Search

Pat McKeough responds to many requests from members of his Inner Circle for specific advice on buying 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 one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. Recently an Inner Circle member asked us about a Canadian stock that is tapping into the economic growth of Western Canada. WesternOne operates through a series of smaller acquisitions that build up its business in construction heating, aerial equipment and modular buildings. Pat looks at the company’s expanding business and the potential risks and rewards of its growth-by-acquisition strategy in a very competitive market. Q: Pat, could you give me your opinion on WesternOne, please?...

The outlook for automakers was grim following the financial crisis of 2008. Once-dominant firms like General Motors and Chrysler were forced to turn to the government for bailouts. But few industries have rebounded stronger than the automobile industry....

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you advice on specific investment topics such as technical analysis. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away. Today’s tip: “Technical analysis can be a useful investment tool, but if you rely too heavily on it—or any other single facet of investing—you have little chance of profiting consistently.” Learning what not to do can be the hardest and costliest part of an investor’s education....

PFIZER INC. (New York symbol PFE; www.pfizer.com) is the world’s largest maker of prescription drugs. Its main brands include Lyrica (epilepsy), Celebrex (arthritis), Viagra (erectile dysfunction) and Prevnar (a pneumonia vaccine). Pfizer also makes popular over the-counter drugs, including Advil (pain relief), Centrum (vitamins) and Robitussin (cough syrup)....

CHIPOTLE MEXICAN GRILL (New York symbol CMG; www.chipotle.com) is a Denver-based Mexican restaurant chain. It charges slightly higher prices than fast food companies, but it offers better quality food, including naturally raised meat, and superior decor and service. In the three months ended March 31, 2014, Chipotle’s sales rose 24.4%, to $904.2 million from $726.8 million a year earlier. The company’s restaurants attracted more customers during the quarter, which pushed up same-restaurant sales by 13.4%. Chipotle also opened 44 new outlets and now has a total of more than 1,600. In all of 2014, it aims to open 180 to 195 locations....

ALARMFORCE INDUSTRIES $11.23 (Toronto symbol AF; TSINetwork Rating: Speculative) (1-800- 267-2001; www.alarmforce.com; Shares outstanding: 11.9 million; Market cap: $134.1 million; Dividend yield: 1.1%) sells twoway voice-alarm systems and monitoring services in Canada and increasingly in the U.S.

In the quarter ended April 30, 2014, the company’s sales rose 8.7%, to $13.2 million from $12.1 million a year earlier. It earned $1.8 million, or $0.15 a share, up 34.3% from $1.3 million, or $0.11.

AlarmForce’s revenue rose along with its subscriber base. Earnings jumped because it spent a lot less on marketing after launching its VideoRelay system. This service lets subscribers watch their homes through computers and smartphones. AlarmForce now has 7,500 VideoRelay subscribers, with 4,400 in Canada and 3,100 in the U.S.

...

FIRSTSERVICE CORP. $55.55 (Toronto symbol FSV; TSINetwork Rating: Extra Risk) (416-960-9500; www.firstservice.com; Shares outstanding: 34.7 million; Market cap: $2.0 billion; Dividend yield: 0.8%) 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 March 31, 2014, FirstService’s revenue rose 15.1%, to $548.4 million from $476.4 million a year earlier (all figures except share prices in U.S. dollars). Excluding one-time items, earnings per share were $0.09, compared to a loss of $0.20. The first quarter is typically a slower time for the company.

Revenue rosRe at all three of FirstService’s divisions: Colliers International (commercial real estate), up 28%; FirstService Residential (residential property management), up 7%; and FirstService Brands (property services), up 11%. FirstService Brands operates Paul Davis Restoration, California Closets and CertaPro Painters.

...

STUART OLSON INC. $10.79 (Toronto symbol SOX; TSINetwork Rating: Speculative) (780-454-3667; www.stuartolson.com; Shares outstanding: 24.9 million; Market cap: $270.0 million; Dividend yield: 4.4%) is the new name for The Churchill Corp. (old symbol CUQ).

Stuart Olson provides building construction, commercial and industrial electrical contracting, earth moving and industrial insulation services to government and private sector clients, mainly in Western Canada.

In the three months ended March 31, 2014, the company lost $614,000, or $0.02 a share. That’s an improvement from a loss of $1.2 million, or $0.05 a share, a year earlier. Revenue rose 15.9%, to $274.6 million from $236.8 million, thanks to rising construction activity in Western Canada.

