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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....

Some investors think the best way to profit in stocks is to buy them when they are just barely starting out on a growth phase they hope will last for years if not decades. Ideally, they want to buy the future top performers when they are still near or close to the penny stock range and have yet to be discovered by the broad mass of investors. And it’s true that when you buy penny stocks you could have a big payday if you make the right choice. But the odds against success are high. Penny stocks are almost always involved in riskier ventures, such as finding mineral deposits that can be mined at a profit, commercializing unproven technologies or launching new software....

Pat McKeough responds to many personal questions about stock investing 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 wanted to know about Héroux-Devtek. This Canadian company has carved out a special niche for itself in the aeronautical business. Pat balances the drawbacks of operating in a highly cyclical industry against the company’s long-term contracts with military and commercial clients. ...

Falling profits, dividend cuts and police or security commission investigations are some of the well-known signs of risk detailed in even the most basic stock market advice. But wise investors will also stay alert for more subtle signs of problems that may be threatening a company’s prosperity.
Look for these 3 hints that a company may soon be facing big trouble....

Last week, we examined Precision Drilling (Toronto symbol PD) which, in the wake of the long slump in natural gas prices, has 84% of its rigs drilling for oil (view the article here). Today we look at an oil and gas producer that has also cut back on natural gas, although it still has a third of its production in gas. ZARGON OIL & GAS (Toronto symbol ZAR; www.zargon.ca ) produces natural gas and oil in Alberta, Manitoba, Saskatchewan and North Dakota. Its production is 67% oil and 33% gas....

CENOVUS ENERGY INC. $34 (www.cenovus.com) has gained 33% since it became a separate company in December 2009. As a result, its long-term debt of $4.6 billion is now a more moderate 18% of its $25.5-billion market cap. That’s why we’ve upgraded Cenovus’s TSINetwork Rating from “Extra Risk” to “Average.” Buy.

HEWLETT-PACKARD CO. $14 (www.hp.com) recently wrote down its August 2008 purchase of Electronic Data Systems, provides computer services to large government agencies and corporations. It also wrote down its August 2011 purchase of U.K.-based Autonomy Corp., whose products help businesses organize a variety of information....

Rather than “buy and hold,” we think it’s a good idea to invest in stocks and then “buy and watch closely.” That helps answer one important question we frequently get from investors: How often should they sell investments they own and buy new ones? Our answer never varies. Do it as rarely as possible. That’s because turnover in your portfolio cuts into your profits....

CHEVRON CORP. $110 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $220.0 billion; Price-to-sales ratio: 0.9; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.chevron.com) is the second-largest integrated oil company in the U.S., after ExxonMobil Corp. (New York symbol XOM).

Chevron gets 90% of its earnings by producing oil (70% of production) and natural gas (30%). The remaining 10% comes from its refineries, petrochemical operations and its 17,800 gas stations, which operate under the Chevron, Texaco and Caltex banners.

At the end of 2011, the company’s reserves consisted of 8.5 billion barrels of oil equivalent (51% oil and 49% natural gas), plus an additional 2.7 billion barrels through joint ventures and affiliated businesses. The company produces about 1 billion barrels a year.

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INTEL CORP. $21 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.0 billion; Market cap: $105.0 billion; Price-to-sales ratio: 1.9; Dividend yield: 4.3%; TSINetwork Rating: Above Average; www.intel.com) is the world’s leading maker of computer chips. Its products power about 80% of the world’s personal computers.

Intel’s revenue fell 8.4%, from $38.4 billion in 2007 to $35.1 billion in 2009. That’s because businesses and consumers put off upgrading their computers during the recession. However, pent-up demand pushed up its revenue by 24.2%, to $43.6 billion, in 2010. In 2011, revenue rose 23.8%, to $54.0 billion.

Strong sales boosted Intel’s profits
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SYMANTEC CORP. $19 (Nasdaq symbol SYMC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 693.9 million; Market cap: $13.2 billion; Price-to-sales ratio: 1.9; No dividends paid; TSINetwork Rating: Average; www.symantec- .com) aims to take advantage of rising interest in cloud computing with a new service called Norton Zone, which lets users securely store and share photos, videos and documents on remote servers. Customers can also share their files with other users and social networks.

Combining cloud storage with Symantec’s well-known Norton Anti-Virus software should help spur sales to consumers, who supply around 30% of its overall revenue. However, sales to businesses will likely remain weak until the economy improves.

Symantec is still a hold....

DIAGEO PLC ADRs $119 (New York symbol DEO; Conservative Growth Portfolio, Consumer sector; ADRs outstanding: 627.2 million; Market cap: $74.6 billion; Price-to-sales ratio: 4.3; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.diageo.com) is buying 53.4% of United Spirits Ltd., India’s largest maker of alcoholic beverages. This business also imports and distributes drinks made by companies outside India.

Diageo will pay $2.1 billion for this stake when the deal closes in the first quarter of 2013. That’s equal to 3% of its market cap.

Expanding in fast-growing markets like India improves the company’s prospects. However, the stock has gained 40% in the past year and now trades at nearly 20 times Diageo’s earnings. That makes it vulnerable to a sudden drop if earnings growth slows.

