Search

BROADRIDGE FINANCIAL SOLUTIONS $37.25 (New York symbol BR; TSINetwork Rating: Extra Risk) (201-714-3000; www.broadridge.com; Shares outstanding: 119.2 million; Market cap: $4.5 billion; Dividend yield: 2.3%) serves the investment industry in three main areas: investor communications, securities processing and transaction clearing. It processes 90% of all proxy votes in the U.S. and Canada.

Without one-time items, the company earned $31.2 million in its fiscal 2014 second quarter, which ended December 31, 2013. That’s up 43.1% from $21.8 million a year earlier. Earnings per share rose 47.1%, to $0.25 from $0.17, on fewer shares outstanding.

Overall revenue gained 5.6%, to $520.6 million from $493.2 million. Revenue from contracts that pay recurring fees rose 9% and accounted for two-thirds of the total. The remaining third comes from one-time events, such as special shareholder meetings and distributing information when mutual funds change managers.
...

FAIR ISAAC CORP. $52.77 (New York symbol FICO; TSINetwork Rating: Average) (415-472-2211; www.fairisaac.com; Shares outstanding: 34.9 million; Market cap: $1.8 billion; Dividend yield: 0.2%) 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 first quarter, which ended December 31, 2013, Fair Isaac’s earnings per share before one-time items fell 17.0% from a year ago, to $0.73 from $0.88. Revenue fell 3.0%, to $184.3 million from $190.0 million.

The declines mostly resulted from a strong yearearlier quarter that included a big order from a major customer.
...

HECLA MINING $3.44 (New York symbol HL; TSINetwork Rating: Extra Risk) (208-769- 4100; www.hecla-mining.com; Shares outstanding: 342.6 million; Market cap: $1.2 billion) produced 2.5 million ounces of silver in the quarter ended December 31, 2013, up 19.6% from 2.1 million a year earlier. Gold output jumped to 47,108 ounces from 15,563.

Most of Hecla’s silver comes from its Greens Creek mine in Alaska and its Lucky Friday project in Idaho. Its Casa Berardi mine in Quebec supplies its gold.

The company expects to produce 9.5 million to 10 million ounces of silver in 2014, with gold output of 210,000 ounces.
...

MART RESOURCES $1.34 (Toronto symbol MMT; TSINetwork Rating: Speculative) (403-270-1841; www.martresources.com; Shares outstanding: 356.6 million; Market cap: $477.8 million; Dividend yield: 14.9%) produces oil at its 50%-held Umusadege field in southern Nigeria’s Niger Delta region.

Last year, the company finished building a central processing facility at Umusadege that can process 35,000 barrels of oil a day. That’s enough to handle the field’s current output and all future production increases.

Meanwhile, Mart is reporting steady cash flow and continues to pay quarterly dividends of $0.05 a share, for a high 14.9% yield.
...

TRILOGY ENERGY CORP. $26.56 (Toronto symbol TET; TSINetwork Rating: Speculative) (403-290- 2900; www.trilogyenergy.com; Shares outstanding: 99.4 million; Market cap: $3.3 billion; Dividend yield: 1.6%) owns oil and gas properties in central Alberta’s Kaybob and Grande Prairie areas. About 58% of Trilogy’s production is natural gas. The remaining 42% is oil.

In the three months ended September 30, 2013, Trilogy produced 31,211 barrels of oil equivalent a day (including gas), down 6.6% from 33,412 barrels a year earlier. Cash flow per share rose 15.0%, to $0.46 from $0.40, on higher oil prices.

The company plans to spend $375 million on exploration and development this year, down 6.3% from the $400 million it likely spent in 2013. As well, it’s now focusing on its shale oil prospects at Kaybob and spending less on its more mature oil pools in the same area.
...

GOODYEAR TIRE & RUBBER CO. $26.56 (Nasdaq symbol GT; TSINetwork Rating: Extra Risk) (330-796-2122; www.goodyear.com; Shares outstanding: 248.1 million; Market cap: $6.6 billion; Dividend yield: 0.8%) has risen almost 9% since we made in our #1 pick for 2014 in the last issue.

The gains came after the company reported strong earnings in the latest quarter. It also announced that it has used its rising profits to add $1.15 billion in cash to its U.S. hourly workers’ defined -benefit pension plan. This plan is now fully funded.