...

IAMGOLD $4.39 (Toronto symbol IMG; TSINetwork Rating: Speculative) (1-888-464-9999; www.iamgold.com; Shares outstanding: 376.7 million; Market cap: $1.6 billion; No dividends paid) has signed an agreement with Calibre Mining (symbol CXB on Toronto) that gives it the option to invest in a proposed gold-silver mine in Nicaragua.

Under the deal, IAMGold can earn a 51% stake in Calibre’s Easter Borosi project over the next three years if it pays $450,000 and spends $5.0 million to develop the property (all amounts except share price in U.S. dollars).

After that, IAMGold can earn an additional 19% interest if pays Calibre another $450,000 and contributes $5.0 million more to development costs.

...

CAMECO CORP. $21.57 (Toronto symbol CCO; TSINetwork Rating: Extra Risk) (306-956-6200; www.cameco.com; Shares outstanding: 395.8 million; Market cap: $8.5 billion; Dividend yield 1.9%) has decided to postpone developing its Millennium uranium deposit in central Saskatchewan. Cameco owns 69.9% of this property, and Japan’s JCU Exploration holds the other 31.1%.

Uranium prices have declined from around $42 U.S. a pound in February 2014 to $28 today. That’s because delays in restarting Japan’s nuclear reactors have caused uranium inventories to rise. However, prices should recover once the Japanese reactors begin operating.

Cameco is still a buy.

...

ACI WORLDWIDE $55.40 (Nasdaq symbol ACIW; TSINetwork Rating: Speculative) (402-334-5101; www.tsainc.com; Shares outstanding: 37.9 million; Market cap: $2.1 billion; No dividends paid) makes software that processes transactions involving credit cards, debit cards, automated teller machines, point-of-sale terminals and interbank payments. Its products also help cut fraud.

The company has added another major client for its Postilion retail point-to-point encryption (PSPE) software. This technology encrypts credit card numbers and other sensitive information from the point of entry (card swipe) at the merchant to the other end (issuing bank or other payment processor).

The client is Ecentric Payment Systems, South Africa’s leading payment processor. Ecentric processes nearly 400 million transactions a year for retailers. This number should rise as African markets continue to develop and South African retailers expand into other countries on the continent.

...

BIRCHCLIFF ENERGY $14.75 (Toronto symbol BIR; TSINetwork Rating:Speculative) (403-261-6401;www.birchcliffenergy.com; Units outstanding: 145.0million; Market cap: $2.2 billion; No dividends paid) reports that its daily production rose 21.6% in the three months ended March 31, 2014, to 31,749 barrels of oil equivalent from 26,108 a year earlier. Cash flow per share jumped 122.2%, to $0.60 from $0.27, on the increased production and higher oil and gas prices.

The company plans to spend $291 million on exploration and development this year, which should boost its 2014 output to a record 34,000 barrels a day. Birchcliff expects to generate full-year cash flow of $331 million, or $2.30 a share, so it can comfortably afford these outlays.

Birchcliff Energy is still a buy.

...

CALIAN TECHNOLOGIES $18.82 (Toronto symbol CTY; TSINetwork Rating: Speculative) (613- 599-8600; www.calian.com; Shares outstanding: 7.4 million; Market cap: $135.5 million; Dividend yield: 6.0%) operates in two areas: the business and technology services division (which supplies 70% of Calian’s revenue) provides engineers, health care workers and other skilled professionals to clients on a contract basis. The systems engineering division (30% of revenue) sells hardware and software for testing, operating and managing satellite and other communication systems.

In the three months ended March 31, 2014, the company earned $2.4 million, or $0.32 a share. That’s down 29.5% from $3.4 million, or $0.44 a share, a year ago. Revenue declined 13.1%, to $51.2 million from $58.9 million.

The business and technology services division continues to benefit from recurring orders from Canadian federal government departments, including the Department of National Defence. However, these clients placed fewer orders in the latest quarter, cutting the division’s revenue by 9.5%. That hurt Calian’s profit margins, which lowered its earnings.

...

COMPUTER MODELLING GROUP $14.88 (Toronto symbol CMG; TSINetwork Rating: Speculative) (403-531-1300; www.cmgroup.com; Shares outstanding: 78.6 million; Market cap: $1.2 billion; Dividend yield: 2.7%) (all figures split 2-for-1) sells software and consulting services that help oil and gas producers use advanced recovery techniques to get more out of their wells. It has customers in over 50 countries and offices in Calgary, Houston, London, Caracas, Bogota, Kuala Lumpur and Dubai.

