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LOBLAW COMPANIES LTD. $46 (Toronto symbol L; www.loblaw.ca) announced yesterday that it has a friendly deal to purchase Shoppers Drug Mart Corp. (Toronto symbol SC) for $12.4 billion in cash and stock. The transaction, which combines Canada’s largest grocery and pharmacy chains, will be the biggest takeover in Canadian retail history. Shares of Loblaw rose 5% yesterday on the news. Loblaw had already risen 42% for us since its announcement in December 2012 that it would set up 75% of its real estate holdings as a publicly traded real estate investment trust (REIT) under the name Choice Properties REIT (Toronto symbol CHP.UN)....

THE BOEING CO. $107 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 758.7 million; Market cap: $81.1 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.boeing.com) is a leading maker of passenger jets.

The company launched its latest plane, the 787 Dreamliner, in 2011. The 787 uses advanced materials that are lighter than aluminum. That makes it 20% more fuel efficient than comparable planes. It also features state-of-the-art jet engines and electronics.


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JONES GROUP INC. $16 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.1 million; Market cap: $1.3 billion; Price-to-sales ratio: 0.3; Dividend yield: 1.3%; TSINetwork Rating: Average; www.jonesgroupinc.com) designs clothing, accessories and footwear for men and women. Its major brands include Jones New York and Gloria Vanderbilt.

The stock has jumped 46% since the start of 2013. That’s largely due to speculation that the company is looking to sell itself.

Meanwhile, in response to slowing sales, Jones plans to close 170 of its 574 stores and cut its workforce by 8%. This should lower its annual costs by $40 million when it completes the plan in 2014. To put that in context, Jones earned $10.8 million, or $0.15 a share, before restructuring costs in the first quarter of 2013.
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APACHE CORP. $83 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 391.9 million; Market cap: $32.5 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.0%; TSINetwork Rating: Average; www.apachecorp.com) has agreed to sell most of its offshore oil and gas properties in the Gulf of Mexico for $3.75 billion. The sale, which should close in September 2013, is part of Apache’s plan to focus on its less risky onshore operations.

The company aims to sell $4 billion of its less important assets in 2013. It will use half of the proceeds to buy back shares and the other half to pay down its $11.5-billion long-term debt.

Apache is a hold....

DIAGEO PLC ADRs $123 (New York symbol DEO; Conservative Growth Portfolio, Consumer sector; ADRs outstanding: 627.6 million; Market cap: $77.2 billion; Price-to-sales ratio: 4.6; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.diageo.com) has raised its stake in United Spirits, India’s largest distiller, from 10.04% to 25.02%. Diageo is now United Spirits’ largest shareholder. It also controls the company through voting agreements with other major shareholders.

Diageo paid 594.4 million British pounds for this additional stake (1 British pound = $1.58 Canadian). To put that in context, the company earned 1.5 billion pounds, or 2.44 pounds per ADR, in the six months ended December 31, 2012. (Each American Depositary Receipt represents four Diageo common shares.)

The purchase will help Diageo profit from rising demand for premium spirits in India. However, it will take at least a year before the new operations add to the company’s earnings.
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MCCORMICK & CO. INC. $72 (New York symbol MKC; Income Portfolio, Consumer sector; Shares outstanding: 132.0 million; Market cap: $9.5 billion; Price-to-sales ratio: 2.4; Dividend yield: 1.9%; TSINetwork Rating: Average; www.mccormick.com) earned $78.6 million in its fiscal 2013 second quarter, which ended May 31, 2013. That’s down 2.2% from $80.4 million a year earlier. Earnings per share fell 1.7%, to $0.59 from $0.60, on fewer shares outstanding. If you disregard costs to integrate a Chinese maker of bouillon products that McCormick recently purchased, it would have earned $0.61 a share in the latest quarter.

Sales rose 1.9%, to $1.0 billion from $984.0 million. Sales to consumers (59% of the total) rose 3.9%, mainly because the company launched successful new products and improved its marketing. It also raised its prices. However, sales to businesses (41% of the total) fell 0.9%, mainly due to fewer orders from fast-food restaurants in the U.S.

