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TRANSCANADA CORP. $45.12 (Toronto symbol TRP; Shares outstanding: 705.0 million; Market cap: $31.8 billion; TSINetwork Rating: Above Average; Dividend yield: 3.9%; www.transcanada.com) operates 68,500 kilometres of natural gas pipelines in Canada and the U.S. It also has interests in over 10,800 megawatts of power generation, including the Bruce Power nuclear plant.

In the three months ended September 30, 2012, TransCanada’s evenue rose 4.1%, to $2.1 billion from $2.0 billion a year earlier. Earnings per share fell 15.3%, to $0.50 from $0.59. The decline was mostly due to the shutdown of two reactors, Bruce Power Units 1 and 2, for maintenance. Both have now resumed normal operations.

The company has completed $13 billion of projects since 2010. It now aims to finish a further $10 billion worth by 2015, including not just Keystone XL but also the $2.3-billion Gulf Coast pipeline, which will pump oil from Cushing, Oklahoma, to Houston, Texas, starting next year. TransCanada has another $9 billion of projects planned for after 2015.

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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, one Inner Circle member asked about one of the Canadian copper stocks operating in South America. This firm is developing a large copper, gold and silver project. But it’s in Peru, so Pat takes a close look at the additional political risk that faces mining stocks in that country....

A good way to diversify your Finance holdings is to look beyond the banks to firms that are leaders in their niche markets. Stocks with well-established brands should be able to keep fuelling their growth, which in turn will give them more cash for dividends. One well-known brand is a stock we cover in our advisory on U.S. investments, Wall Street Stock Forecaster. T. ROWE PRICE GROUP INC. (Nasdaq symbol TROW; www.troweprice.com) sells mutual funds and wealth management services....

SUNCOR ENERGY INC. $33 (www.suncor.com) produced an average of 330,000 barrels of oil per day at its oil sands projects in October 2012. That’s up 10.0% from 300,000 barrels in September. The increase is mainly because Suncor shut down one of its upgrading facilities for maintenance
in September. Buy.

LOBLAW COMPANIES LTD. $34 (www.loblaw.ca) started selling its popular Joe Fresh brand clothing and accessories in its supermarkets in 2006. Thanks to the label’s success, the company plans to open stand-alone Joe Fresh stores in Ottawa and Victoria, B.C., in early 2013....

MOLSON COORS CANADA INC. $42 (www.molsoncoors.com) earned $248.9 million in the three months ended September 30, 2012, up 17.2% from $212.4 million a year earlier (all amounts except share price in U.S. dollars). Earnings per share rose 20.2%, to $1.37 from $1.14, on fewer shares outstanding....

FINNING INTERNATIONAL INC. $23 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.9 million; Market cap: $4.0 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.4%; TSINetwork Rating: Above Average; www.finning.com) is the world’s largest seller of heavy equipment, such as tractors, bulldozers and trucks, made byCaterpillar Inc. (New York symbol CAT). It sells these products to customers in the mining, forest products and construction industries in western Canada (53% of total revenue), South America (33%) and the U.K. (14%).

Finning also rents and fixes equipment. These services—which are more profitable than selling this gear—now supply half of the company’s sales.

Rising resource prices boosted results

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TECK RESOURCES LTD. $34 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 586.0 million; Market cap: $19.9 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.6%; TSINetwork Rating: Average; www.teck.com) produced 6.3 million tonnes of metallurgical coal in the third quarter of 2012, up 6.2% from 6.0 million tonnes a year earlier. Copper production jumped 28.6%, to 99,000 tonnes from 77,000, thanks to Teck’s recent expansion projects.

However, slowing growth in China and India cut coal prices by 32.5% from a year earlier. Copper prices fell 14.0%. That’s why Teck’s earnings declined 53.0% in the quarter, to $349 million or $0.60 a share. A year earlier, it earned $742 million, or $1.26. Cash flow per share fell 42.7%, to $1.26 from $2.20. Revenue declined 25.9%, to $2.5 billion from $3.4 billion.

The company will probably lower its production in response to the weaker demand. It also aims to cut $200 million from its annual costs, mainly by making its rail shipments more efficient.

