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A month ago, we examined one of the energy stocks we cover in our newsletter for aggressive investing, Stock Pickers Digest. Zargon Oil and Gas (Toronto symbol ZAR) has trimmed its commitment to natural gas due to the slump in prices (view the article here). Today, in the wake of a recent rally in oil prices, we look at the prospects for a tech stock that serves the oil and gas drilling industry.
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Pat McKeough responds to many personal questions about buying stocks and other investment topics 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 about Empire Company, a stock that makes money from a variety of sources, including movie theatres. But its chief source of revenue is grocery chain Sobeys. Pat considers the reliable income generated by Sobeys’ stores against the threat of increased competition as more big-box retailers crowd into the grocery business.

Q: Hi: I have recently taken a small position in Empire Company. What do you think of their shares? Thank you.

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Investors who are still years away from retirement are often plagued by a nagging fear. When they stop working, there won’t be enough income coming in.

This underlines the fact that successful retirement planning begins well before you approach retirement age. There is one plan that we have found is more effective than any other in preparing a secure retirement. It begins during your working years.

Dollar-cost averaging helps you buy more shares at low prices

The best retirement plan you can have is to start saving as early in your working career as possible. You then invest a steady or rising amount of that money in the stock market every year. When you follow this plan, you automatically profit from dollar-cost averaging. You will automatically buy more shares when prices are low, and fewer shares when prices are high

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p>GOOGLE INC. $742 (Nasdaq symbol GOOG; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 328.6 million; Market cap: $243.8 billion; Price-to-sales ratio: 4.6; No dividends paid; TSINetwork Rating: Above Average; www.google.com) is the world’s top Internet search engine, with about two-thirds of this market. The company makes money by selling advertising on its websites. Google gets 96% of its revenue from advertising.

The company also offers a variety of free services such as Gmail (email), YouTube (videos) and Google+ (social networking). These services help draw more users to Google’s websites, which lets the company sell more ads and charge higher ad rates.
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JONES GROUP INC. $12(New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.0 million; Market cap: $960.0 million; Price-to-sales ratio: 0.3; Dividend yield: 1.7%; TSINetwork Rating: Average; www.jonesgroupinc.com) earned $42.9 million in the three months ended September 29, 2012. That’s up 10.0% from $39.0 million a year earlier. Earnings per share rose 18.8%, to $0.57 from $0.48, on fewer shares outstanding. That’s mainly because the company is doing a good job of cutting costs and controlling its inventories.

Sales fell 0.7%, to $1.03 billion from $1.04 billion. Jones gets half of its sales from department stores, which are seeing strong demand for the company’s shoes and jeans. However, sales at Jones’s own stores, which mainly focus on upscale brands, fell sharply as cost-conscious consumers shifted to discount retailers.

Jones Group is a hold.

NVIDIA CORP. $12 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 624.9 million; Market cap: $7.5 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.5%; TSINetwork Rating: Average; www.nvidia.com) has developed a new handheld video game system. Called the Shield, this device features a 5-inch, high-definition touch screen that plays games designed for Google’s Android mobile operating system. Users can also wirelessly stream games from their computers to the Shield.

Nvidia normally designs chips for other manufacturers, so making its own device adds risk. However, the Shield should help it profit from the growth of mobile gaming. As well, developers already make games for Android, so Nvidia can focus solely on hardware. That gives it an advantage over competitors like Sony and Nintendo, which must convince programmers to make games specifically for their systems.

Nvidia is a buy....

AGILENT TECHNOLOGIES INC. $44 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 347.9 million; Market cap: $15.3 billion; Price-to-sales ratio: 2.3; Dividend yield: 1.1%; TSINetwork Rating: Average; www. agilent.com) makes testing systems that help electronics companies improve their products. It also manufactures testing equipment for medical research labs.

Agilent recently raised its quarterly dividend by 20.0%, to $0.12 a share from $0.10. The new annual rate of $0.48 yields 1.1%. As well, the company will buy back up to $500 million of its shares in the fiscal year ending October 31, 2013. That’s equal to 3% of its market cap. These repurchases will reduce the dilution caused by shares it will issue under its employee stock option plan.

Agilent is a buy.
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C.R. BARD INC. $102 (New York symbol BCR; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 82.3 million; Market cap: $8.4 billion; Price-to-sales ratio: 2.8; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www. crbard.com) sued W.L. Gore & Associates Inc., the maker of Gore-Tex fabrics, for violating its patents in 2007.

Bard and Gore both make medical stents using a Teflon-like material called ePTFE. Lower courts have previously ruled that Bard held the rights to ePTFE. However, Gore continued to make its products using this substance.