McCormick is a buy.
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MCDONALD’S CORP. $97 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.0 billion; Market cap: $97.0 billion; Price-to-sales ratio: 3.6; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.mcdonalds.com) plans to open its first restaurant in Vietnam next year.

This new outlet will face strong competition from other U.S. fast food chains, such as KFC, Pizza Hut, Starbucks and Subway, that already operate in the country. However, the population is young and eager to embrace foreign brands. Moreover, the son-in-law of Vietnam’s prime minister will own and operate this franchise. That cuts the risk of this expansion.

McDonald’s is a buy....

J.P. MORGAN CHASE & CO. $57 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.8 billion; Market cap: $216.6 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.7%; TSINetwork Rating: Average; www. jpmorganchase.com) cut its loan-loss provisions by 78.0% in the second quarter of 2013, to $47 million from $214 million a year earlier. It also improved its efficiency ratio to 62.9% from 67.5%.

These savings helped raise Morgan’s earnings by 31.0% in the quarter, to $6.5 billion from $5.0 billion a year ago. Due to fewer shares outstanding, earnings per share rose 32.2%, to $1.60 from $1.21. Revenue gained 13.7%, to $25.2 billion from $22.2 billion. That’s mainly due to higher fees from its wealth management division and gains from trading securities.

An unexpected $6-billion loss at Morgan’s trading division caused the stock to fall to $32 in June 2012, but it has rebounded strongly. It now trades at 9.7 times Morgan’s likely 2013 earnings of $5.89 a share. The $1.52-a-share dividend yields 2.7%.
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WELLS FARGO & CO. $44 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.3 billion; Market cap: $233.2 billion; Price-to-sales ratio: 2.8; Dividend yield: 2.7%; TSINetwork Rating: Average; 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. That helped push up its earnings by 19.7%, to $5.3 billion, or $0.98 a share. A year ago, it earned $4.4 billion, or $0.82 a share.

Revenue rose 0.4%, to $21.4 billion from $21.3 billion. Borrowers continue to refinance their mortgages at lower rates, which cuts Wells Fargo’s interest income. However, the bank is doing a good job of getting its clients to sign up for more services, such as credit cards and wealth management. As a result, income from fees and other sources rose 3.7%.

In addition, Wells Fargo continues to cut its operating costs, like salaries and rent. In the latest quarter, its efficiency ratio (non-interest operating expenses divided by revenue— the lower, the better) improved to 57.3% from 58.2% a year ago.
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FEDEX CORP. $106 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 316.6 million; Market cap: $33.6 billion; Price-to-sales ratio: 0.8; Dividend yield: 0.6%; TSINetwork Rating: Average; www.fedex.com) delivers packages and documents in the U.S. and over 220 other countries and territories.

The stock has moved up in the past few weeks, partly due to speculation that activist investment firm Pershing Square Capital Management (see page 71) will soon make a significant investment in FedEx.

However, it seems unlikely that Pershing would be interested in FedEx, because it prefers underperforming firms that could spur their earnings by cutting costs. FedEx is already restructuring as more companies choose slower but cheaper delivery methods, like trucks and ships, over its more expensive overnight international air service.
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CINTAS CORP. $48 (Nasdaq symbol CTAS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 122.3 million; Market cap: $5.9 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.3%; TSINetwork Rating: Average; www.cintas- .com) designs and makes uniforms, which it sells to over 900,000 businesses, mainly in North America. It also offers related services, including office cleaning and document shredding.

In its 2013 fiscal year, which ended May 31, 2013, Cintas’s sales rose 5.2%, to a record $4.3 billion from $4.1 billion a year earlier. Sales at the uniform business, which supplied 71% of Cintas’s overall revenue, rose 4.5%, while sales at its other divisions (29% of the total) gained 6.9%. Earnings increased 6.0%, to $315.4 million from $297.6 million. Due to fewer shares outstanding, earnings per share rose 11.0%, to $2.52 from $2.27.

The stock trades at a reasonable 17.7 times the $2.71 a share that Cintas will probably earn in fiscal 2014.

