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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....

The computer chip makers who will prosper in the coming years are those who adapt best to new trends. These include the growth of mobile technology, such as smartphones and tablet computers, which is hurting demand for traditional desktop and laptop computers....

SAPUTO INC. (Toronto symbol SAP; www.saputo.com) is Canada’s largest producer of dairy products, including milk, butter and cheese. It also makes snack cakes and tarts. In addition to Canada, Saputo operates in the U.S. and Argentina....

CRESCENT POINT ENERGY CORP. (Toronto symbol CPG; www.crescentpointenergy.com) produces oil and natural gas in western Canada. Its output is weighted 90% toward oil and 10% to gas....

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....

GANNETT CO. INC. $24 (New York symbol GCI; Conservative Growth Portfolio, Consumer sector: Shares outstanding: 229.1 million; Market cap: $5.5 billion; Price-to-sales ratio: 1.1; Dividend yield: 3.3%; TSINetwork Rating: Average; www.gannett.com) publishes 99 newspapers in the U.S. and U.K., including USA Today, its flagship paper. It also publishes 680 magazines and weekly papers and owns 23 U.S. television stations.

Newspapers account for 70% of Gannett’s revenue, followed by TV (16%) and websites (14%).


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TOYOTA MOTOR CO. ADRs $124 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.6 billion; Market cap: $198.4 billion; Price-to-sales ratio: 0.9; Dividend yield: 1.1%; TSINetwork Rating: Above Average; www.toyota.com) sold 193,394 vehicles in the U.S. in July 2013. That’s up 17.3% from 164,898 in July 2012.

The company continues to benefit from rising demand for hybrid cars: sales of its Prius hybrid subcompact jumped 40.0%. Rising home construction also helped push up truck sales by 11.5%.

Toyota should also continue to gain from the Japanese government’s move to weaken the yen, because it makes the company’s cars cheaper for buyers outside Japan. It also raises the value of the foreign currencies that Toyota’s international operations earn.
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HILLSHIRE BRANDS CO. $32 (New York symbol HSH; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 123.3 million; Market cap: $3.9 billion; Price-to-sales ratio: 1.0; Dividend yield: 2.2%; TSINetwork Rating: Average; www.hillshirebrands.com) makes a variety of packaged meat products. Its main brands include Ball Park hot dogs, Jimmy Dean sausages and Hillshire Farm deli meats.

The company has raised its quarterly dividend by 40.0%, to $0.175 a share from $0.125. The new annual rate of $0.70 yields 2.2%. It also plans to buy back $200 million of its shares in the next two years.

The stock trades at 18.6 times the $1.72 a share it will probably earn in the fiscal year ending June 30, 2014. That’s a high p/e ratio for a company that faces strong price competition from larger food makers.
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PETSMART INC. $70 (Nasdaq symbol PETM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 103.3 million; Market cap: $7.2 billion; Price-to-sales ratio: 1.1; Dividend yield: 0.9%; TSINetwork Rating: Above Average; www.petm.com) operates 1,301 pet stores in the U.S. and Canada. It also has 196 in-store PetsHotels, which look after pets while their owners are away.

In the second quarter of its 2014 fiscal year, which ended August 4, 2013, PetSmart’s earnings jumped 18.9%, to $93.4 million from $78.5 million a year earlier. PetSmart bought back $24 million of its shares during the quarter. Due to fewer shares outstanding, earnings per share rose 25.4%, to $0.89 from $0.71.

Sales gained 5.3%, to $1.7 billion from $1.6 billion. Same-store sales rose 3.4%, while sales of pet services, such as grooming, rose 7.3%. Services supplied 12.0% of PetSmart’s total sales.
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GOOGLE INC. $849 (Nasdaq symbol GOOG; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 333.2 million; Market cap: $282.9 billion; Price-to-sales ratio: 5.0; No dividends paid; TSINetwork Rating: Above Average; www.google.com) has started selling Chromecast, a new $35 device that connects to the back of a television set. Chromecast makes it easy to stream movies, TV shows and other video content from a home wireless network to a television.

The company is also interested in securing exclusive content for YouTube, such as NFL football. Programming like this would let Google earn subscription fees and charge advertisers higher rates.

Google is a buy.
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T. ROWE PRICE GROUP INC. $71 (Nasdaq symbol TROW; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 260.1 million; Market cap: $18.5 billion; Price-to-sales ratio: 5.7; Dividend yield: 2.1%; TSINetwork Rating: Average; www.troweprice .com) has agreed to sell its banking subsidiary, which mainly offers certificates of deposit.