In 2009, an Arizona court ordered Gore to pay Bard $185 million. With interest, royalties and fees, that award is now worth over $900 million, or 11% of Bard’s market cap. The U.S. Supreme Court has refused to hear Gore’s appeal. That increases the likelihood that Bard will receive at least part of this award.
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MOODY’S CORP. $54 (New York symbol MCO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 222.9 million; Market cap: $12.0 billion; Price-to-sales ratio: 4.7; Dividend yield: 1.5%; TSINetwork Rating: Average; www.moodys.com) has raised its quarterly dividend by 25.0%, to $0.20 a share from $0.16. The new annual rate of $0.80 yields 1.5%.

New regulations could force Moody’s to change the way it rates bonds and other securities. That could increase the company’s costs. However, the new rules would also apply to its competitors.

Moody’s should earn $3.25 a share in 2013, up from its likely 2012 earnings of $2.99. The stock trades at 16.6 times this year’s estimate.
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FRONTIER COMMUNICATIONS CORP. $4.55 (Nasdaq symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 998.4 million; Market cap: $4.5 billion; Price-to-sales ratio: 0.9; Dividend yield: 8.8%; TSINetwork Rating: Average; www.frontier.com) sells phone, Internet and video services to 4.9 million customers in 27 states.

In July 2010, the company purchased Verizon’s telephone businesses in 14 states. In return, Verizon shareholders received 0.24 shares of Frontier for each Verizon share they held.

In the quarter ended September 30, 2012, Frontier’s earnings jumped 228.5% to $67.0 million, or $0.07 a share. A year earlier, it earned $20.4 million, or $0.02 a share. Even if you disregard unusual items, earnings per share would have risen 40.0%. That’s partly because Frontier is selling more Internet and video services. However, it continues to lose traditional phone customers to wireless providers. That’s why its revenue fell 3.0%, to $1.25 billion from $1.3 billion.
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WINDSTREAM CORP. $9.69 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 588.1 million; Market cap: $5.7 billion; Price-to-sales ratio: 1.0; Dividend yield: 10.3%; TSINetwork Rating: Average; www.windstream.com) provides telephone and other communication services to 4.2 million clients, mainly in rural areas.

In 2006, Alltel merged its telephone business with Valor Communications, which then changed its name to Windstream. Alltel investors received 1.0339267 Windstream shares for each share they held.

In November 2011, Windstream acquired PAETEC Holding Corp., which sells telecommunication services to businesses in 46 states. Windstream issued $842 million in stock to PAETEC shareholders. It also assumed $1.6 billion of PAETEC’s debt.
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ARCHER DANIELS MIDLAND CO. $29 (New York symbol ADM; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 658.6 million; Market cap: $19.1 billion; Price-to-sales ratio: 0.2; Dividend yield: 2.4%; TSINetwork Rating: Above Average; www.adm.com) processes corn, wheat, soybeans, canola, flax seed, peanuts, cocoa and other crops into a variety of food ingredients, such as flour, oils and sweeteners. It is also the largest maker of ethanol from corn in the U.S.

In its fiscal 2013 first quarter, which ended September 30, 2012, the company earned $182 million, or $0.28 a share. That’s down 60.4% from $460 million, or $0.68 a share, a year earlier. Lower profits from its ethanol business offset higher earnings from its oilseeds operations. Revenue fell 0.4%, to $21.8 billion from $21.9 billion.

The latest earnings included a $146-million writedown of its investment in a Mexican maker of corn flour and tortillas. Without this charge and other unusual items, the company would have earned $0.50 a share in the latest quarter, down 13.8% from $0.58 a year earlier.
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WELLS FARGO & CO. $35 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.3 billion; Market cap: $185.5 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.5%; TSINetwork Rating: Average; www.wellsfargo.com) earned a record $18.9 billion, or $3.36 a share, in 2012. That’s up 19.1% from $15.9 billion, or $2.82 a share, in 2011.

The bank continues to do a good job of adjusting the terms of troubled loans it acquired when it bought rival banking firm Wachovia in 2008. In 2012, it set aside $7.2 billion to cover bad loans, down 8.6% from $7.9 billion in 2011.

Revenue rose 6.4%, to $86.1 billion from $80.9 billion. Low interest rates continue to encourage businesses and consumers to take out loans. The wealth management division is also attracting more clients. However, the bank is paying out higher interest rates to attract more depositors. That’s hurting its profitability.
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EBAY INC. $53 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.3 billion; Market cap: $68.9 billion; Priceto- sales ratio: 4.9; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) gets 53% of its revenue by charging users fees to sell goods on its shopping websites, including its main auction site, which it launched in September 1995. This site now has 112.3 million users.

eBay gets a further 40% of its revenue from processing online transactions, mostly through its wholly owned PayPal subsidiary. This business now has 122.7 million users and connects to over 15,000 financial institutions.

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AMERICAN EXPRESS CO. $59 (New York symbol AXP, Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.1 billion; Market cap: $64.9 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.4%; TSINetwork Rating: Average; www. americanexpress.com) gets most of its revenue from the fees it charges merchants who accept its American Express charge and credit cards. Unlike Visa (see page 13), Amex is also a lender. As a result, it earns interest on its cardholders’ outstanding balances, and writes off bad loans. In addition, the company operates a travel business.

