Windsor, Regina, Saskatoon and Victoria. The company now plans to shut down the Metro websites in these cities.

This will let Torstar focus on Metro’s moreprofitable print and web editions in Halifax, Ottawa, Toronto, Winnipeg, Calgary, Edmonton and Vancouver.

Torstar is a buy.

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ENCANA CORP. $15 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 741.1 million; Market cap: $11.1 billion; Price-to-sales ratio: 1.6; Dividend yield: 2.1%; TSINetwork Rating: Average; www.encana.com) has completed its $7.1-billion U.S. purchase of Athlon Energy, which produces oil (80% of output) and gas (20%) in Texas’s Midland Basin.

The company will devote 80% of its 2015 capital spending to its oil properties, which would remain profitable even if oil declines to between $35 and $50 U.S. a barrel.

Encana is a buy.

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IMPERIAL OIL LTD. $48 (Toronto symbol IMO; Conservative Growth and Income Portfolios, Shares outstanding: 847.6 million; Market cap: $40.7 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.1%; TSINetwork Rating: Average; www.imperialoil.ca) has resumed production at its Kearl oil sands project in northern Alberta.

The company was forced to shut down Kearl due to problems with a machine that separates heavy oil from sand. In the third quarter, Kearl supplied 30% of Imperial’s daily output of 307,000 barrels.

The recent oil-price drop has cut the stock’s price by 17.2% from its August 2014 peak of $58. However, low crude prices will benefit Imperial’s refining and petrochemical operations, which supplied 43% of its earnings in the latest quarter. The company may also take advantage of low prices to pick up new properties at a bargain.

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IMPERIAL OIL $53.20 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $43.9 billion; TSINetwork Rating: Average; Div. yield: 1.0%; www.imperialoil.ca) has suspended production at its Kearl oil sands project in northern Alberta due to problems with a machine that separates bitumen (heavy oil) from sand.

Kearl produced 92,000 barrels a day in the third quarter of 2014, or 30% of Imperial’s total daily output of 307,000 barrels. Kearl’s second phase will add another 78,100 barrels per day to Imperial’s output in 2015.

The company expects to complete the repairs at Kearl in the next few weeks. Due to the recent drop in oil prices, the outage will have only a small impact on Imperial’s fourth-quarter earnings.

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ENERPLUS CORP. $14.89 (Toronto symbol ERF; Shares outstanding: 205.2 million; Market cap: $3.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 7.6%) produces an average of 104,035 barrels of oil equivalent a day (58% gas and 42% 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 quarter ended September 30, 2014, Enerplus’s production rose 18.6% from a year earlier. Cash flow per share gained just 6.1%, to $1.04 from $0.98, as it realized lower prices for its oil.

Enerplus plans to spend $830 million on exploration and development for all of 2014 and about the same amount next year. By the end of 2015, it aims to produce over 111,000 barrels a day.

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POTASH CORP. OF SASKATCHEWAN $40 (Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 829.7 million; Market cap: $33.2 billion; Price-to-sales ratio: 5.4; Dividend yield: 4.0%; TSINetwork Rating: Average; www.potashcorp.com) gets 40% of its revenue and 50% of its earnings from potash, followed by nitrogen (35%, 40%) and phosphate (25%, 10%) fertilizers.

The company sold its potash for an average of $281 U.S. a tonne in the third quarter of 2014, down 8.5% from $307 U.S. a year earlier.

It now expects to sell 9.0 million to 9.2 million tonnes of potash for all of 2014, up from 8.1 million in 2013. However, lower selling prices will cut its earnings to a projected $1.80 U.S. a share from $2.09 U.S. The stock trades at a somewhat high 19.3 times the 2014 estimate. The $1.40 U.S. dividend yields 4.0%.

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AGRIUM INC. $109 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 143.7 million; Market cap: $15.7 billion; Price-to-sales ratio: 1.0; Dividend yield 3.3%; TSINetwork Rating: Average; www.agrium.com) gets just 3% of its revenue from potash, so the Russian mine shutdown will have little impact on its short-term earnings.

Agrium’s 1,400 retail stores supply 78% of its revenue. Nitrogen fertilizers it manufactures from natural gas provide the remaining 19%.

Equipment failures have forced the company to shut down its Vanscoy potash mine in Saskatchewan. Agrium is taking advantage of this outage to increase this project’s capacity by 40%.