In the quarter ended December 31, 2013, lower North American sales and a stronger U.S. dollar cut Goodyear’s overall sales by 5.0%, to $4.8 billion from $5.0 billion a year earlier.
...

TIM HORTONS $57.94 (Toronto symbol THI; TSINetwork Rating: Average) (905-845-6511; www.timhortons.com; Shares outstanding: 147.1 million; Market cap: $8.5 billion; Dividend yield: 2.2%) operates 3,588 coffee-anddonut shops in Canada, 859 in the U.S. and 38 in the Persian Gulf.

In the three months ended December 31, 2013, sales rose 10.7%, to $898.5 million from $811.6 million a year earlier. Same-store sales gained 1.6% at its Canadian outlets and 3.1% in the U.S. Earnings per share, before one-time items, rose 15.9%, to $0.80 from $0.69.

The company aims to extend its lead on competitors like Starbucks and McDonalds. Its plans include simplifying its menu displays and speeding up service, both in-store and at the drive-through. As well, it will likely introduce new items aimed at younger customers, such as milk- and juice-based drinks and healthier options.
...

Pat McKeough responds to many requests from members of his Inner Circle for specific 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 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....

In the February 2013 issue of Canadian Wealth Advisor, we named Bank of Nova Scotia our #1 safety-conscious pick for 2013 at $58.80 a share. The stock hit all-time highs and by the end of the year it had risen by 12.9%, or 16.8% including dividends. We think it has further gains ahead....

PRECISION DRILLING CORP. $10 (www.precisiondrilling.com) has raised its quarterly dividend by 20.0%, to $0.06 a share from $0.05. The new annual rate of $0.24 yields 2.4%. Volatile oil and gas prices and a lack of pipelines have hurt drilling activity....

TRANSCONTINENTAL INC. $14 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 78.0 million; Market cap: $1.1 billion; Price-to-sales ratio: 0.5; Dividend yield: 4.1%; TSINetwork Rating: Average; www. tctranscontinental.com) is Canada’s leading printer of flyers, magazines, newspapers and books. This business accounts for 67% of its revenue and 85% of its earnings. The remaining 33% of revenue and 15% of earnings comes from publishing 35 magazines and 175 daily and weekly newspapers.

Advertisers continue to shift to the Internet. That’s why Transcontinental’s revenue fell from $2.2 billion in 2009 to $2.0 billion in 2011 (fiscal years end October 31). In 2012, the company traded its Mexican printing plants for six Canadian facilities. The new plants brought its revenue up to $2.1 billion in both 2012 and 2013.


...

CGI GROUP INC. $35 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 310.7 million; Market cap: $10.9 billion; Price-to-sales ratio: 1.1; No dividends paid; TSINetwork Rating: Extra Risk; www.cgi.com) is the lead contractor for the healthcare.gov website, which lets Americans shop for health insurance plans under the Affordable Care Act (or Obamacare).

Due to problems with the website, the U.S. government will not renew CGI’s contract when it expires in February 2014. Even so, the revenue from the renewal—about $90 million U.S.—is small next to the company’s annual revenue of $10 billion. Moreover, the website issues should have little long-term impact on the company’s reputation.

CGI Group is still a buy.

...

SHAWCOR LTD. $39 (Toronto symbol SCL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 60.0 million; Market cap: $2.3 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.3%; TSINetwork Rating: Average; www.shawcor.com) expects its earnings to fall about 50% in the fourth quarter of 2013, compared to the third quarter.

That’s mainly because it completed most of a major pipeline-coating contract in Asia in the third quarter. As well, the operators of new pipeline projects in the North Sea and Brazil have delayed their start-up. As a result, ShawCor will now begin work on these contracts in the first quarter of 2014.

ShawCor is still a buy....

CANADIAN NATIONAL RAILWAY CO. $60 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 836.0 million; Market cap: $50.2 billion; Priceto- sales ratio: 4.8; Dividend yield: 1.4%; TSINetwork Rating: Above Average; www.cn.ca) expects that its operating ratio crept up to around 63% in 2013 from 62.9% in 2012. (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.)

CN continues to buy fuelefficient locomotives and run longer trains. These moves should cut its operating ratio to around 60% over the next three years.

