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MANITOBA TELECOM SERVICES INC. $35.75 (Toronto symbol MBT; Shares outstanding: 67.5 million; Market cap: $2.4 billion; TSINetwork Rating: Average; Dividend yield: 4.8%; www.mts.ca) has agreed to sell its Allstream subsidiary to Accelero Capital Holdings, a private firm controlled by Egyptian billionaire Naguib Sawiris.

In 2004, the company paid $1.6 billion for Allstream, which provides integrated telephone, Internet and other communication services to over 50,000 businesses across Canada.

The sale price is $520 million, which is equal to 22% of Manitoba Telecom’s $2.4-billion market cap. If you disregard closing costs, Manitoba Telecom will receive $405 million. Assuming regulators approve, the company expects to complete the sale in the second half of 2013.
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IMPERIAL OIL $39.57 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $34.2 billion; TSINetwork Rating: Average; Dividend yield: 1.2%; www.imperialoil.ca) is a major integrated oil company with oil sands projects in Alberta and conventional oil and gas operations across Western Canada. Imperial also owns four refineries and operates 1,850 Esso gas stations.

Imperial produced 284,000 barrels of oil equivalent per day in the latest quarter, down 1.7% from 289,000 barrels a year earlier. The decline was mainly the result of planned maintenance at the Syncrude oil sands project, in which Imperial owns a 25.0% stake.

In the three months ended March 31, 2013, Imperial’s earnings fell 21.4%, to $798 million, or $0.94 a share, due to an 8% drop in the company’s selling price for oil. A year earlier, it earned $1.0 billion, or $1.19 a share. Cash flow per share fell 17.4%, to $1.19 from $1.44. However, revenue rose 3.3%, to $8.0 billion from $7.5 billion, largely because downstream sales (refineries and gas stations) rose 10.0%.
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Pat McKeough responds to many requests for specific advice on the best stocks to invest in and other questions on investment strategy and the economy from the members of his Inner Circle. 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 received a question from an Inner Circle member about a stock that may not be well known to Canadian investors, but has a product which has made headlines. Israeli defense contractor Elbit Systems has seen its profits rise thanks to the sale of unmanned air vehicles, or drones. Pat looks at the company’s overall outlook and how much emphasis investors should put on one ‘hot’ product like drones....

We think conservative investors could hold up to 10% of their portfolios in foreign stocks. One way to do that is to buy carefully chosen exchange traded funds (ETFs) that have an overseas focus. The best ETFs offer very low management fees and well-diversified, tax-efficient portfolios of high-quality stocks. Here are two international ETFs that we follow regularly. ISHARES MSCI CHILE INVESTABLE MARKET INDEX FUND (New York Exchange symbol ECH; us.ishares.com; buy or sell through brokers) is an ETF that aims to track the MSCI Chile Investable Market Index, which consists of stocks that are mainly traded on the Santiago Stock Exchange....

FINNING INTERNATIONAL INC. $22 (www.finning.com) has increased its quarterly dividend by 8.9%, to $0.1525 a share from $0.14. The new annual rate of $0.61 yields 2.8%. Finning sells heavy equipment to the mining industry, and lower commodity prices have hurt the stock....

IGM FINANCIAL INC. $45 (www.igmfinancial.com) reported that it had $127.1 billion of assets under management on May 31, 2013, up 8.6% from $117.0 billion a year earlier. Improving stock markets were the main reason for the increase: IGM’s fee income rises and falls with the value of the investments it manages, and the market rose 5.3% in the past year....

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ CAE INC. $10 (www.cae.com) has sold six flight simulators to airlines in Turkey and Azerbaijan. These are the company’s first simulator sales in its 2014 fiscal year, which ends March 31, 2014....

TIM HORTONS INC. $54 (Toronto symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 153.4 million; Market cap: $8.3 billion; Price-to-sales ratio: 2.6; Dividend yield: 1.9%; TSINetwork Rating: Average; www.timhortons.com) is the largest fast-food company in Canada, with 3,453 outlets that mainly serve coffee and donuts. The company also has 808 U.S. stores.

The stock has moved up lately in response to demands from Highfields Capital Management, a U.S.-based activist investment firm that owns 1.5% of Tim Hortons’ shares. Highfields has proposed several ways to boost shareholder value, including slowing Tim Hortons’ expansion in the U.S., where it faces intense competition from larger chains like McDonald’s, Dunkin’ Donuts and Starbucks.