The company will receive $24 million for this business when the deal closes, probably by the end of 2013. That’s just 12% of the $206.8 million, or $0.79 a share, it earned in the second quarter of 2013. However, selling the banking business will let T. Rowe Price avoid new banking regulations that could interfere with its main mutual fund and wealth management operations.

T. Rowe Price is a buy....

NEWMONT MINING CORP. $31 (New York symbol NEM; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 497.7 million; Market cap: $15.4 billion; Price-to-sales ratio: 1.8; Dividend yield: 3.2%; TSINetwork Rating: Average; www.newmont.com) has written down the value of its gold inventories, as well as two of its gold mines in Australia, by $1.8 billion. That’s because gold prices have dropped 21%, from around $1,800 an ounce in October 2012 to $1,420 today.

The company links its dividend to gold prices, so it has also cut the quarterly payout by 28.6%, to $0.25 a share from $0.35. The new annual rate of $1.00 yields 3.2%.

Newmont is still a hold.

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J.C. PENNEY CO. INC. $13 (New York symbol JCP; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 220.4 million; Market cap: $2.9 billion; Price-to-sales ratio: 0.2; Dividend suspended in May 2012; TSINetwork Rating: Extra Risk; www. jcpenney.com) operates more than 1,100 department stores in the U.S. and Puerto Rico. It also sells goods online.

Over a year ago, the company switched to an everyday low prices strategy. It felt the move would entice shoppers to come into its stores more often and not wait for clearance sales.

However, the plan alienated Penney’s regular customers. In response to a sharp drop in its sales, the company switched back to its original marketing strategy.
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NORDSTROM INC. $57 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 195.5 million; Market cap: $11.1 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.1%; TSINetwork Rating: Average; 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. Samestore sales rose 4.2% on strong demand for men’s apparel, men’s shoes and children’s clothing. Online sales jumped 37%.

Earnings gained 17.9%, to $184 million from $156 million. Per-share earnings rose 24.0%, to $0.93 from $0.75, on fewer shares outstanding.
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MACY’S INC. $44 (New York symbol M, Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 377.9 million; Market cap: $16.6 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.3%; TSINetwork Rating: Average; www.macysinc.com) operates 840 Macy’s and Bloomingdale’s department stores in 45 states.

The company continues to benefit from strong online sales. That’s largely because it is offering free shipping and letting customers pick up their orders at its stores. Macy’s recent move to tailor its merchandise to local tastes is also helping it compete.

Even so, Macy’s sales fell 0.8% in the second quarter of its 2014 fiscal year, which ended August 3, 2013, to $6.07 billion from $6.12 billion a year earlier. Same-store sales, which include online orders, also declined 0.8%.
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PEPSICO INC. $79 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.5 billion; Market cap: $118.5 billion; Price-to-sales ratio: 1.9; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.pepsico.com) earned $2.05 billion in the three months ended June 15, 2013, up 16.1% from $1.8 billion a year earlier. Earnings per share rose 17.0%, to $1.31 from $1.12, on fewer shares outstanding. The latest earnings included a $0.09-a-share gain on a deal to refranchise PepsiCo’s bottling operations in Vietnam. Revenue rose 2.1%, to $16.8 billion from $16.5 billion.

The company expects to save $900 million this year, mainly by closing plants and cutting jobs. PepsiCo will use some of these savings to develop and promote new products, particularly healthier snack foods. The savings will also help the company offset higher ingredient costs. However, soft drink sales continue to decline, particularly in North America.

PepsiCo is a hold....

MICROSOFT CORP. $33 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.3 billion; Market cap: $273.9 billion; Price-to-sales ratio: 3.6; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www. microsoft.com) jumped 8% after it announced that Steve Ballmer, its chief executive officer since 2000, will soon retire. Microsoft expects to name a replacement within the next 12 months.

The company continues to generate strong cash flows from its business products, such as server software, particularly as more companies move to a cloud computing model. However, weak sales of its new consumer devices, such as the Surface tablet computer, have held back its earnings. Investors feel a new CEO from outside the company may sell these struggling businesses.

Microsoft is still a buy....

