Search

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. We continue to advise against investing in bonds, because low interest rates hurt their appeal, while rising rates would push down their future value. For stable income and growth, we prefer high-yielding utilities. Their dividends also qualify for the dividend tax credit. ATCO LTD. (Toronto symbols ACO.X [class I non-voting] and ACO.Y [class II voting; www.atco.com) holds 53.2% of Canadian Utilities. It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction and energy exploration firms; Canadian Utilities owns the remaining 24.5%....

ENERFLEX LTD. $19.28 (Toronto symbol EFX; TSINetwork Rating: Extra Risk) (403-387-6377; www.enerflex.com; Shares outstanding: 78.5 million; Market cap: $1.5 billion; Dividend yield: 1.6%) rents and sells equipment and services for natural gas production, including compression and processing plants, refrigeration gear and power generators. On June 30, 2014, the company completed the $430 million U.S. acquisition of two businesses owned by privately held Axip Energy Services LP, an international contract compression and processing subsidiary, and a division that provides aftermarket services.

...

Earnings gained 5.8%, to $28.9 million from $27.3 million. Per-share earnings increased 2.8%, to $0.37 from $0.36, on more shares outstanding.

Dividend on the riseThe company’s financial position is strong: its $130.5 million of long-term debt—down from $169.4 million a year ago—represents just 6.2% of its market cap.

Toromont raised its quarterly dividend by 15.4% with the April 2014

TOROMONT INDUSTRIES LTD. $26.75 (Toronto symbol TIH; TSINetwork Rating: Extra Risk) (416-667- 5511; www.toromont.com; Shares outstanding: 77.1 million; Market cap: $2.1 billion; Dividend yield: 2.2%) distributes a broad range of industrial equipment, including machinery made by Caterpillar Inc. It also makes refrigeration systems through its CIMCO division.

...

BELLATRIX EXPLORATION $7.43 (Toronto symbol BXE; TSINetwork Rating: Speculative) (403-266-8670; www.bellatrixexploration.com; Shares outstanding: 191.1 million; Market cap: $1.4 billion; No dividends paid) is now 7.4% owned by activist investor Orange Capital LLC. That’s up from the initial 5.3% interest that Orange Capital announced on September 4, 2014.

Orange wants Bellatrix to discuss changing the size and composition of its 10-person board of directors. It also wants the company to hire a financial advisor to explore strategic alternatives, including selling its midstream assets (natural gas processing plants and pipeline gathering systems) or an outright sale of the entire firm.

Bellatrix has been rapidly expanding over the past year. However, Alberta’s rising gas production has overwhelmed the pipelines that pump it to various processing facilities. This has hurt Bellatrix’s production and cash flow, as well as its share price. But when the bottlenecks are resolved, the company’s cash flow should jump.

...

SYMANTEC CORP. $24.50 (Nasdaq symbol SYMC; TSINetwork Rating: Average) (408-517-8000; www.symantec.com; Shares outstanding: 690.5 million; Market cap: $16.9 billion; Dividend yield: 2.5%) is one of two companies that Home Depot (New York symbol HD) has hired to help investigate its recently discovered data breach.

Stolen Home Depot credit card numbers have turned up for sale on a website called Rescator.cc, which has been linked to a Ukrainian dealer in stolen credit cards.

It’s not yet clear how many customers were affected, but the total could exceed 60 million in Canada and the U.S. Customers at Home Depot’s Mexico stores were not affected, nor were online shoppers at HomeDepot.com. Personal identification numbers (PINs) for debit cards were not taken.

...

DOMINO’S PIZZA $76.57 (New York symbol DPZ; TSINetwork Rating: Average) (734-930-3030; www.dominos.com; Shares outstanding: 55.1 million; Market cap: $4.2 billion; Dividend yield: 1.3%) has opened its first store in Norway, in the city of Oslo. It plans to open three more outlets in the city by the end of this year.

The master franchisee for the Norwegian stores is Domino’s Pizza Norway. Its chairman is Birgir Bieltvedt, who is also chairman of Domino’s Pizza Iceland. He previously helped launch Domino’s in Denmark and Germany.

The company now operates in over 70 markets worldwide, and its international stores supply almost half of its sales and a third of its earnings. However, Domino’s still has considerable room to grow overseas.

...

STANTEC INC. $72.86 (Toronto symbol STN; TSINetwork Rating: Extra Risk) (780-917-7288; www.stantec.com; Shares outstanding: 46.8 million; Market cap: $3.4 billion; Dividend yield: 1.0%) plans to split its shares on a 2-for-1 basis, effective November 14, 2014.