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MCKESSON CORP. $98 (New York symbol MCK; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 236.0 million; Market cap: $23.1 billion; Price-to-sales ratio: 0.2; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www.mckesson.com) has agreed to purchase PSS World Medical Inc. (Nasdaq symbol PSSI), which distributes medical supplies to clinics and nursing homes.

The purchase will cost McKesson $2.1 billion. Combining PSS with its current surgical products distribution business should let McKesson cut its annual costs by $100 million by the end of the fourth year. To put these figures in context, McKesson earned $461 million, or $1.92 a share, in the three months ended September 30, 2012.

The company may have to sell some of its smaller businesses to win regulatory approval for this purchase, but it still aims to close the deal in early 2013.

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APACHE CORP. $80 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 391.3 million; Market cap: $31.3 billion; Price-to-sales ratio: 1.9; Dividend yield: 0.9%; TSINetwork Rating: Average; www.apachecorp.com) had to write down some of its Canadian properties by $539 million due to low natural gas prices in the quarter ended September 30, 2012. If you disregard that and other unusual items, Apache would have earned $861 million, or $2.16 a share. That’s down 25.8% from $1.2 billion, or $2.95 a share, a year earlier. Revenue declined 3.4%, to $4.2 billion from $4.3 billion. Half of Apache’s production is gas, and gas prices fell 15.3% from a year earlier. Oil prices rose 0.9%.

The company is now producing more higher-priced oil and natural gas liquids, which cuts its exposure to low gas prices. As well, it produces half of its oil and gas in international markets, where prices are generally higher than in North America.

Apache is a buy.

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YUM! BRANDS INC. $68 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 451.8 million; Market cap: $30.7 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.0%; TSINetwork Rating: Above Average; www.yum.com) has 36,087 fast-food restaurants in over 110 countries. Its main banners include KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food).

In the quarter ended September 8, 2012, Yum’s earnings rose 23.0%, to $471 million from $383 million a year earlier. The company spent $414 million on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share rose 25.0%, to $1.00 from $0.80. Without unusual items, such as losses on sales of Pizza Hut restaurants in the U.K. to franchisees, earnings per share would have risen 19.3%, to $0.99 from $0.83. Sales rose 9.0%, to $3.6 billion from $3.3 billion a year earlier.

However, Yum expects its same-store sales in China to fall 4% in the fourth quarter; China accounts for 50% of its sales and 45% of its earnings.

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MCDONALD’S CORP. $90 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.0 billion; Market cap: $90.0 billion; Price-to-sales ratio: 3.3; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.mcdonalds.com) operates 34,000 restaurants in 119 countries. Two-thirds of its sales come from outside the U.S. It serves a variety of foods, but is best known for its hamburgers and french fries.

McDonald’s continues to benefit from strong demand for its Dollar Menu, which features items like breakfast sandwiches and coffee for just $1. It is also seeing strong sales of new premium items and foods that it sells on a limited-time basis.

The company’s same-store sales rose 2.4% in November 2012. Most of these gains came from the U.S., where same-store sales increased 2.5%. Same-store sales rose 1.4% in Europe, as gains in the U.K. and Russia offset weakness in Germany. Asian same-store sales rose 0.6%, as gains in Australia offset weakness in Japan.

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WESTERN UNION CO. $14 (New York symbol WU; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 596.6 million; Market cap: $8.4 billion; Price-to-sales ratio: 1.4; Dividend yield: 3.8%; TSINetwork Rating: Above Average; www.westernunion.com) provides money-transfer and foreign-exchange services in over 200 countries.

In the three months ended September 30, 2012, the company’s earnings rose 12.4%, to $269.5 million from $239.7 million a year earlier. Western Union is an aggressive buyer of its own shares. Because of fewer shares outstanding, earnings per share rose at a faster pace of 18.4%, to $0.45 from $0.38.

If you exclude the cost of integrating the businesspayments division of U.K.-based Travelex Holdings, which Western Union bought in 2011, per-share earnings would have risen 15.0%, to $0.46 from $0.40.

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ENCANA CORP. $20 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.3 million; Market cap: $16.2 billion; Price-to-sales ratio: 2.5; Dividend yield: 3.6%; TSINetwork Rating: Average; www.encana.com) has formed a joint venture with PetroChina International Investment Company Ltd., which is controlled by the Chinese government, to develop its Duvernay property in central Alberta. This field mainly contains natural gas liquids, such as butane.

Under the terms of the deal, Encana sold a 49.9% stake in Duvernay to PetroChina for $2.2 billion (Canadian). Encana will own the remaining 50.1% and will operate the project. PetroChina has already paid Encana $1.2 billion. It will pay the remaining $1.0 billion over the next four years.

Joint ventures like this help speed up the development of promising new fields. Moreover, as PetroChina is buying only a minority interest in this project, the deal complies with the federal government’s new foreign investment guidelines. Ottawa brought in these new rules in response to the takeover of oil-sands operator Nexen Inc. by another state-owned Chinese oil company.

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