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NORDSTROM INC. (New York symbol JWN; www.nordstrom.com) mainly sells clothing, accessories and footwear. The company owns and operates 248 stores in 33 states. In the second quarter of its 2014 fiscal year, which ended August 3, 2013, Nordstrom’s sales rose 6.3%, to $3.2 billion from $3.0 billion a year earlier. Same-store sales rose 4.2% on strong demand for men’s apparel, men’s shoes and children’s clothing. Online sales jumped 37%....

“Calling the market” is a seductive but potentially destructive activity for those who make a living by advising people about where and how to invest their money. A few good calls on where the stock market is going can establish an advisor’s reputation for a decade or longer—if those calls happen to catch the attention of investors. But the funny thing is that among people who make a habit of calling the market, everybody has had at least a few good calls. The ones you never hear of just didn’t have the good fortune to get noticed by investors while making a good call....

Pat McKeough responds to many requests from members of his Inner Circle for specific advice on Canadian stocks and other investments 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....

FORTIS INC. $31 (www.fortis.com) recently completed its purchase of CH Energy, which distributes power in New York State. If you exclude costs related to this purchase and other unusual items, Fortis’s earnings fell 11.1% in the second quarter of 2013, to $0.32 a share from $0.36. Hold.

MANITOBA TELECOM SERVICES LTD. $33 (www.mts.ca) recently agreed to sell its Allstream subsidiary, which provides integrated telephone, Internet and other communication services to over 50,000 businesses across Canada. Manitoba Telecom will get $405 million when the sale closes later this year....

PENGROWTH ENERGY CORP. $5.90 (Toronto symbol PGF; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 517.7 million; Market cap: $3.1 billion; Price-to-sales ratio: 1.9; Dividend yield: 8.1%; TSINetwork Rating: Average; www.pengrowth.com) produces oil and natural gas in Western Canada and off the Nova Scotia coast. Gas accounts for about 60% of its production; the other 40% is oil.

Rising shale gas production in Canada and the U.S. increased supplies and cut prices from $8.19 per thousand cubic feet in 2008 to $2.38 in 2012. As a result, Pengrowth’s cash flow per share fell 67.1%, from $3.65 in 2008 to $1.20 in 2012.

Due to writedowns and other unusual items, Pengrowth’s earnings have been erratic. Earnings dropped from $1.58 a share (or a total of $395.9 million) in 2008 to $0.32 a share (or $84.9 million) in 2009. Earnings rebounded to $0.76 a share (or $230.3 million) in 2010 but fell to just $0.03 a share (or $12.7 million) in 2012.
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CAE INC. $11 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 261.0 million; Market cap: $2.9 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.8%; TSINetwork Rating: Average; www.cae.com) has won a contract from the U.S. Air Force to train pilots to operate Predator and Reaper remotely piloted aircraft (also called drones).

This five-year deal is worth $100 million U.S. That’s small next to CAE’s annual revenue of $2.1 billion (Canadian). However, this deal should help the company win more training contracts, particularly as the U.S. military uses more drones instead of costly manned fighters.

CAE is a buy....

FINNING INTERNATIONAL INC. $22 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.9 million; Market cap: $3.8 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.finning.com) sells and services heavy equipment made by U.S.-based Caterpillar Inc. (New York symbol CAT). Its main customers are in the oil, mining, forest products and construction industries.

Lower prices for copper and other commodities are prompting mining companies to cut back on equipment purchases. As a result, Finning’s revenue fell 8.2% in the three months ended June 30, 2013, to $1.6 billion from $1.8 billion a year earlier. Flooding in Alberta also delayed some deliveries. However, demand remains strong in South America. Earnings fell 2.2%, to $0.45 a share from $0.46.

The company’s long-term prospects remain bright. Weak commodity prices will probably prompt Finning’s clients to make their current gear last longer. That should spur demand for its repair and maintenance services, which now supply 50% of its revenue. Finning also earns higher profit margins from services than selling new equipment.
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ENBRIDGE INC. $43 (Toronto symbol ENB; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 826.0 million; Market cap: $35.5 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.enbridge.com) is extending its Woodland pipeline, which will let it pump more bitumen from the recently opened Kearl oil sands project in northern Alberta to refineries and other pipelines in Edmonton. Imperial Oil (see above) owns 71% of Kearl; Exxon owns the remaining 29%.