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CENOVUS ENERGY INC. $33 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 755.8 million; Market cap: $24.9 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.7%; TSINetwork Rating: Extra Risk; www.cenovus.com) planned to drill up to 1,275 new natural gas wells on land belonging to Canadian Forces Base Suffield in southern Alberta. However, regulators have blocked this plan, as the area is now a national wildlife reserve.

This is a minor setback for Cenovus. The company still has 1,145 gas wells on this property, which it drilled before the area became a reserve.

Cenovus is a buy.

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SAPUTO INC. $49 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 197.0 million; Market cap: $9.7 billion; Priceto- sales ratio: 1.4; Dividend yield: 1.7%; TSINetwork Rating: Average; www.saputo.com) is Canada’s largest producer of dairy products, including milk, butter and cheese. It also makes snack cakes and tarts. The company operates in the U.S., Argentina and Europe.

Saputo will repurchase up to 1.2 million of its shares from a private seller at a discount to the market price. It aims to complete this purchase in December 2012.

This move is part of Saputo’s plan to buy back up to 9.85 million of its common shares, or roughly 5% of the total outstanding, by November 14, 2013. Buybacks raise earnings per share and other per-share calculations, and give the remaining shareholders a larger stake in the company.

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CANADA BREAD CO. LTD. $50 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1.3 billion; Price-to-sales ratio: 0.8; Dividend yield: 4.0%; TSINetwork Rating: Above Average; www.canadabread.ca) reported that its sales fell 3.8% in the three months ended September 30, 2012, to $401.5 million from $417.2 million a year earlier. That’s partly because the company recently closed an unprofitable U.K. plant that made frozen products. Sales of fresh baked goods also declined during the quarter.

If you exclude an unusual tax gain and costs related to the plant closure, earnings per share would have risen 11.6% to $0.96 from $0.86. Higher profits on frozen foods and gains from hedging contracts on raw materials offset lower earnings from pasta products.

Canada Bread is still a hold.

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BOMBARDIER INC. (Toronto symbols BBD.A $3.43 and BBD.B $3.28; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $6.4 billion; Price-to-sales ratio: 0.3; Dividend yield: 3.0%; TSINetwork Rating: Average; www.bombardier.com) has received a firm order for 56 of its Global business jets from Switzerland-based VistaJet. This deal is worth $3.1 billion (all amounts except share price and market cap in U.S. dollars). If VistaJet exercises all of its options, the order would rise by 86 planes, for a total value of $7.8 billion. That’s equal to 43% of Bombardier’s 2011 revenue of $18.3 billion. The company will begin delivering these planes in 2014.

The subordinate-voting class B shares are the better choice because of their slightly better liquidity and higher dividend yield.

Bombardier B stock is a buy.

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NORDION INC. $6.58 (Toronto symbol NDN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 62.0 million; Market cap: $408.0 million; Price-to-sales ratio: 1.8; No dividends paid since July 2012; TSINetwork Rating: Extra Risk; www.nordion.com) gets 40% of its revenue from selling isotopes for medical research and cancer treatments. Most of its isotopes come from Atomic Energy of Canada Ltd.’s aging Chalk River nuclear reactor near Ottawa, which will close in 2016.

The company recently lost its arbitration case against Atomic Energy over a failed plan to build two new reactors that would have replaced Chalk River. As a result, Nordion may now have to pay all or some of Atomic Energy’s $46 million in legal costs. At July 31, 2012, Nordion held cash of $81.9 million U.S., or $1.32 U.S. a share. Its long-term debt was $40.3 million U.S.

Nordion has also cancelled its deal to buy isotopes from its current supplier in Russia. It now plans to buy them from that country’s Research Institute of Atomic Reactors (RIAR). Nordion feels RIAR will be more reliable. However, it still needs to find more suppliers before Chalk River closes.

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RESEARCH IN MOTION LTD. $12 (Toronto symbol RIM; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 516.4 million; Market cap: $6.2 billion; Price-to-sales ratio: 0.4; No dividends paid; TSINetwork Rating: Above Average; www.rim.com) has gained over 96% since it fell to $6.10 on September 24, 2012.