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CRESCENT POINT ENERGY CORP. $29.65 (Toronto symbol CPG; Shares outstanding: 443.3 million; Market cap: $13.2 billion; TSINetwork Rating: Extra Risk; Dividend yield: 9.3%; www.crescentpointenergy.com) produces oil and natural gas in Western Canada, with a focus on its Bakken light oil development in southeastern Saskatchewan. Its output is 91% oil and 9% gas.

In the three months ended September 30, 2014, Crescent Point’s cash flow rose 11.6%, to $618.4 million from $554.1 million a year earlier.

The company raised its daily output by 19.7%, to 141,183 barrels of oil equivalent from 117,963. That, plus higher oil and gas prices, was the main reason for the rising cash flow. Cash flow per share rose at a slower rate of 2.1%, to $1.45 from $1.42, because Crescent Point issued shares to pay for acquisitions.

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Every Monday we feature “A Stock to Sell” as our daily post. With every stock or investment we recommend as a sell, we give you a full explanation of why we advise against investing in it at this time.

Otter Tail Corporation (symbol OTTR on Nasdaq; www.ottertail.com) is the parent of Otter Tail Power Company, which supplies electricity to over 130,000 customers. Otter Tail Corporation also has manufacturing, plastics and construction operations.

Otter Tail Power Company’s customers are in a 50,000-square-mile area that covers parts of Minnesota (48% of electrical revenue), North Dakota (43%) and South Dakota (9%). Commercial and farm clients supply 37% of electrical revenue, followed by residential (33%), industrial (23%) and other (7%).

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LOBLAW COMPANIES $60.00 (Toronto symbol L; Shares outstanding: 412.7 million; Market cap: $25.2 billion; TSINetwork Rating: Above Average; Dividend yield: 1.6%; www.loblaw.ca) is Canada’s largest food retailer, with about 1,200 stores. Its banners include Loblaws, Provigo, Fortinos, Real Canadian Superstore and No Frills. George Weston Ltd. owns 46% of the company.

Loblaw completed its acquisition of the Shoppers Drug Mart chain in March 2014. It paid $12.3 billion: $6.6 billion in cash and $5.7 billion in Loblaw common shares.

In the quarter ended October 4, 2014, Loblaw’s sales rose 35.9%, to $13.6 billion from $10.0 billion a year earlier. Without Shoppers’ contribution, sales rose 2.0%. Before one-time items, Loblaw’s earnings gained 23.3%, to $0.90 a share from $0.73.

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THOMSON REUTERS CORP. $45 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 799.7 million; Market cap: $36.0 billion; Price-to-sales ratio: 2.8; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.thomsonreuters.com) is seeing higher demand for its financial information products for the first time since the 2008 economic crisis. Sales at its legal and tax and accounting businesses are also improving.

In the three months ended September 30, 2014, Thomson’s overall revenue rose 1.1%, to $3.11 billion from $3.07 billion a year earlier (all amounts except share price and market cap in U.S. dollars).

The financial division’s revenue (54% of the total) fell 0.7%. But banks and other clients are buying more products than they’re cancelling, which should raise this division’s future revenue.

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CANADIAN PACIFIC RAILWAY LTD. $202 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.5 million; Market cap: $34.6 billion; Price-to-sales ratio: 5.6; Dividend yield: 0.7%; TSINetwork Rating: Above Average; www.cpr.ca) is down 18.5% from its recent peak of $248, partly due to the drop in oil prices. Even through cheaper crude will cut CP’s fuel costs, investors fear that producers will defer new projects, which could hurt the company’s crude-by-rail volumes.

Oil accounts for just 7% of the company’s revenue, so any production drop would have little impact on its earnings.

Moreover, CP continues to do a good job of cutting its costs. In the third quarter of 2014, its operating ratio improved to 62.8% from 65.9% a year earlier. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.)

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BCE INC. $52 (Toronto symbol BCE; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 839.6 million; Market cap: $43.7 billion; Price-to-sales ratio: 2.1; Dividend yield: 4.8%; TSINetwork Rating: Above Average; www.bce.ca) is buying Glentel Inc. (Toronto symbol GLN), which sells mobile phones and subscription plans through 494 Canadian stores, mainly under under the Wireless Wave banner. Glentel also has 735 U.S. outlets and 147 in Australia and the Philippines.

The company will pay $594 million (50% cash and 50% in BCE common shares) for Glentel’s outstanding shares. If you include Glentel’s debt, the entire deal is worth $670 million. BCE expects to complete it in the first quarter of 2015.