In the quarter ended March 31, 2014, Computer Modelling’s revenue rose 3.6%, to $20.0 million from $19.3 million a year earlier. Software licence sales (89% of total revenue) rose slightly, but consulting and professional services (11%) jumped 39.1%, thanks to new projects and a large consulting agreement.

Earnings gained 6.7%, to $7.7 million from $7.25 million. Per-share earnings jumped 18.8%, to $0.095 from $0.08, on fewer shares outstanding.

...

AEROPOSTALE $3.55 (New York symbol ARO; TSINetwork Rating: Extra Risk) (646-485-5410; www.aeropostale.com; Shares outstanding:78.5 million; Market cap: $277.6 million; No dividends paid) reported better-than-expected earnings this week. However, the high teenage unemployment rate is still weighing on its sales.

In the three months ended May 3, 2014, Aeropostale’s sales fell 12.5%, to $395.9 million from $452.3 million a year earlier. Samestore sales declined 13%.

The company is now closing all 125 of its mall-based P.S. from Aeropostale stores. If you exclude closure and other costs, it lost $0.52 a share. That was better than the consensus forecast of a $0.72-a-share loss. A year earlier, Aeropostale lost $0.16 a share.

...

LEON’S FURNITURE LTD. $14.30 (Toronto symbol LNF; TSINetwork Rating: Average) (416-243-7880; www.leons.ca; Shares outstanding: 70.9 million; Market cap: $1.0 billion; Dividend yield: 2.8%) has steadily opened new stores, growing from 27 in 2003 to 78 today.

But the company more than quadrupled in size overnight with its March 28, 2013, purchase of its main rival, The Brick, for $700 million. The Brick has 228 outlets across Canada. Leon’s and The Brick will continue to operate as separate chains.

As a result of the acquisition, Leon’s sales jumped to $426.0 million in the three months ended March 31, 2014, from $162.5 million a year earlier. Earnings fell sharply, to $818,000, or $0.01 a share, from $5.4 million, or $0.08.

...

AMAZON.COM $334.38 (Nasdaq symbol AMZN; TSINetwork Rating: Extra Risk) (206- 266-1000; www.amazon.com; Shares outstanding: 460.2 million; Market cap: $150.8 billion; No dividends paid) has launched Prime Music, a music streaming service that’s now bundled with a $99-a-year Amazon Prime subscription.

This is the fourth part of the Amazon Prime service. The other three are unlimited shipping, a Kindle e-book library and Prime Instant Video (streaming movies and TV shows). Prime customers spend three to four times more than regular Amazon shoppers.

The company’s music service will start off with just over a million songs, with no ads and no limit on how much users can listen. It will also offer playlists curated by music experts Amazon will hire.

...

BROADRIDGE FINANCIAL SOLUTIONS $40.95 (New York symbol BR; TSINetwork Rating: Extra Risk) (201-714-3000; www.broadridge.com; Shares outstanding: 120.7 million; Market cap: $4.9 billion; Dividend yield: 2.1%) serves the investment industry in three main areas: investor communications, securities processing and transaction clearing. The company processes 90% of all proxy votes in the U.S. and Canada.

Without one-time items, Broadridge earned $55.1 million in its fiscal 2014 third quarter, which ended March 31, 2014. That’s up 11.3% from $49.5 million a year earlier. Earnings per share rose 12.8%, to $0.44 from $0.39, on fewer shares outstanding.

...

FAIR ISAAC CORP. $60.30 (New York symbol FICO; TSINetwork Rating: Average) (415-472-2211; www.fairisaac.com; Shares outstanding: 34.3 million; Market cap: $2.1 billion; Dividend yield: 0.1%) makes FICO Scores, the computer program that dominates the market for software that businesses use to evaluate customer creditworthiness. The company is also profiting by selling software that helps credit card issuers control fraud and analyze cardholders’ spending patterns.

In its fiscal 2014 second quarter, which ended March 31, 2014, Fair Isaac’s earnings per share rose 15.7% from a year ago, to $0.59 from $0.51.

Revenue gained 3.4%, to $185.5 million from $179.3 million. The company saw stronger sales of its credit-scoring software and customized programs for analyzing large amounts of a business’s data. However, sales at its main Applications division (62% of the total) fell 1.4% on weaker licensing revenue from software that detects bank fraud.