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BOMBARDIER INC. (Toronto symbols BBD.A $4.68 and BBD.B $4.67; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $7.9 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.1%; TSINetwork Rating: Average; www.bombardier.com) plans to begin test flights of its new CSeries jet planes by the end of June 2013.

The company’s plan to test the plane both in flight and using simulators should let it deliver the first CSeries in mid-2014.

The subordinate-voting class B shares are the better choice because of their slightly better liquidity and higher dividend yield.
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SUNCOR ENERGY INC. $31 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.5 billion; Market cap: $46.5 billion; Price-to-sales ratio: 1.2; Dividend yield: 2.6%; TSINetwork Rating: Average; www. suncor.com) has resumed normal operations at its oil refinery in Edmonton after it closed the facility for six weeks for unplanned maintenance.

The shutdown led to minor shortages at the company’s Petro-Canada gas stations in Western Canada. However, it also pushed up gas prices, which helped Suncor offset the lost sales.

Suncor is a buy.

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LINAMAR CORP. $28 ( T o r o n t o s y mb o l L N R ; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.7 million; Market cap: $1.8 billion; Price-to-sales ratio: 0.6; Dividend yield: 1.1%; TSINetwork Rating: Extra Risk; www.linamar.com) is buying three plants in Germany that make automotive camshafts for various carmakers.

The company didn’t say how much it will pay for these facilities or when the deal will close. However, this purchase will add roughly $35 million to Linamar’s yearly sales of $3.2 billion. As well, the company plans to use this business’s expertise to improve its camshaft operations.

Linamar is a buy.

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LOBLAW COMPANIES LTD. $46 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 280.9 million; Market cap: $12.9 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.1%; TSINetwork Rating: Above Average; www.loblaw.ca) is spending $100 million to upgrade its 77 Provigo and 32 Loblaw supermarkets in Quebec. That’s equal to 58% of its 2013 firstquarter earnings of $171 million, or $0.61 a share.

These improvements include faster checkout lines, a better selection of fresh products, and the addition of on-site baked bagels and juice bars. In addition, the company will rebrand six of its existing Loblaw stores, plus one under construction, as Provigo Le Marché.

Loblaw is a buy.

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BLACKBERRY INC. $14 (Toronto symbol BB; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 524.0 million; Market cap: $7.3 billion; Price-to-sales ratio: 0.7; No dividends paid; TSINetwork Rating: Average; www.blackberry.com) aims to increase its sales in developing markets like Africa, Asia and Latin America with the Q5, the third smartphone to use the company’s new BlackBerry 10 software.

Like the new Q10, this new model features a 3.1-inch display and a physical keyboard. However, it comes with less storage capacity and a slower processing chip. That will let the company sell the Q5 for about half the price of the Q10. The new phone should also help BlackBerry complete with low-cost phones powered by Google’s Android software.

BlackBerry is a hold.

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CGI GROUP INC. $30 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 309.3 million; Market cap: $9.3 billion; Price-to-sales ratio: 1.5; No dividends paid; TSINetwork Rating: Extra Risk; www.cgi.com) has won contracts from the Kentucky and Louisiana health cooperatives. Created under the Affordable Care Act, also known as Obamacare, these are private, non-profit organizations that sell low-cost health insurance to individuals and small businesses.

For the next five years, CGI’s computer-outsourcing expertise will help them automate their billing and claims-processing functions.

CGI Group is a buy....

TORSTAR CORP. $6.17 (Toronto symbol TS.B; Shares outstanding: 79.8 million; Market cap: $492.4 million; TSINetwork Rating: Above Average; D i v i d e n d y i e l d : 7 . 7 % ; www.torstar.com) gets 70% of its revenue from its newspapers, including The Toronto Star, Canada’s largest daily newspaper by circulation. The remaining 30% comes from Harlequin, a leading romance novel publisher.

In the first quarter of 2013, Torstar’s earnings fell 76.2%, to $4.2 million, or $0.05 a share. A year earlier, it earned $17.5 million, or $0.22 a share. If you exclude unusual items, earnings per share would have declined 36.4%, to $0.14.