On average, the company’s cardholders spent 5.6% more in 2012 than in 2011. However, demand for Amex’s travel services is falling because businesses are conducting more meetings online.

In response to the drop in corporate travel, the company is restructuring its travel division, including cutting the number of travel agents it employs and making it easier for clients to book trips and hotels online. These moves will cut its workforce by 9% and cost $287 million (after tax).
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VISA INC. $159 (New York symbol V; Conservative Growth Portfolio, Finance sector; Shares outstanding: 810.6 million; Market cap: $128.9 billion; Price-to-sales ratio: 12.4; Dividend yield: 0.8%; TSINetwork Rating: Above Average; 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 its revenue from fees it charges card issuers and merchants for using its network. These charges are based on payment volume, transactions processed and other factors.

Moreover, Visa is a financial intermediary, so it doesn’t lose money if cardholders fail to pay their bills. Instead, banks that issue Visa cards assume liability, set repayment terms and evaluate customer creditworthiness. That cuts Visa’s risk.
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INTERNATIONAL BUSINESS MACHINES CORP. $205 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $225.5 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.ibm- .com) has gained 6.8% since we named it last year’s top pick at $192 in our February 2012 issue.

Demand for the company’s software is rising. However, the slow global economy is hurting demand for its mainframe computers and computer services. As a result, IBM’s overall revenue fell 2.3% in 2012, to $104.5 billion from $106.9 billion in 2011.

The company earns higher profits on software and services than from selling computer hardware. That’s the main reason why its earnings rose 8.0% in 2012, to $17.6 billion from $16.3 billion. IBM spent $12.0 billion on share buybacks during the year. Due to fewer shares outstanding, earnings per share rose 13.5%, to $15.25 from $13.44.
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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 advice and insights on good investments. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “When you follow these 8 important steps, you are putting your financial security on a secure footing for the future.

Investors are continually deluged with promises of lifelong financial happiness, some legitimate if overly optimistic, others frankly deceptive or fraudulent. But there is no magic formula for financial security

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CGI GROUP INC. (Toronto symbol GIB.A; www.cgi.com) is Canada’s largest provider of computer outsourcing services. CGI helps its clients automate routine functions, like accounting and buying supplies. That makes them more efficient and lets them focus on their main businesses.

CGI was our #1 stock pick for 2010 and 2011. In the past few years, the company has used acquisitions to expand outside of Canada. For example, it recently paid $2.7 billion for Logica plc, a U.K.-based firm that provides computer outsourcing services in 36 countries.

Thanks to purchases like this, CGI is more geographically diversified: it now gets 47% of its revenue from the U.S., 36% from Canada and 17% from the rest of the world.

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As we have consistently pointed out to our subscribers and wealth management clients, investing can never be an exact science. Experience and judgment are just as essential as fundamental analysis in successful investing.

That’s also why a balanced temperament is so important. It can keep you on a steady course and help you avoid losses. It can also help you avoid investing strategies that narrow your chances of success.

One way to judge your own temperament for investing is to take a quick survey of investment approaches to see what works best for you.

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Pat McKeough responds to many personal questions about specific stocks and other investment topics 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 had a question from an Inner Circle member on one of the prominent Canadian stocks in the agricultural industry. This firm specializes in grain handling and other equipment and does the greater part of its business overseas, in the U.S. and countries of the former Soviet Union. The company is buying up small firms and Pat examines whether these acquisitions and today’s sophisticated farming methods provide steady growth in an industry that is traditionally cyclical and fickle. ...

From time to time, investors ask us questions to which there is not a simple yes-or-no answer. One of these is whether buying stocks “on margin” is a good idea. That is, should investors borrow money from their brokers to buy securities?

This strategy is reasonable in some circumstances, but it carries more than the usual amount of risk.

The main cost involved with buying on margin is the interest on the money you borrow. Plus, when you sell a security that you’ve bought on margin, you must first pay back the loan from your broker.

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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 advice and insights, such as how we pick our top stocks. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away. Today’s tip: “Here are 5 more ways in which our exclusive ratings system helps investors make stock selections with a much better chance of success.”...

Encana took its present form on December 1, 2009, after the old EnCana Corp. split itself into two new companies: the new Encana, which focuses on natural gas, and Cenovus Energy (Toronto symbol CVE), which specializes in oil sands.

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COMPUTER MODELLING GROUP $22.10 (Toronto symbol CMG; TSINetwork Rating: Speculative) (403-531-1300; www.cmgroup.com; Shares outstanding: 37.8 million; Market cap: $835.4 million; Dividend yield: 2.9%) sells consulting services and software that help oil and gas producers use advanced recovery techniques to get more out of their existing wells. The company has customers in over 50 countries and offices in Calgary, Houston, London, Caracas and Dubai.

In the three months ended September 30, 2012, Computer Modelling’s revenue rose 34.1%, to $16.1 million from $12.0 million a year earlier.


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