The Glentel stores will keep selling subscription plans from rival wireless carriers. However, BCE feels the new outlets will help it win more customers, particularly as Ottawa now limits mobile contract terms to two years or less.

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PRECISION DRILLING CORP. $6.31 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 292.8 million; Market cap: $1.8 billion; Price-to-sales ratio: 0.8; Dividend yield: 4.4%; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract drilling services to land-based oil and gas producers, mainly in North America. It operates 335 rigs.

In the quarter ended September 30, 2014, Precision’s revenue rose 19.7%, to $584.6 million from $488.5 million a year earlier. That’s mainly because producers in Western Canada and the U.S. require more rigs that can reach deeper pockets of oil and gas.

Earnings jumped 79.4% in the quarter, to $52.8 million, or $0.18 a share. A year earlier, Precision earned $29.4 million, or $0.10 a share.

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SHAWCOR LTD. $41 (Toronto symbol SCL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.5 million; Market cap: $2.6 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.5%; TSINetwork Rating: Average; www.shawcor.com) makes sealants and coatings that keep oil and natural gas pipelines from rusting. It also makes industrial products, like electrical wire and protective sheaths.

The company recently sold its 50% stake in a joint venture that operates a pipe-coating facility in Brazil for $29.7 million U.S. It also wrote down the value of its other Brazilian deepwater pipe-coating subsidiary by $28.5 million (Canadian).

As a result, ShawCor’s earnings dropped 92.3% in the third quarter of 2014, to $5.6 million, or $0.09 a share. Without the writedown and other unusual items, it earned $0.51 a share in the latest quarter. A year earlier, the company earned $73.0 million, or $1.21 a share. Revenue fell 10.7%, to $469.6 million from $525.8 million.

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FINNING INTERNATIONAL INC. $24 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 172.4 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.6; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.finning.com) is the world’s largest dealer of tractors, bulldozers and trucks made by Caterpillar Inc. (New York symbol CAT). It also sells heavy equipment made by other firms. Finning’s clients are mainly in the mining, forest products and construction industries.

Weaker commodity prices have hurt demand for new gear in Canada and South America. That cut Finning’s earnings by 34.0% in the quarter ended September 30, 2014, to $0.33 a share from $0.50 a year ago. Without one-time items, including charges related to new tax laws in Chile and Argentina, Finning earned $0.50 a share in the latest quarter.

Overall revenue fell 6.2%, to $1.7 billion from $1.8 billion a year earlier.

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SNC-LAVALIN GROUP INC. $40 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 152.5 million; Market cap: $6.1 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.4%; TSINetwork Rating: Average; www.snclavalin.com) is narrowing its focus to engineering projects in the oil and gas, mining and water treatment industries.

As part of this plan, it recently paid $2.1 billion for U.K.-based Kentz Corp., which supplies engineering and construction services to oil and gas firms. Kentz increased SNC’s exposure to fastgrowing regions like the Middle East, Asia and Australia.

To pay for Kentz, SNC recently sold AltaLink, which distributes electricity in Alberta, for $3.1 billion.

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LINAMAR CORP. $66 (Toronto symbol LNR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.8 million; Market cap: $4.3 billion; Price-to-sales ratio: 1.0; Dividend yield: 0.6%; TSINetwork Rating: Average; www.linamar.com) started up in 1966 with just a single machine shop in Guelph, Ontario.

The company now has 45 plants in North and South America, Europe and Asia that make a variety of automotive parts, including cylinder heads, cylinder blocks, camshafts, crankshafts and connecting rods.

The company gets around 80% of its revenue and 70% of its earnings by making engines, transmissions and other precision-machined parts for automakers. In 2013, General Motors, Ford, Chrysler and Caterpillar accounted for 59.4% of its revenue.

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Pat McKeough responds to many requests from Members of his Inner Circle for specific stock tips well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle Members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “U.S. Stock Picks” on Thursday.

Recently we had a question from an Inner Circle Member about the biggest defense contractor in the U.S., and the world, Lockheed Martin. Well-known for its fighter jets, Lockheed also supplies many more defense needs, including rockets and satellites, missiles and information systems. Pat looks at the company’s financial results and its expanding program of share buybacks. He also assesses the risk of depending heavily on military budgets against possible shifts in U.S. government policy.

Q: Pat: What is your opinion on Lockheed Martin Corp.? Thanks.