Revenue fell 4.8%, to $313.4 million from $329.3 million. Lower advertising revenue offset higher distribution revenue at Torstar’s weekly community papers as it expanded into new markets. Harlequin’s revenue fell 2.9%, excluding the negative impact of foreign exchange rates. That’s because rising e-book sales failed to offset slowing demand for printed books.
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TRANSCONTINENTAL INC. $12 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 77.9 million; Market cap: $934.8 million; Price-to-sales ratio: 0.4; Dividend yield: 4.8%; TSINetwork Rating: Average; www.tctranscontinental.com) gets 68% of its revenue from its commercial printing business, which is the largest in Canada. The remaining 32% comes from publishing newspapers and magazines.

In its 2013 second quarter, which ended April 30, 2013, Transcontinental’s revenue fell 0.2%, to $521.3 million from $522.4 million a year earlier. Revenue from six recently acquired printing plants in Canada helped offset the loss of a contract to print flyers for the now-closed Zellers retail chain.

So far, the company has realized annual savings of $30 million by combining the new plants with its current operations. Even so, earnings fell 2.0% in the latest quarter, to $34.8 million from $35.5 million. Earnings per share were unchanged at $0.44 on fewer shares outstanding.
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ANDREW PELLER LTD. $12 (Toronto symbol ADW.A; Income Portfolio, Consumer sector; Shares outstanding: 14.3 million; Market cap: $171.6 million; Price-to-sales ratio: 0.6; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.andrewpeller.com) reported that its sales rose 4.4% in the fiscal year ended March 31, 2013, to a record $289.1 million from $276.9 million in 2012. The winemaker continues to benefit from its November 2011 licensing deal with the Wayne Gretzky Estates winery. The 2011 acquisition of a home wine making kit company, plus the launch of several new products, also contributed to the higher sales.

Peller earned $1.12 a share for the year, up 20.4% from $0.93. The company also raised its dividend for the fifth time in eight years. The new annual rate of $0.40 a share, up 11.1% from $0.36, yields 3.3%.

Andrew Peller is a buy.

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NORDION INC. $7.73 (Toronto symbol NDN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 61.9 million; Market cap: $478.5 million; Price-to-sales ratio: 2.0; Dividend suspended in September 2012; TSINetwork Rating: Extra Risk; www.nordion.com) is selling its Targeted Therapies division to U.K.-based BTG plc. This business makes TheraSphere, a process that Nordion developed for treating liver cancer using millions of small glass beads that contain radioactive materials.

Nordion will receive $185 million for Targeted Therapies (all amounts except share price and market cap in U.S. dollars). In addition, the company will continue to make TheraSphere on BTG’s behalf for three years after the sale closes in June 2013. BTG has an option to extend this arrangement for two more years.

Without unusual items (but including the Targeted Therapies division), Nordion lost $1.8 million, or $0.03 a share, in the three months ended April 30, 2013. A year ago, it earned $4.8 million, or $0.08 a share. Revenue rose 12.1%, to $56.1 million from $50.0 million. That was mainly due to the favourable timing of sales of equipment for sterilizing food and surgical tools.

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DUNDEE CORP. $22 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 54.1 million; Market cap: $1.2 billion; Price-to-sales ratio: 1.9; No dividends paid; TSINetwork Rating: Average; www.dundeecorp.com) is a holding company with investments in wealth management, real estate, resources and agriculture.

The company recently completed its plan to set up 70%-owned DREAM UNLIMITED CORP. $12 (Toronto symbol DRM) as a separate, publicly traded firm. DREAM, which was formerly the company’s Dundee Realty Corp. subsidiary, develops and manages commercial and residential real estate in North America and Europe. Insiders still hold 30% of DREAM.

Dundee shareholders received one share of DREAM for each Dundee share they held. Investors are only liable for capital gains taxes when they sell their new shares.

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CANADIAN IMPERIAL BANK OF COMMERCE $77 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 399.8 million; Market cap: $30.8 billion; Price-to-sales ratio: 1.8; Dividend yield: 5.0%; TSINetwork Rating: Above Average; www.cibc.com) is the fifth-largest Canadian bank, with $397.7 billion of assets.

CIBC has the highest exposure to Canada of all the big five banks: its domestic operations now supply 85% of its revenue. Its international businesses mainly consist of wealth management services in the U.S. and retail banking in the Caribbean.