That’s mainly because the company confirmed it will launch smartphones that use its new BlackBerry 10 software on January 30, 2013. These devices will help RIM compete with Apple’s (Nasdaq symbol AAPL) iPhone and phones powered by Google’s (Nasdaq symbol GOOG) Android software. The U.S. government has also approved BlackBerry 10 software for use by its agencies. This will help RIM hang on to its current government clients.

However, slowing demand for RIM’s current phones continues to hurt its earnings. In its fiscal 2013 second quarter, which ended September 1, 2012, RIM lost $0.27 a share (all amounts except share price and market cap in U.S. dollars). A year earlier, it earned $0.63 a share.

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PRECISION DRILLING CORP. $7.48 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 276.3 million; Market cap: $2.1 billion; Price-to-sales ratio: 1.0; No dividends paid since February 2009; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract-drilling services to land-based oil and gas producers, mainly in North America. It had 363 rigs in service as of September 30, 2012.

The company is slowly expanding its international operations: it now has a total of eight rigs in Mexico and Saudi Arabia. Precision’s overseas business now accounts for 5% of its revenue, up from just 1% a year ago.

In the three months ended September 30, 2012, the company’s earnings fell 52.8%, to $39.4 million, or $0.14 a share. A year earlier, it earned $83.5 million, or $0.29 a share.

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ENBRIDGE INC. $40 (Toronto symbol ENB; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 799.9 million; Market cap: $32.0 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.enbridge.com) wants to reverse the flow of its oil pipeline in southern Ontario, which would let it pump oil to Montreal. The company also aims to increase the line’s capacity by 25%. Regulators must still approve this plan.

Reversing the flow will make it easier to pump oil from western Canada to refineries in Ontario and Quebec. Shipping more oil to eastern refineries will also improve Enbridge’s long-term prospects if regulators reject its proposed Northern Gateway pipeline, which would pump oil from Alberta to Kitimat, B.C.

Enbridge is a buy.

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TELUS CORP. (Toronto symbols T $65 and T.A $65; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 325.8 million; Market cap: $21.2 billion; Price-to-sales ratio: 2.0; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www.telus.com) recently received shareholder approval for its plan to convert its 151 million non-voting class A shares into regular common shares (one vote per share) on a one-for-one basis. The B.C. Supreme Court must still approve this move, probably in early 2013.

Telus also reported that non-Canadian investors now own about 15% of its common shares, down from 33% six months ago. It’s likely that U.S.-based hedge fund Mason Capital, which opposes the conversion plan, has cut its 18.7% stake. This drop also makes it easier for Telus to attract more non-Canadian investors without violating Ottawa’s foreign ownership limits on phone companies.

Even though they receive identical dividends and have similar liquidity, the non-voting shares are usually cheaper than the common shares.

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DUNDEE CORP. $26 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 54.2 million; Market cap: $1.4 billion; Price-to-sales ratio: 2.2; No dividends paid; TSINetwork Rating: Average; www.dundeecorp.com) is a holding company with investments in wealth management, real estate, resources and agriculture.

In the quarter ended September 30, 2012, Dundee lost $2.2 million, or $0.19 a share. A year earlier, it earned $91.7 million, or $1.29, mainly due to a $95.6-million gain on the sale of a resources investment. Land sales caused revenue to jump 25.7%, to $173.5 million from $138.0 million.

Dundee is riskier than Great-West, IGM and Home Capital. That’s because sales of individual investments can have a big impact on its earnings. As well, the Goodman family controls 87.4% of the company’s votes through multiple-voting shares.

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HOME CAPITAL GROUP INC. $56 (Toronto symbol HCG; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 34.7 million; Market cap; $1.9 billion; Price-to-sales ratio: 2.2; Dividend yield: 1.9%; TSINetwork Rating: Average; www.homecapital.com) is a mortgage lender that serves borrowers who don’t meet the stricter standards of larger, traditional lenders, like banks.

Even though Home Capital caters to riskier borrowers, it avoids huge credit losses by identifying problem loans early. It then uses this information to restructure a borrower’s repayment terms and adjust its lending policies.

In the three months ended September 30, 2012, Home Capital’s earnings rose 18.3%, to a record $57.3 million, or $1.65 a share. A year earlier, the company earned $48.4 million, or $1.39 a share.