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INTERNATIONAL BUSINESS MACHINES CORP. $197 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $216.7 billion; Price-to-sales ratio: 2.2; Dividend yield: 1.9%; TSINetwork Rating: Above Average; www.ibm.com) continues to enjoy strong demand for its software, as it helps businesses analyze large amounts of data and improve their efficiency. That’s helping IBM offset slow sales of its mainframe computers.

IBM is a buy.

TEXAS INSTRUMENTS INC. $39 (Nasdaq symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $42.9 billion; Price-to-sales ratio: 3.5; Dividend yield: 2.9%; TSINetwork Rating: Average; www.ti.com) plans to stop making chips for cellphones due to intense competition from larger chipmakers. Instead, it is shifting to analog chips, which convert sounds and temperatures into digital signals that computers can understand. While not as profitable, sales of analog chips are much less volatile than wireless chips.
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INTEL CORP. $23 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.0 billion; Market cap: $115.0 billion; Price-to-sales ratio: 2.2; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www.intel.com) is the world’s leading computer chip maker. Its products power 80% of the world’s personal computers.

In the three months ended June 29, 2013, Intel’s sales fell 5.1%, to $12.8 billion from $13.5 billion a year earlier. Sales of personal computer chips (which supply 63% of Intel’s total sales) fell 7.5%, while sales of chips for server computers were flat. Earnings declined 29.3%, to $2.0 billion from $2.8 billion. Due to fewer shares outstanding, earnings per share fell 27.8%, to $0.39 from $0.54.

Intel continues to invest heavily in new chips. It spent $2.52 billion (or 19.6% of its sales) on research in the latest quarter, up slightly from $2.51 billion (or 18.6% of sales) a year earlier.

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MICROSOFT CORP. $32 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.3 billion; Market cap: $265.6 billion; Priceto- sales ratio: 3.6; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.microsoft.com) continues to benefit from strong demand for its business software, particularly programs that run server computers and data centres.

However, falling demand for desktops and laptops is hurting sales of the company’s new Windows 8 operating system. Sales of mobile devices powered by Windows 8 have also suffered in the face of strong competition from other smartphones and tablets.

In its 2013 fiscal year, which ended June 30, 2013, Microsoft’s revenue rose 5.6%, to $77.8 billion from $73.7 billion in 2012. However, earnings fell 5.4%, to $27.0 billion, or $2.62 a share, from $28.5 billion, or $2.78 a share. These figures exclude several unusual items, such as a $900-million writedown of unsold Surface RT tablet computers. To spur sales, Microsoft has cut the price of these tablets by 30%.

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APPLE INC. $441 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 940.1 million; Market cap: $414.6 billion; Price-to-sales ratio: 2.4; Dividend yield: 2.8%; TSINetwork Rating: Average; www.apple.com) gets 69% of its sales from its hugely popular mobile devices: the iPhone smartphone and the iPad tablet computer. The remaining 31% comes from its Mac computers and iPod music players.

In its 2013 third quarter, which ended June 29, 2013, Apple’s sales rose 0.9%, to $35.3 billion from $35.0 billion a year earlier. Thanks to strong demand for older, cheaper models, the company sold 31.2 million iPhones, up 20.0% from a year earlier. However, iPad sales fell 14.2%, to 14.6 million units. Apple also sold 6.6% fewer Mac computers, and 32.3% fewer iPods as many iPod users upgrade to iPhones.

Even with the higher sales, earnings in the quarter fell 21.8%, to $6.9 billion from $8.8 billion. Earnings per share fell 19.8%, to $7.47 from $9.32, on fewer shares outstanding.

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CISCO SYSTEMS INC. $26 (Nasdaq symbol CSCO; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.3 billion; Market cap: $137.8 billion; Priceto- sales ratio: 2.9; Dividend yield 2.6%; TSINetwork Rating: Average; www.cisco.com) is a leading maker of hardware and software that links and manages computer networks. The company’s hardware includes routers, local area network (LAN) and asynchronous transfer mode (ATM) switches, and dial-up access servers.