In the three months ended April 30, 2013, CIBC earned $876 million, up 4.3% from $840 million a year earlier. Earnings per share rose 6.0%, to $2.12 from $2.00, on fewer shares outstanding. These figures exclude several unusual items, mainly losses on securities the bank holds.

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BANK OF MONTREAL $60 (Toronto symbol BMO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 648.1 million; Market cap: $38.9 billion; Price-to-sales ratio: 1.9; Dividend yield: 4.9%; TSINetwork Rating: Above Average; www.bmo.com) is Canada’s fourth-largest bank, with $555.3 billion of assets.

In the three months ended April 30, 2013, the bank’s revenue fell 0.4%, to $3.94 billion from $3.96 billion a year earlier.

Revenue was flat at the Canadian retail banking operations, which account for 39% of Bank of Montreal’s overall revenue. The value of this division’s business loans rose 12%, and personal loans increased 10%. However, lower interest rates on new loans offset these gains.

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TORONTO-DOMINION BANK $81 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; Shares outstanding: 922.1 million; Market cap: $74.7 billion; Price-to-sales ratio: 2.4; Dividend yield: 4.0%; TSINetwork Rating: Above Average; www.td.com) is Canada’s second-largest bank, with $826.4 billion of assets.

In the three months ended April 30, 2013, TD’s earnings rose 5.8%, to $1.8 billion from $1.7 billion a year earlier. Because of more shares outstanding, earnings per share rose 4.4%, to $1.90 from $1.82.

Revenue increased 4.3%, to $6.0 billion from $5.75 billion. Revenue at TD’s Canadian retail banking division (which supplies 44% of the bank’s overall revenue) rose 1.5%, as its credit card holders spent more and demand rises for home mortgages and car loans.

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ROYAL BANK OF CANADA $59 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $82.6 billion; Price-to-sales ratio: 2.3; Dividend yield: 4.3%; TSINetwork Rating: Above Average; www.rbc.com) is Canada’s largest bank, with $867.5 billion of assets.

Royal recently paid $3.7 billion for Ally Financial’s Canadian operations. This business mainly provides car loans through over 1,600 dealerships across the country. It also offers no-fee savings accounts and consumer and business loans.

If you exclude unusual items, such as the cost of integrating this business, Royal earned $2.0 billion in the quarter ended April 30, 2013. That’s up 13.4% from $1.7 billion a year earlier. Earnings per share rose 14.2%, to $1.29 from $1.13, on fewer shares outstanding. The Ally business contributed $12 million to Royal’s latest earnings. As well, more of Royal’s borrowers are repaying their loans on time. The bank set aside $288 million for potential bad loans, down 17.2% from $348 million a year earlier.

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TECK RESOURCES LTD. $24 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 580.1 million; Market cap: $13.9 billion; Price-tosales ratio: 1.3; Dividend yield: 3.8%; TSINetwork Rating: Average; www. teck.com) is down 35% since we made it our Stock of the Year for 2013.

The drop is mainly because slowing industrial activity in China and elsewhere has hurt prices for its metallurgical coal, which is a key ingredient in steelmaking. In 2012, coal accounted for 45% of Teck’s revenue, and 51% of its earnings.

In response to the weaker demand, Teck and other coal producers are cutting production. That should support prices as steelmakers use up their inventories. Moreover, Teck has built strong relationships with its major customers, so they are unlikely to switch to other coal suppliers. Teck’s high-quality coal also helps steelmakers improve their efficiency.

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BANK OF NOVA SCOTIA $56 (Toronto symbol BNS; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $67.2 billion; Price-to-sales ratio: 2.4; Dividend yield: 4.3%; TSINetwork Rating: Above Average; www.scotiabank.com) is Canada’s third-largest bank, with assets of $754.2 billion.

The bank has recovered strongly from the 2008 financial crisis. Revenue rose 65.9%, from $11.9 billion in 2008 to $19.7 billion in 2012 (fiscal years end October 31). Earnings gained 98.6%, from $3.0 billion in 2008 to $6.0 billion in 2012. Due to more shares outstanding, earnings per share rose at a slower pace of 71.1%, from $3.05 to $5.22. Without a one-time gain on the sale of real estate, it would have earned $4.61 a share in 2012.

Much of this growth is due to acquisitions. In the past six years, Bank of Nova Scotia has spent over $14 billion buying smaller financial services firms. It purchased most of these assets from banks that wanted to exit certain markets, so it probably got many of them at bargain prices.

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