CN is also benefiting from a lack of pipeline capacity, which is prompting oil producers to ship by rail. Higher demand for automotive equipment and building materials should also increase its shipping volumes. As a result, CN’s earnings should rise 13.2%, from a projected $3.10 a share in 2013 to $3.51 in 2014. The stock trades at a reasonable 17.1 times the 2014 estimate.
...

BLACKBERRY LTD. $9.36 (Toronto symbol BB; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 524.6 million; Market cap: $4.9 billion; Price-to-sales ratio: 0.6; No dividends paid; TSINetwork Rating: Speculative; www.blackberry.com) has sold an additional $250 million worth of convertible debentures (all amounts except share price and market cap in U.S. dollars) to its largest shareholder, Fairfax Financial Holdings (Toronto symbol FFH).

Fairfax now holds $500 million of these debentures, which it can convert into BlackBerry common shares at $10.00 a share. If it did, Fairfax would own 17.6% of the total shares outstanding.

The extra cash should help the smartphone maker complete its restructuring, which includes cutting 40% of its workforce and focusing on corporate and government clients. However, the stock will remain volatile until its revenue and earnings improve.
...

AGRIUM INC. $104 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 144.5 million; Market cap: $15.0 billion; Price-to-sales ratio: 0.9; Dividend yield: 3.2%; TSINetwork Rating: Average; www.agrium.com) makes nitrogen-based fertilizers from natural gas. That could weaken its earnings growth, because the particularly cold North American winter has pushed up gas prices.

However, Agrium uses hedging contracts to lock in gas prices, which cuts its risk. Moreover, it gets 70% of its revenue by selling seeds and fertilizers to farmers through its 1,250 stores in North America, South America and Australia. That further reduces its gas-price exposure.

Agrium is a buy....

CANADIAN TIRE CORP. $98 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 80.2 million; Market cap: $7.9 billion; Price-to-sales ratio: 0.7; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www. canadiantire.ca) recently sold 16.9% of CT Real Estate Investment Trust (Toronto symbol CRT.UN) through an initial public offering. CT REIT holds 72% of Canadian Tire’s real estate assets, including 255 stores and one distribution centre. The company received $279.3 million for these shares.

Meanwhile, Canadian Tire earned $145.5 million in the three months ended September 28, 2013, up 10.7% from $131.4 million a year earlier. Earnings per share gained 11.2%, to $1.79 from $1.61, on fewer shares outstanding. Sales rose 4.5%, to $3.0 billion from $2.8 billion.

Strong demand for automotive and kitchen products pushed up same-store sales by 2.0% at the company’s 491 Canadian Tire stores. Same-store sales rose 6.3% at its 415 sports outlets, partly due to the Pro Hockey Life chain, acquired in August 2013. Same-store sales at the 386-store Mark’s clothing chain gained 4.3%.
...

MOLSON COORS CANADA INC. (Toronto symbols TPX.A $62 and TPX.B $62; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 183.9 million; Market cap: $11.4 billion; Price-to-sales ratio: 1.6; Dividend yield: 2.3%; TSINetwork Rating: Average; www.molsoncoors.com) continues to make progress integrating StarBev LP, which it bought for $3.4 billion in June 2012 (all amounts except share prices and market cap in U.S. dollars). StarBev owns nine breweries in central and eastern Europe.

These savings are helping Molson Coors offset slowing beer demand. In the third quarter of 2013, its earnings rose 7.7%, to $268.1 million from $248.9 million a year earlier. Due to more shares outstanding, earnings per share gained 5.8%, to $1.45 from $1.37. However, sales fell 2.0%, to $1.17 billion from $2.0 billion.

The class B shares have less voting power to elect directors than the class A shares, but they are more liquid and receive the same dividend.
...

CANADIAN PACIFIC RAILWAY LTD. $164 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 175.4 million; Market cap: $28.8 billion; Price-to-sales ratio: 4.8; Dividend yield: 0.9%; TSINetwork Rating: Above Average; www.cpr.ca) is selling 26% of the track miles of its Dakota, Minnesota & Eastern (DM&E) railway, which carries grain, fertilizer and other products between Minnesota and South Dakota.

The company acquired DM&E in 2008 for $1.5 billion. It decided to sell this portion as part of its new plan to focus on its more profitable rail lines. It will receive $210 million U.S. when the deal closes later this year. That’s equal to 69% of the $331 million (Canadian), or $1.88 a share, that CP earned in the three months ended September 30, 2013.