Like IBM and Texas Instruments (see box on page 73), Cisco is a good example of a tech company that has matured into a cyclical growth stalwart. Even though its sales growth has slowed in the past few years, Cisco still dominates its field. That’s partly because it has formed long-term relationships with government agencies and other large customers.

The company also continues to benefit from its 2011 restructuring plan, which included selling its money-losing consumer-products businesses and cutting jobs.

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PROCTER & GAMBLE CO. $80 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.7 billion; Market cap: $216.0 billion; Price-to-sales ratio: 2.8; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.pg.com) began operating in 1837 and is now one of the world’s largest makers of household and personal-care products. It has 25 different brands that each generate over $1 billion in annual sales.

The company has five main divisions: Fabric Care and Home Care products, such as Tide laundry detergent and Duracell batteries (32% of 2012 sales, 26% of earnings); Beauty goods like Olay cosmetics (24%, 22%); Baby Care and Family Care products, including Pampers diapers (19%, 19%); Health Care items such as Crest toothpaste (15%, 17%); and Grooming products, including Gillette razors (10%, 16%). Wal-Mart accounts for 14% of the company’s sales.

The recession cut Procter’s sales by 5.5%, from $83.5 billion in 2008 to $78.9 billion in 2009 (fiscal years end June 30). Sales recovered to $82.6 billion in 2011, and rose to $83.7 billion in 2012.
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Emerging markets have been down lately but the long-term outlook remains sound. A good way to profit from that outlook with less risk is through low-fee exchange traded funds (ETFs). Here are two we follow regularly.

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Pat McKeough responds to many requests for specific advice on stocks to buy 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 one of the world’s leading makers of luxury accessories. In order to generate further growth Coach is relying on increasing overseas sales and on an expansion into more men’s products. Pat examines the company’s prospects in the face of stiffer competition and rising costs. ...

VISA INC. (New York symbol V; www.visa.com) operates the world’s largest electronic payments network. The company processes credit, debit, prepaid and commercial payments under the Visa, Visa Electron, Interlink and PLUS brands. Visa gets most of its revenue from fees it charges card issuers and merchants for using its network. These fees are based on payment volume, transactions processed and other factors. The responsibility for evaluating customer creditworthiness and collecting payments lies with the banks that issue the cards, not with Visa....

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 specific investment advice. Each Investor Toolkit update gives you a fundamental piece of investment advice, and shows you how you can put it into practice right away. Today’s tip: “The best way to outperform the market is to invest consistently—and to avoid going in and out of the market erratically trying to buy low and sell high.”...

TELUS (Toronto symbol T; www.telus.com) has 7.7 million wireless subscribers across Canada. It gets much more of its revenue from wireless than major competitor BCE—54% compared to BCE’s 32%. Telus gets the remaining 46% of its revenue from its traditional phone business, which has 3.4 million customers in B.C., Alberta and eastern Quebec. Telus also has 1.3 million Internet subscribers and 712,000 Telus TV subscribers....

ACI WORLDWIDE (Nasdaq symbol ACIW; www.tsainc.com) makes software for processing transactions involving credit cards, debit cards, automated teller machines, point-of-sale terminals and interbank payments. Its products also help cut fraud. In mid-February 2012, ACI completed its $540 million purchase of S1 Corp. This acquisition has been a good fit: S1 sells transaction software for banks, credit unions, retailers and other payment processors. It has over 3,000 clients worldwide....

Pat McKeough responds to many requests for specific advice on investing in stocks 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, an Inner Circle member asked us about a stock that is a leader in developing drugs for viral diseases. Gilead is particularly strong in the treatment of hepatitis, a lucrative market. Pat examines the progress of Gilead’s attempt to win approval for a new hepatitis drug against stiff competition from other major pharmaceutical firms. ...

RUSSEL METALS $26.27 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 60.9 million; Market cap: $1.6 billion; Dividend yield: 5.3%) is one of North America’s largest metal distributors. It serves 39,000 clients at 54 locations in Canada and 12 in the U.S.

In the quarter ended March 31, 2013, revenue rose 2.4%, to $821.8 million from $802.9 million a year earlier. The steel-distribution division’s revenue fell 26%, and the metal-services business saw a 10% decline. The slower economy cut steel demand.

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