The company will spend $1.3 billion on this project, which should begin operating in the third quarter of 2015.

Enbridge is a buy.
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IMPERIAL OIL LTD. $42 (Toronto symbol IMO; Conservative Growth Portfolio; Resources sector; Shares outstanding: 848.0 million; Market cap: $35.6 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.1%; TSINetwork Rating: Average; www.imperialoil.ca) has teamed up with its parent company, ExxonMobil Corp. (New York symbol XOM), to buy 226,000 acres of undeveloped oil sands properties near Fort McMurray, Alberta. (Exxon owns 69.9% of Imperial.)

Imperial will hold 27.5% of these properties, while Exxon will own the remaining 72.5%. Imperial’s share of the $751-million cost is $206.5 million. That’s equal to 63% of the $327 million, or $0.38 a share, that the company earned in the second quarter of 2013.

Purchases like this will help Imperial increase its daily production from 276,000 barrels of oil equivalent (including gas) in the latest quarter to 600,000 barrels by 2020.
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BELL ALIANT INC. $27 (Toronto symbol BA, Conservative Growth Portfolio, Utilities sector; Shares outstanding: 229.1 million; Market cap: $6.2 billion; Price-to-sales ratio: 2.2; Dividend yield: 7.0%; TSINetwork Rating: Average; www.bellaliant.ca) sells telephone and Internet services to 2.4 million customers in Atlantic Canada and rural parts of Ontario and Quebec. It also sells wireless services through an alliance with BCE (see left).

The company continues to replace its copper-wire cables with fibre optic lines. That’s letting it sell more high-speed Internet and digital TV services, which is offsetting falling demand for land lines. (Traditional phones still supply 52% of its overall revenue.)

In the three months ended June 30, 2013, Bell Aliant’s revenue rose 0.6%, to $691.8 million from $687.7 million a year ago. Earnings fell 10.8%, to $0.66 a share from $0.74. If you exclude a charge related to an early debt repayment and other unusual items, per-share earnings would have fallen 4.9%, to $0.39 from $0.41.

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SNC-LAVALIN GROUP INC. $41 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 151.6 million; Market cap: $6.2 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.2%; TSINetwork Rating: Average; www.snclavalin.com) replaced most of its senior management following the discovery of $56 million U.S. in unusual payments it made in 2011 to help win Libyan construction contracts. SNC has also strengthened its oversight and compliance procedures in response to allegations that it used bribes to win certain contracts in Quebec.

These issues haven’t stopped the company from winning new deals. For example, MEG Energy (Toronto symbol MEG) recently hired SNC to design a new processing facility at its oil sands operation in Alberta.

However, SNC lost $37.7 million, or $0.25 a share, in the three months ended June 30, 2013. That’s mainly due to a $70.1-million charge related to delays building an oil-and-gas project in Algeria. The company also set aside $47.0 million to cover potential losses on a project in Libya that it stopped working on in 2011. A year earlier, SNC earned $31.7 million, or $0.21 a share.
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AGRIUM INC. $90 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 147.0 million; Market cap: $13.2 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.3%; TSINetwork Rating: Average; www.agrium.com) gets just 4% of its revenue and 8% of its earnings from selling potash. As a result, the stock held up well after the break-up of a marketing alliance between two major potash producers in Russia and Belarus. The split could lead to sharply lower potash prices.

Prices for other fertilizers have also suffered recently, as coolerthan- normal weather prompted farmers to delay the spring planting season. That’s why Agrium’s earnings in the three months ended June 30, 2013 fell 14.8%, to $736 million from $864 million a year earlier (all amounts except share price and market cap in U.S. dollars). Earnings per share fell 9.7%, to $4.94 from $5.47.

However, sales rose 3.6%, to $7.0 billion from $6.8 billion, after an acquisition raised revenue at Agrium’s retail division by 6.6%.
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BLACKBERRY LTD. $11 (Toronto symbol BB; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 524.2 million; Market cap: $5.8 billion; Price-to-sales ratio: 0.5; No dividends paid; TSINetwork Rating: Average; www.blackberry.com) is looking at alternatives for increasing shareholder value. Options the company is examining include the sale of some or all of its operations and joint ventures with other firms.

That’s because its new smartphones, powered by its BlackBerry 10 software, continue to face intense competition from Apple’s iPhone and devices running Google’s Android operating system.