When a company’s share price goes up, it has an incentive to split the stock to make it seem cheaper to investors, who may then buy more. This can make the stock more liquid than if the firm refrained from splits and let its share price go to uncommonly high levels.

Shares of Stantec are up 1,982% since we first recommended the company (then called Stanley Technology Group) at $3.50 in one of our first issues of Stock Pickers Digest in 1998.

...

CARFINCO FINANCIAL GROUP $11.35 (Toronto symbol CFN; TSINetwork Rating: Speculative) (1-888-486-4356; www.carfinco.com; Shares outstanding: 26.5 million; Market cap: $299.7 million; Dividend yield: 4.2%) is the subject of a friendly takeover bid from Banco Santander of Spain (ADR symbol SAN on New York). The offer is for $11.25 a share in cash. Carfinco will also pay a special dividend of up to $0.10 a share when the deal closes.

Carfinco is now trading at $11.35, which is equal to the value of the cash and special dividend. Carfinco’s directors and executive officers, who collectively own 12.9% of the company, have agreed to support the deal.

However, Carfinco could attract a rival bid, or significant shareholders, such as mutual funds, could hold out for a higher offer. We’ll say more as the takeover progresses, but for now Carfinco is a hold.

...

WESTJET AIRLINES $33.05 (Toronto symbol WJA; TSINetwork Rating: Extra Risk) (1-877-493-7853; www.westjet.com; Shares outstanding: 127.8 million; Market cap: $4.2 billion; Dividend yield: 1.5%) serves 90 destinations in North America, Central America, the Caribbean and Europe. Its fleet of 107 modern Boeing 737s are 30% more fuel efficient than older jets.

In June 2013, the company launched WestJet Encore, its Canadian regional airline. This business now operates 13 Bombardier Q400 NextGen turboprop planes, which seat 78 passengers.

In the three months ended June 30, 2014, WestJet’s earnings rose 15.9%, to a second-quarter record of $51.8 million from $44.7 million a year earlier. Earnings per share gained 17.6%, to $0.40 from $0.34, on fewer shares outstanding. This was WestJet’s 37th consecutive quarter of profitability.

...

FIRSTSERVICE CORP. $59.35 (Toronto symbol FSV; TSINetwork Rating: Extra Risk) (416-960-9500; www.firstservice.com; Shares outstanding: 36.6 million; Market cap: $2.1 billion; Dividend yield: 0.7%) serves the following areas of the real estate market: commercial real estate, residential property management and property improvement. The company has more than 24,000 employees worldwide.

In the quarter ended June 30, 2014, FirstService’s revenue rose 14.7%, to $660.7 million from $576.1 million a year earlier (all figures except share prices in U.S. dollars). Excluding one-time items, earnings per share were $0.74, up 29.8% from $0.57.

Revenue rose at all three of FirstService’s divisions: Colliers International (commercial real estate), up 22%; FirstService Residential (residential property management), up 9%; and FirstService Brands (property services), up 12%. FirstService Brands operates Paul Davis Restoration, California Closets and CertaPro Painters.

...

STUART OLSON INC. $9.51 (Toronto symbol SOX; TSINetwork Rating: Speculative) (780-454-3667; www.stuartolson.com; Shares outstanding: 24.9 million; Market cap: $270.0 million; Dividend yield: 5.0%) has agreed to sell its Broda Construction division to TriWest Capital Partners and Broda’s senior management for $39 million in cash.

Broda is a heavy construction firm that specializes in soil excavation, civil construction and concrete production.

The sale will let Stuart Olson streamline its operations and focus on its core businesses, including building construction, electrical contracting and industrial insulation.

...

COMPUTER MODELLING GROUP $12.00 (Toronto symbol CMG; TSINetwork Rating: Speculative) (403-531-1300; www.cmgl.ca; Shares outstanding: 78.8 million; Market cap: $945.5 million; Dividend yield: 3.3%) sells software and consulting services that help oil and gas producers use advanced recovery techniques to get more out of their wells. It has clients in over 50 countries and offices in Calgary, Houston, London, Caracas, Bogota, Kuala Lumpur and Dubai.

In the quarter ended June 30, 2014, Computer Modelling’s revenue rose 7.9%, to $19.6 million from $18.1 million a year earlier. Software licence sales (89% of total revenue) rose 6.8%, and consulting and professional services revenue (11%) increased 17.9%, thanks to new projects and a large consulting contract.