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Every Thursday we bring you one of our best U.S. stock picks. You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You will read about stocks making moves you should know about, most often from coverage in our newsletter on U.S. investing, Wall Street Stock Forecaster.

United Technologies fell slightly in late November, after Louis Chenevert, its chief executive for the past six years, retired suddenly. However, new CEO Gregory Hayes (who is also a former vice-president) will likely continue Chenevert’s focus on the company’s main aerospace and construction divisions.

These businesses operate in cyclical markets, but their outlook is bright. Airlines are replacing their aging fleets, increasing demand for jet engines and other parts, while developing countries’ ongoing urbanization fuels building-product sales.

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Every Wednesday, we publish our “Investor Toolkit” series. Whether you’re a new or experienced investor, these weekly updates are designed to give you our specific advice on successful investing. Each Investor Toolkit update gives you a fundamental piece of investing advice and shows you how you can put it into practice right away.

Tip of the week: “Financial institutions continue to create and market products like index-linked GICs that harvest many fees and commissions, but defy investment logic.”

Index-linked guaranteed income certificates (GICs) promise to safeguard a portion of investors’ portfolios. In volatile markets like the ones we’ve been experiencing, these products may seem like an appealing place to put some of your money.

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Every Tuesday we bring you “Best Canadian Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You’ll read about stocks making moves you should know about, from coverage in one of our three newsletters featuring Canadian stocks—The Successful Investor, Stock Pickers Digest and Canadian Wealth Advisor.

ShawCor makes coatings for oil and natural gas pipelines. Its shares have fallen with the recent drop in the price of oil. However, it is a leader in its niche industry and should rebound strongly when energy prices recover. The drop also means the stock now trades at an attractive multiple to its projected earnings.

SHAWCOR LTD. (Toronto symbol SCL; www.shawcor.com) makes sealants and coatings that keep oil and natural gas pipelines from rusting. It also makes industrial products, like electrical wire and protective sheaths.

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Every Monday we feature “A Stock to Sell” as our daily post. With every stock or investment we recommend as a sell, we give you a full explanation of why we advise against investing in it at this time.

Exchange Income Corp. (symbol EIF on Toronto; www.exchangeincomecorp.ca) operates in two main areas: aviation and manufacturing.

The aviation business (63% of revenue) includes regional airlines Perimeter Aviation, Keewatin Air, Calm Air International, Bearskin Lake Air Service, Custom Helicopters and Regional One. These airlines serve communities in Manitoba, Ontario and Nunavut.

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BAXTER INTERNATIONAL INC. $67 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 542.0 million; Market cap: $36.3 billion; Price-to-sales ratio: 2.5; Dividend yield: 2.9%; TSINetwork Rating: Average; www.baxter.com) continues to expand overseas, which helps cut its exposure to the 2.3% excise tax it must pay on sales of medical devices as part of the Affordable Care Act (or Obamacare). In 2012, overseas markets supplied 58% of Baxter’s revenue.

The company recently completed its $3.7-billion purchase of Gambro AB, a Swedish dialysis-product maker. Gambro looks like a nice fit with Baxter’s intravenous pumps and other medical equipment. This division supplies 55% of its total revenue. The remaining 45% comes from its BioScience division, which produces vaccines and drugs.

In the three months ended September 30, 2013, Baxter’s revenue rose 8.5%, to $3.8 billion from $3.5 billion a year earlier. Gambro supplied $100 million of that total, which helped push up the medical products division’s sales by 10.2%. BioScience revenue rose 6.4% on strong demand for the division’s Advate hemophilia drug.
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MTS SYSTEMS CORP. $68 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 15.4 million; Market cap: $1.0 billion; Price-to-sales ratio: 1.8; Dividend yield: 1.8%; TSINetwork Rating: Average; www.mts.com) makes equipment and software that manufacturers use to test the behaviour of materials, machines and structures. This helps its customers reduce errors and costs. Like 3M (see page 1), MTS is also spending more to develop new products.

In the fiscal year ended September 28, 2013, MTS’s revenue rose 5.0%, to $569.4 million from $542.3 million a year earlier. Earnings fell 5.4%, to $3.49 a share from $3.69, partly due to a 4.2% jump in research spending. MTS now devotes around 4% of its revenue to developing new products.

The company expects its fiscal 2014 earnings to improve to $3.55 to $3.70 a share. The stock trades at a reasonable 18.8 times the midpoint of that range.
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