The company will probably complete this review quickly. If not, the uncertainty may prompt its corporate and government clients to switch to competing wireless email systems.
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CANADA BREAD CO. LTD. $59 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1.5 billion; Price-to-sales ratio: 1.0; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.canadabread.ca) is Canada’s secondlargest producer of fresh and frozen baked goods, after Weston Bakery. The company also makes pastas and sauces. The company’s main brands include Dempster, Tenderflake and Olivieri. Canada Bread supplies around a third of Maple Leaf’s total sales.

The company is also investing in new facilities as part of Maple Leaf’s restructuring. In 2011, Canada Bread opened a new $100-million bakery in Hamilton, Ontario. That let it close two outdated facilities in Toronto and shift their production to the new plant. Earlier this year, it closed a third Toronto bakery.

In the second quarter of 2013, Canada Bread earned $24.5 million, or $0.97 a share. That’s down 6.0% from $26.1 million, or $1.03 a share, a year earlier. Excluding unusual items, earnings per share rose 0.9%, to $1.07 from $1.06.
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MAPLE LEAF FOODS INC. $14 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 140.0 million; Market cap: $2.0 billion; Price-to-sales ratio: 0.4; Dividend yield: 1.1%; TSINetwork Rating: Average; www.mapleleaf.ca) is Canada’s largest food processing company. It mainly sells its products, which include fresh and prepared meats and poultry, under the Maple Leaf and Schneider brands. Though 90.0%-owned Canada Bread (see right), the company also makes fresh and frozen bread, pastries and pasta.

Maple Leaf continues to make progress on a major restructuring plan that includes building new plants and eliminating unprofitable products. As part of this strategy, Maple Leaf recently sold its Ontario turkey farms for a combined $48.2 million under two separate deals. The company is also installing a new computer system that will give its managers more timely information.

In the three months ended June 30, 2013, Maple Leaf earned $9,000, or a loss of $0.02 a share. A year earlier, it earned $26.0 million, or $0.16 a share. If you exclude unusual items, such as severance costs and writedowns, earnings per share fell 91.3%, to $0.02 from $0.23.
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RIOCAN REAL ESTATE INVESTMENT TRUST $24 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 302.6 million; Market cap: $7.3 billion; Price-to-sales ratio: 4.5; Dividend yield: 5.9%; TSINetwork Rating: Average; www.riocan.com) owns 348 retail properties in Canada, including 15 under development. It also owns 50 malls in the U.S.

The trust continues to expand through acquisitions. In the second quarter of 2013, RioCan acquired seven properties for $460 million. As part of its plan to focus on larger cities, RioCan also sold four properties in smaller markets for $364 million. As a result, big cities now account for 72.1% of its rental revenue, up from 67.5% at the end of 2012.

These new properties are also diversifying RioCan’s portfolio beyond its suburban big-box-style malls. For example, its recent purchases include two enclosed malls in Ontario. The trust is also redeveloping certain properties in Toronto as mixed-use office, retail and residential complexes.
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CANADIAN TIRE CORP. $91 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 80.5 million; Market cap: $7.3 billion; Price-to-sales ratio: 0.6; Dividend yield: 1.5%; TSINetwork Rating: Above Average; www.canadiantire.ca) operates 490 Canadian Tire stores, which specialize in automotive, household and sporting goods. The company owns these outlets, but franchisees operate most of them. Canadian Tire also operates 300 gas stations and 87 PartSource auto parts stores.

In the 1990s, big U.S. retailers like Wal-Mart and Home Depot expanded to Canada. In response, Canadian Tire upgraded its stores with better signage, wider aisles and brighter lighting. These improvements also made it easier for managers to move faster-selling seasonal merchandise to high-traffic areas of the store.

The company is also trying out new formats. For example, it recently opened a smaller store in Toronto. This outlet, called Canadian Tire Express, is one-third the size of a regular Canadian Tire store and mainly features items like light bulbs and plumbing parts instead of tires and lawnmowers.
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WELLS FARGO & CO. (New York symbol WFC; www.wellsfargo.com) set aside $652 million to cover bad loans in the three months ended June 30, 2013, down 63.8% from $1.8 billion a year earlier....

GUGGENHEIM CHINA SMALL CAP ETF $23.14 (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 $184.3-millon fund’s top holdings are Youku Tudou, 2.0%; Tsingtao Brewery, 1.4%; Xinyi Glass Holdings, 1.3%; Sino Biopharmaceutical, 1.3%; China Everbright International, 1.2%; BYD Co., 1.2%; GCL Poly Energy International, 1.2%; Sohu- .com. 1.2%; Semiconductor Manufacturing International, 1.1%; and China Resources Gas Group, 1.1%.