FAIR ISAAC CORP. $51 .(New York symbol FICO; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 35.2 million; Market cap: $1.8 billion; Price-to-sales ratio: 2.5; Dividend yield: 0.2%; TSINetwork Rating: Average; www.fico.com) makes FICO Scores, a computer program that helps businesses make better decisions about customer creditworthiness. The company also produces software that helps credit card issuers control fraud and analyze cardholders’spending patterns.

In the company’s fiscal 2013 third quarter, which ended June 30, 2013, its earnings per share before one-time items rose 9.6% from a year ago, to $0.80 from $0.73.

Revenue gained 14.5%, to $183.8 million from $160.5 million. That’s largely because the company recently acquired Adeptra, which makes systems that let businesses communicate with customers through various channels, including voice, text messaging, mobile applications and email.
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BROADRIDGE FINANCIAL SERVICES INC. $30 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 119.1 million; Market cap: $3.6 billion; Price-to-sales ratio: 1.6; Dividend yield: 2.8%; TSINetwork Rating: Average; www.broadridge.com) serves the investment industry in three main areas: investor communications, securities processing and transaction clearing. The company processes 85% of all proxy votes in the U.S.

In its 2013 fiscal year, which ended June 30, 2013, Broadridge’s earnings rose 10.6%, to $236.0 million from $213.4 million in fiscal 2012. Earnings per share rose 12.6%, to $1.88 from $1.67. These figures exclude unusual items, such as writedowns and costs to integrate recent acquisitions.

Revenue rose 5.5%, to $2.4 billion from $2.3 billion. Revenue from the company’s Investor Communications division (which supplies 73% of the total) rose 7.7%. Broadridge held on to 99% of its existing customers. It also continues to do a good job of signing clients to long-term deals that generate recurring revenue.
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DUN & BRADSTREET CORP. $100 (New York symbol DNB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 38.8 million; Market cap: $3.9 billion; Price-to-sales ratio: 2.6; Dividend yield: 1.6%; TSINetwork Rating: Average; www.dnb.com) is the world’s largest provider of credit reports on individual companies. Its customers use these reports to make buying and lending decisions.

Credit reports supply two-thirds of Dun & Bradstreet’s revenue. The remaining third comes from other information products, including software that helps businesses manage websites and customer data.

In the quarter ended June 30, 2013, Dun & Bradstreet’s revenue rose just 0.7%, to $386.4 million from $383.7 million a year earlier. Stronger demand for its credit reports and other products in Europe (which accounts for 15% of its revenue) and Asia (13%) offset weaker sales in North America (72%).
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NEWELL RUBBERMAID INC. $25 (New York symbol NWL; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 288.0 million; Market cap: $7.2 billion; Price-to-sales ratio: 1.2; Dividend yield: 2.4%; TSINetwork Rating: Average; www.newellrubbermaid.com), like Stanley (see left), is a good example of an out-of-the-limelight stock with long-term appeal.

Also like Stanley, Newell is selling its less profitable operations and focusing on products with greater growth potential, such as pens and tools for industrial users.

For example, it recently agreed to sell some of its hardware businesses, which make a variety of hooks, hinges, door knobs and paint brushes. Newell will receive $175 million after taxes when the sale closes in the new few weeks.
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STANLEY BLACK & DECKER INC. $85 (New York symbol SWK; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 160.1 million; Market cap: $13.6 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.4%; TSINetwork Rating: Average; www.stanleyblackanddecker.com) began operating in 1843 and is now one of the world’s largest makers of hand and power tools for consumers. Its top-selling brands include Stanley, Black & Decker, FatMax and Powerlock. In 2012, this business supplied 51% of Stanley’s sales and 50% of its earnings.

The company also makes specialized tools for industrial users, such as auto mechanics and construction firms. This division accounts for 25% of Stanley’s sales and 29% of its earnings.

The remaining 24% of the company’s sales and 21% of its earnings come from making building-security products, such as locks, automatic doors and gates. It also monitors properties for its clients, typically by closed-circuit audio and TV systems.
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THE BOEING CO. (New York symbol BA; www.boeing.com) is a leading maker of passenger jets....

ALGONQUIN POWER & UTILITIES CORP. (Toronto symbol AQN; www.algonquinpower.com) has nearly tripled in size over the last year through a series of acquisitions....

BELLATRIX EXPLORATION (Toronto symbol BXE; www.bellatrixexploration.com) produces oil and natural gas in Alberta, B.C. and Saskatchewan. Gas makes up about 69% of its output; the remaining 31% is oil....