Even so, earnings fell 11.8%, to $6.2 million, or $0.08 a share, from $7.1 million or $0.09. The company hired more employees to support its growth. It also raised its research spending by 21.3%, to $4.2 million (or 22% of revenue) from $3.5 million (19%).

...

PASON SYSTEMS $32.79 (Toronto symbol PSI; TSINetwork Rating: Speculative) (403-301-3400; www.pason.com; Shares outstanding: 82.7 million; Market cap: $2.7 billion; Dividend yield: 2.1%) is trading near all-time highs as it continues to benefit from the boom in U.S. shale oil and gas drilling.

Pason rents equipment for monitoring and managing oil and gas rigs. It also sells communication technology, such as its satellite system, which companies use to remotely collect data from their drilling operations. Pason serves oil and gas producers and drilling contractors in Canada, the U.S., Mexico, Argentina and Australia.

In the three months ended June 30, 2014, the company’s revenue rose 26.1%, to $103.8 million from $82.4 million a year earlier. Pason saw higher sales in all markets, but especially in the U.S.

...

AMAZON.COM $324.00 (Nasdaq symbol AMZN; TSINetwork Rating: Extra Risk) (206- 266-1000; www.amazon.com; Shares outstanding: 462.0 million; Market cap: $149.7 billion; No dividends paid) has acquired gaming network Twitch Interactive for about $970 million in cash. The company reportedly outbid Google.

Twitch, which was founded in 2011, is a popular Internet video channel for broadcasting and watching people playing video games. The website is estimated to be the fourth-largest source of U.S. Internet traffic, behind Netflix, Google and Apple.

Gaming—especially mobile gaming—is a new area of focus for Amazon. Twitch is a leader, with more than 55 million users. It generates revenue from both subscriptions and advertising.

...

SASOL LTD. (ADR) $56.49 (New York symbol SSL; TSINetwork Rating: Extra Risk) (082-883-9697; www.sasol.com; ADRs outstanding: 650.6 million; Market cap: $38.4 billion; Dividend yield: 4.5%) has developed a technology to convert coal and natural gas into motor fuels.

The company is the world’s largest producer of fuel from coal at its Secunda, South Africa, facility. It also makes synthetic fuels from natural gas at plants in Qatar and Nigeria. As well, Sasol produces chemicals, oil and gas in Africa. It’s also South Africa’s thirdlargest coal producer.

In its 2014 fiscal year, which ended June 30, 2014, Sasol’s revenue rose 19.3%, to 202.7 billion South African rand (1 rand = $0.1039 U.S.) from 169.9 billion rand in fiscal 2013. Earnings per ADR rose 14.3%, to a record 60.16 rand from 52.62 rand.

...

CHESAPEAKE ENERGY $25.35 (New York symbol CHK; TSINetwork Rating: Extra Risk) (405-848-8000; www.chkenergy.com; Shares outstanding: 665.8 million; Market cap: $16.9 billion; Dividend yield: 1.4%) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 72% gas and 28% oil.

Chesapeake’s shares have nearly doubled since mid- 2012, when activist investor Carl Icahn bought a stake in the firm. Icahn, who has a history of pushing companies to make changes that raise shareholder value, subsequently replaced four of Chesapeake’s eight board members with his nominees. The company also pushed out controversial co-founder, CEO and chairman Aubrey K. McClendon.

The company continues to restructure by selling non-essential properties and assets. That lets it pay down debt and focus on areas with strong potential.

...

ALIMENTATION COUCHE-TARD $35.09 (Toronto symbol ATD.B; TSINetwork Rating: Extra Risk) (1-800-361-2612; www.couche-tard.com; Shares outstanding: 565.8 million; Market cap: $20.0 billion; Dividend yield: 0.5%) reported higher sales and record earnings in the latest quarter, as well as a dividend increase.

In the three months ended July 20, 2014, Couche-Tard’s sales rose 3.2%, to $9.2 billion from $8.9 billion a year earlier. Per-share earnings gained 23.1%, to $0.48 from $0.39.

The company raised its quarterly dividend by 12.5% with the September 2014 payment, to $0.045 a share from $0.04. The stock now yields 0.5%.

...

BMTC GROUP $15.70 (Toronto symbol GBT.A; TSINetwork Rating: Extra Risk) (514-648-5757; No website; Shares outstanding: 45.1 million; Market cap: $708.0 million; Dividend yield: 1.6%) is one of Quebec’s biggest retailers of furniture, electronics and appliances, with 36 outlets. It mainly sells these products through its two affiliates: Brault & Martineau and Ameublements Tanguay.