As China’s economy matures and wages rise, domestic spending should continue to increase. As well, China’s leaders will likely need to spend more on programs to ease the growing gap between the rich and poor. Guggenheim China Small Cap ETF is well positioned to benefit from both of these trends.
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PENGROWTH ENERGY $5.84 (Toronto symbol PGF; Shares outstanding: 516.1 million; Market cap: $3.0 billion; TSINetwork Rating: Average; Dividend yield: 8.2%; www.pengrowth.com) has sold several of its less important oil and gas properties in Western Canada for $700 million.

Including the company’s earlier $316-million sale of its 10.02% interest in the Weyburn oil project in Saskatchewan, Pengrowth has now reached its goal of raising $1 billion through asset sales in 2013.

The cash will help Pengrowth develop its $590-milllion Lindbergh oil sands project in Alberta. It will also help the company pay down its long-term debt, which stood at $1.6 billion on June 30, 2013. That’s equal to 52% of Pengrowth’s $3.1-billion market cap. The monthly dividend of $0.04 a share still seems safe and gives the stock an 8.2% yield.
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CRESCENT POINT ENERGY CORP. $37.79 (Toronto symbol CPG; Shares outstanding: 386.1 million; Market cap: $14.9 billion; TSINetwork Rating: Extra Risk; Dividend yield: 7.3%; www.crescentpointenergy.com) produces oil and natural gas in western Canada. Its output is weighted 90% toward oil and 10% to gas.

The company continues to focus on its Bakken light oil development in southeastern Saskatchewan.

In the three months ended June 30, 2013, Crescent Point’s cash flow rose 30.6%, to $504.4 million from $386.3 million a year earlier.
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BONAVISTA ENERGY $12.98 (Toronto symbol BNP; Shares outstanding: 181.5 million; Market cap: $2.5 billion; TSINetwork Rating: Extra Risk; Dividend yield: 6.5%; www.bonavistaenergy.com) explores for oil and gas in Alberta, Saskatchewan and B.C. Its production is 62% gas and 38% oil.

In the three months ended June 30, 2013, Bonavista’s cash flow per share rose 28.6%, to $0.63 from $0.49 a year earlier. Gas prices increased 67.0%, to $3.64 per thousand cubic feet from $2.18. Production rose 4.4%, to 72,554 barrels of oil equivalent a day (including gas) from 69,506.

Bonavista cut its monthly dividend by 41.7% in January 2013, to $0.07 from $0.12. That’s helping it save cash for exploration and development. The new annual rate of $0.84 a share still yields a high 6.5%. As well, Bonavista now pays out just 37% of its cash flow as dividends, so more cuts are unlikely.
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IBM $188.56 (New York symbol IBM; Shares outstanding: 1.1 billion; Market cap: $209.2 billion; TSINetwork Rating: Above Average; Dividend yield: 2.0%; www.ibm.com) reports that its earnings per share before one time items rose 8.0% in the three months ended June 30, 2013, to $3.91 from $3.62. That easily beat the consensus forecast of $3.77.

Revenue fell 3.3%, to $24.9 billion from $25.8 billion. That fell short of the consensus estimate of $25.4 billion. IBM gets two-thirds of its revenue from overseas. If you adjust for foreign exchange rates, its sales would have declined by 1%.

Demand for the company’s software remains strong, because it helps businesses analyze large amounts of data and improve their efficiency. However, the uncertain economy continues to slow sales of mainframe computers and services. Still, IBM’s computer services business ended the quarter with a backlog of $141 billion, up 3% from a year earlier.
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BCE INC. $42.55 (Toronto symbol BCE; Shares outstanding: 775.9 million; Market cap: $33.0 billion; TSINetwork Rating: Above Average; Dividend yield: 5.5%; www.bce.ca) has completed its $3.2-billion purchase of Astral Media.

Astral owns 22 TV stations, 84 radio stations and several pay TV and specialty channels, such as the Movie Network, Family Channel and Teletoon.

To win approval for the takeover, BCE agreed to sell several of Astral’s specialty TV channels and radio stations. Still, the new operations should immediately add to the company’s earnings.
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