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IGM FINANCIAL INC. $40 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 252.6 million; Market cap: $10.1 billion; Price-to-sales ratio: 3.9; Dividend yield: 5.4%; TSINetwork Rating: Above Average; www.igmfinancial.com) is Canada’s largest independent mutual fund company, with $119.3 billion of assets under management. Power Financial owns 58.4% of IGM.

To help spur its sales and compete with other fund companies, IGM recently cut the management fees on most of the mutual funds it sells through its Investors Group subsidiary. It is also changing the way it pays its salespeople. This will result in savings that will help offset the lower fee income.

In the meantime, the reduced fees pushed down IGM’s earnings by 12.3% in the three months ended September 30, 2012, to $186.9 million. A year earlier, it earned $213.0 million. Earnings per share fell 11.0%, to $0.73 from $0.82, on fewer shares outstanding. Revenue declined 5.9%, to $634.0 million from $673.8 million.

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CANADIAN PACIFIC RAILWAY LTD. $97 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 173.0 million; Market cap: $16.8 billion; Price-to-sales ratio: 3.0; Dividend yield: 1.4%; TSINetwork Rating: Above Average; www.cpr.ca) plans to cut 25% of its workforce as part of a major restructuring plan aimed at improving its efficiency. CP is also increasing the length and speed of its trains. The plan should cut CP’s operating ratio from 74.1% in the third quarter of 2012 to 65% in 2016. (Operating ratio is calculated by dividing regular operating costs by revenue—the lower, the better.)

In addition, CP has suspended its plan to build new rail lines that would have served coal mines in Montana and Wyoming. That’s because power plants are switching to cheaper natural gas, which has hurt demand for coal. As a result, CP will take a $180-million charge. That’s equal to 80% of the $224 million, or $1.30 a share, that it earned in the third quarter.

CP Rail was our #1 buy for 2012. It’s still a buy.

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ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $77 and ACO.Y [class II voting] $77; Income Portfolio, Utilities sector; Shares outstanding: 57.5 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.atco.com) gets two-thirds of its earnings from its 52.8% stake in Canadian Utilities (see page 1).

Most of the remainder comes from ATCO Structures & Logistics, which builds temporary buildings for construction companies and energy exploration firms. ATCO owns 75.5% of this business, while Canadian Utilities owns 24.5%. Another subsidiary, ATCO I-Tek, manages computer networks, billing and payment processing for a wide variety of businesses.

ATCO’s revenue rose 12.5%, from $2.9 billion in 2007 to $3.3 billion in 2008, but fell 4.8%, to $3.1 billion, in 2009. Revenue improved to $3.5 billion in 2010, and to $4.0 billion in 2011.

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CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $68 and CU.X [class B voting] $68; Income Portfolio, Utilities sector; Shares outstanding: 128.1 million; Market cap: $8.7 billion; Price-to-sales ratio: 2.7; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.canadianutilities.com) distributes electricity and natural gas in Alberta. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. (see page 2) owns 52.8% of Canadian Utilities.

The company’s power plants supply around 60% of its earnings, followed by gas distribution (30%) and other businesses (10%). It gets 90% of its earnings from Canada.

Canadian Utilities’ revenue rose 15.6%, from $2.4 billion in 2007 to $2.8 billion in 2008. However, lower power rates for its unregulated plants in Alberta cut its revenue by 7.0%, to $2.6 billion, in 2009. Revenue rebounded by 4.5% in 2010, to $2.7 billion, after it started up a new power plant in Australia.

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TORONTO-DOMINION BANK $81 (www.td.com) owns 45% of TD Ameritrade Holding Corp. (Nasdaq symbol AMTD), a leading U.S. online broker. Ameritrade will contribute $51 million to TD’s earnings in its 2012 fourth quarter, which ends October 31, 2012....

With 2012 drawing to a close, 2013 about to begin and a good deal of uncertainty still hanging over the markets, it seems like an ideal time to take a look at “The 7 Wonders of the Investment World.”


Understanding how these 7 wonders work in relation to your investments will go a long way toward enhancing your long-term results and meeting your financial goals.

• Compound interest — earning interest on interest — can have an enormous ballooning effect on the value of an investment over the long term, and lift the overall returns on your portfolio.

This applies to equity investments like stocks, as well as to fixed-return, interest-paying investments like bonds....