CP Rail is a buy....

DUNDEE CORP. $19 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 54.1 million; Market cap: $1.0 billion; Price-to-sales ratio: 2.8; No dividends paid; TSINetwork Rating: Average; www.dundeecorp.com) owns businesses in the wealth management, real estate, natural resource and agriculture industries.

In the three months ended September 30, 2013, Dundee earned $2.6 million, or $0.01 a share. That’s a big drop from the $21.2 million, or $0.34 a share, it earned a year earlier. Dundee’s earnings fell on higher costs as it expands its agricultural businesses. Revenue fell 14.5%, to $41.2 million from $48.2 million.

Dundee is still a buy....

CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $37 and CU.X [class B voting] $37; Income Portfolio, Utilities sector; Shares outstanding: 260.1 million; Market cap: $9.6 billion; Price-to-sales ratio: 2.8; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.canadianutilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. (see page 14) owns 53.1% of the company.

In the three months ended September 30, 2013, Canadian Utilities earned $127 million, up 8.5% from $117 million a year earlier. Earnings per share rose 4.8%, to $0.44 from $0.42, on more shares outstanding.

Without unusual items, mainly deferred payments from or refunds paid to customers, earnings would have risen 6.7%. Revenue gained 5.7%, to $755 million from $714 million, mainly due to higher power rates.
...

ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $47 and ACO.Y [class II voting] $47; Income Portfolio, Utilities sector; Shares outstanding: 115.2 million; Market cap: $5.4 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.atco.com) holds 53.1% of Canadian Utilities (see page 15). 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%.

In the three months ended September 30, 2013, ATCO’s revenue rose 3.5% to $1.02 billion from $981.0 million a year earlier. That’s mainly because higher power rates in Alberta increased Canadian Utilities’ contribution. The structures division’s revenue fell 2.5% after it completed three contracts to build temporary housing and offices at an Australian liquefied natural gas (LNG) project in late 2012 and early 2013.

Earnings jumped 63.0%, to $132 million, or $1.15 a share, from $81 million, or $0.71. Without unusual items, earnings rose 6.3%.
...

CANADA BREAD CO. LTD. $72 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1.8 billion; Price-to-sales ratio: 1.2; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.canadabread.ca) recently sold its Olivieri Foods business, which makes pasta and sauces, to Spain’s Ebro Foods. The company received $120 million, increasing its cash holdings to $308 million. Its recent $8.00-a-share special dividend cost it $203.2 million.

The special dividend would seem to indicate that Maple Leaf (see page 13) is close to selling its 90.0% stake in Canada Bread. If not, Canada Bread would likely invest the cash from the Olivieri sale in its own bakeries or pursue acquisitions.

But even if Maple Leaf hangs on to Canada Bread, its future looks bright. It recently opened a $100-million bakery in Hamilton, Ontario, which let it close three outdated facilities in Toronto and shift their production to the new plant.
...

MAPLE LEAF FOODS INC. $16 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 140.1 million; Market cap: $2.2 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.0%; TSINetwork Rating: Average; www.mapleleaf.ca) is Canada’s largest food processing company. It mainly sells its products, including fresh and prepared meats and poultry, under the Maple Leaf and Schneider brands.

The company recently said it plans to sell its 90.0% stake in Canada Bread (see right), Canada’s second-largest producer of baked goods after Weston Bakery.

Canada Bread supplies a third of Maple Leaf’s sales. Maple Leaf’s $1.6-billion stake in this business is equal to 73% of its $2.2-billion market cap.
...

TECK RESOURCES LTD. $27 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 576.3 million; Market cap: $15.6 billion; Price-tosales ratio: 1.6; Dividend yield: 3.3%; TSINetwork Rating: Average; www.teck.com) is down 27.0% since we made it our #1 pick for 2013.

That’s mainly because slowing industrial activity, mainly in Asia, has hurt demand for Teck’s metallurgical coal, a key ingredient in steelmaking.

The company sold a record 7.6 million tonnes of metallurgical coal in the third quarter of 2013, up 36.5% from a year earlier. However, coal prices fell 28.0%, to $139 U.S. a tonne from $193. The uncertain economy has also hurt prices for Teck’s other products, including copper and zinc.
...