In March 2012, BMTC introduced a new banner, Economax, which offers lower-priced products. The company rebranded four outlets that it had operated as Brault & Martineau liquidation centres.

In 2013, BMTC opened four more EconoMax stores, and it added one, in Joliette, in March 2014. It plans to open another, in LaSalle, this fall.

...

REITMANS (CANADA) LTD. $6.17 (Toronto symbol RET.A; TSINetwork Rating: Extra Risk) (514-384- 1140; www.reitmans.com; Shares outstanding: 64.5 million; Market cap: $395.9 million; Dividend yield: 3.2%) owns 900 women’s clothing stores across Canada.

The chain consists of 343 Reitmans, 143 Penningtons, 113 Smart Set, 102 Addition Elle, 76 RW & Co. and 68 Thyme Maternity stores. It also has 21 Thyme Maternity boutiques in some Canadian Babies “R” Us locations.

In the three months ended August 2, 2014, Reitmans’ sales rose 1.9%, to $258.3 million from $253.4 million a year earlier. Same-store sales increased 4.6%.

...

TIM HORTONS $88.70 (Toronto symbol THI; TSINetwork Rating: Average) (905-845-6511; www.timhortons.com; Shares outstanding: 132.8 million; Market cap: $11.8 billion; Dividend yield: 1.4%) has accepted a friendly takeover offer from Burger King Worldwide (New York symbol BKW).

Tim Hortons shareholders can opt to receive $88.50 a share in cash or 3.0879 Burger King shares (currently worth $105.54).

Burger King will limit the overall cash payout, so most investors will likely receive $65.50 in cash and 0.8025 of a share, for a total value of $90.54.

...

CHEMTRADE LOGISTICS INCOME FUND $20.95 (Toronto symbol CHE.UN; TSINetwork Rating: Speculative) (416-496-5856; www.chemtradelogistics.com; Units outstanding: 60.2 million; Market cap: $1.3 billion; Dividend yield: 5.7%) is one of North America’s largest providers of removal services for resource firms, such as oil refineries and basemetal processors. These companies create by-products like sulphur and acid, which Chemtrade turns into useful chemicals like sulphuric acid.

In the three months ended June 30, 2014, Chemtrade’s revenue rose 30.4%, to $318.1 million from $217.5 million a year earlier.

The gain was largely due to General Chemical Corp., which Chemtrade bought for $860.9 million U.S. in January 2014. General makes a range of chemicals, including aluminum sulphate, aluminum chlorohydrate and ferric sulphate (all of which are used in water treatment), as well as ingredients for prescription drugs, nutritional supplements and veterinary products.

...

Every Monday we feature “A Stock to Sell” as our daily post. With every stock we recommend as a sell, we give you a full explanation of why we advise against investing in the stock at this time. NEPTUNE TECHNOLOGIES & BIORESSOURCES INC. (symbol NTB on Toronto; www.neptunebiotech.com), makes omega-3 dietary supplements using a patented process for extracting oil from krill. (Krill are shrimp-like deepwater invertebrates that range in length from half an inch to two-and-a-half inches.) Omega-3 fatty acids reportedly help lower cholesterol and blood pressure when used as a dietary supplement....

Pat McKeough responds to many requests from members of his Inner Circle for advice on investing in stocks, as 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. Beginning this week, we give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of our new approach offering you regular and specific buy, hold and sell advice in our daily posts. Every week you’ll get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “Our Top U.S. Stocks” on Thursday. This week we got a question from an Inner Circle member who is interested in a stock but concerned that it doesn’t pay a dividend. Gilead Sciences is a drug company that specializes in combatting viruses. Hepatitis C is the primary target of treatments developed by Gilead Sciences, but it also plays an important role in treatments for HIV/AIDS. Pat assesses the status of the company’s leading drugs and examines the challenges the company faces maintaining a position of leadership in a highly competitive field. Q: Please give your opinion on Gilead Sciences. It sounds very good to me as a physician, but it pays no dividend and I’ve bought into dividend investing. Thanks....

Symantec rises with successful restructuring plan

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on a wide range of investing topics, including trading stocks online. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Tip of the week: “Online trading seems like an easy and convenient way to invest, but that can also make it an easy way to lose money.” Some investors may look on online trading as a fairly quick and convenient way to build wealth, but there are many hidden dangers that may not be easy to spot at first....