...

SASOL LTD. (ADR) $59.52 (New York symbol SSL; TSINetwork Rating: Extra Risk) (082- 883-9697; www.sasol.com; ADRs outstanding: 650.3 million; Market cap: $40.0 billion; Dividend yield: 2.5%) has just signed a deal with Italy-based multinational oil giant Eni SpA. No financial terms were disclosed, but it could be significant.

Under the agreement, Eni will take a 40% partnership interest in an exploration permit that Sasol holds. The permit gives the company the right to explore an 82,000-square mile area in the Durban and Zululand basins off South Africa’s east coast.

This area is near where Eni and Anadarko Petroleum recently discovered a field containing more than 100 trillion cubic feet of natural gas. The deal also gives Sasol access to Eni’s offshore deep-drilling exploration expertise.

...

CHEMTRADE LOGISTICS INCOME FUND $21.19 (Toronto symbol CHE.UN; TSINetwork Rating: Speculative) (416-496-5856; www.chemtradelogistics.com; Units outstanding: 60.1 million; Market cap: $1.2 billion; Dividend yield: 5.7%) is one of North America’s largest providers of removal services for resource firms, such as oil refineries and base-metal processors.

These companies’ activities create sulphur, acid and other by-products that Chemtrade converts into useful chemicals, like sulphuric acid. The trust also offers a range of environmental services through its Marsulex subsidiary, such as improving air quality and handling and treating industrial waste.

Chemtrade’s revenue rose 30.4% in the three months ended March 31, 2014, to $273.9 million from $210.0 million a year earlier.

...

DREAM OFFICE REIT $29.14 (Toronto symbol D.UN; TSINetwork Rating: Extra Risk) (416-365-3535; www.dundeereit.com; Units outstanding: 103.4 million; Market cap: $3.1 billion; Dividend yield: 7.7%) is the new name for Dundee REIT. The trading symbol is unchanged.

Dream owns and manages 24.6 million square feet of office and retail space in major cities across Canada. Its occupancy rate is 94.2%.

In the quarter ended March 31, 2014, Dream’s revenue rose 9.0%, to $206.7 million from $189.6 million a year earlier. The trust continues to renew expiring leases at higher rates. It has also added 1.2 million square feet of space over the past year.

...

ENERFLEX LTD. $19.74 (Toronto symbol EFX; TSINetwork Rating: Extra Risk) (403-387- 6377; www.enerflex.com; Shares outstanding: 78.3 million; Market cap: $1.3 billion; Dividend yield: 1.8%) rents and sells equipment and services for natural gas production.

The stock has jumped over 20% since Enerflex announced on June 1 that it will acquire two businesses owned by privately held Axip Energy Services LP: an international contract compression and processing subsidiary, and a division that provides aftermarket services. Enerflex will pay $430 million U.S. in cash.

The agreement includes operations in Mexico, South America, Southeast Asia and the Middle East, but not Axip’s U.S. business. The assets include a 448- unit compression fleet totalling about 285,000 horsepower.

...

GOODYEAR TIRE & RUBBER CO. $27.20 (Nasdaq symbol GT; TSINetwork Rating: Extra Risk) (330-796-2122; www.goodyear.com; Shares outstanding: 248.5 million; Market cap: $6.8 billion; Dividend yield: 0.7%) has risen almost 11% since we made it our #1 pick for 2014 in our February issue. We think it will go higher.

In the quarter ended March 31, 2014, Goodyear’s sales fell 7.9%, to $4.5 billion from $4.9 billion a year earlier. Harsh winter weather hurt North American car and truck sales, cutting demand for new tires. The weather also slowed sales of replacement tires. As well, the Brazilian, Venezuelan and Australian currencies fell against the U.S. dollar, cutting the value of sales in these markets.

Earnings per share fell 17.6%, to $0.56 from $0.68. The lower sales and stronger price competition were the main reasons for the decline.

...

Pat McKeough responds to many requests from members of his Inner Circle for specific advice about specific 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 one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week we had a question from an Inner Circle member about two stocks that carry the name of one of the world’s most prestigious universities. Harvard Bioscience, founded in 1901 in the basement of Harvard Medical School, makes products for research laboratories. Less than a year ago, it spun off Harvard Apparatus, which is involved in the development of regenerated organs for transplant. Pat examines the two businesses and the prospects these two speculative stocks present to investors. ...