Search

There is a history of Canadian consumer stocks trying, and failing, to establish a presence in the United States. But there are several outstanding success stories, such as Alimentation Couche-Tard (Toronto symbol ATD.B) our #1 Stock for 2012, which has profited extensively from its convenience stores and gas bars in the U.S. A new partnership initiative in the U.S. by Reitmans is on a more modest scale than Couche-Tard’s operations, but the women’s wear retailer is looking for a welcome boost in sales. REITMANS (CANADA) LTD. (Toronto symbol RET.A; www.reitmans.com) owns 925 women’s clothing stores across Canada. The chain consists of 364 Reitmans, 154 Penningtons, 153 Smart Set, 114 Addition Elle, 74 Thyme Maternity and 66 RW & Co. stores....

Vale SA is one of the world’s largest iron ore producers. The company gets about 59% of its revenue from iron ore. The rest comes from base metals, coal and fertilizer.

When we go through the many comments we receive from TSI Network readers, the subject that seems to come up most often is dividend stocks. That’s not surprising, perhaps, since the first principle in our 3-part investment strategy is to mainly buy well-established, dividend-paying stocks. Another subject that draws many questions and strong opinions from our readers is retirement planning. And the idea of planning your retirement around dividends is one that appeals to many investors. When Pat replied to a specific question on this strategy two and a half months ago, it became the most watched of the weekly videos he has posted on the network over the past four months. It seems like a good time to have another look at this video, particularly because Pat’s answer holds a word of caution for investors: simply buying and holding dividend stocks may not be quite enough to accomplish your goals....

Many young people begin investing with the mistaken notion that a single big idea can make them rich. For some, the big idea is stumbling upon an investment that provides a 1,000-to-1 return. For others, it’s a technique that provides sure-fire investment decisions, or an investing course or guru that promises instant riches. If you ask investors who have a few decades of successful investing behind them, however, few if any will credit their success to any one investment or investing technique. Instead, most will talk about the value of everyday qualities like patience, consistency and a healthy sense of skepticism—in short, the kind of qualities that bring success in all aspects of life, not just investing....

AMERICAN EXPRESS CO. $56 (New York symbol AXP, Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.1 billion; Market cap: $61.6 billion; Price-to-sales ratio: 1.9; Dividend yield: 1.4%; TSINetwork Rating: Average; www.americanexpress.com) is best known for its American Express charge and credit cards. It also sells travel-related services, such as hotel bookings, insurance and traveller’s cheques.

Amex gets most of its revenue from the fees it charges merchants who accept its cards. It also earns interest on the outstanding balances of its cardholders. Being a lender adds to its risk, particularly if cardholders fall behind on their payments and Amex has to write off these loans.

However, Amex clients tend to have above-average incomes and good credit histories. The company has also tightened its lending policies in the past few years.

...

GENERAL ELECTRIC CO. $20 (New York symbol GE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.6 billion; Market cap: $212.0 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.ge.com) plans to split its energy-products division into three new businesses: GE Power and Water (turbines, generators); GE Oil and Gas (products for onshore and offshore energy producers); and GE Energy Management (power-transmission equipment).

This reorganization should make it easier for these new divisions to take advantage of new opportunities. It should also save GE $200 million to $300 million by 2014.

To put these savings in context, GE earned $4.0 billion in the three months ended June 30, 2012. That’s up 6.9% from $3.75 billion a year earlier. Earnings per share rose 11.8%, to $0.38 from $0.34, on fewer shares outstanding. Revenue rose 2.5%, to $36.5 billion from $35.6 billion.

...

CEDAR FAIR L.P. $32 (New York symbol FUN; Income Portfolio, Consumer sector; Units outstanding: 55.5 million; Market cap: $1.8 billion; Price-to-sales ratio: 1.7; Dividend yield: 5.0%; TSINetwork Rating: Average; www.cedarfair.com) reported revenue of $456 million from the beginning of the year through the July 4th holiday weekend. That’s up 4.6%, from the same period in 2011.

New rides and attractions are helping Cedar Fair draw more visitors to its 11 amusement parks and seven water parks. Overall attendance rose 2%, while average spending per guest gained 4%. Revenue at its five hotels also rose 2%.

Cedar Fair is a buy.

...

MACY’S INC. $35 (New York symbol M, Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 413.2 million; Market cap: $14.6 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.3%; TSINetwork Rating: Average; www.macysinc.com) reported lower-than-expected sales at its 840 department stores for June 2012.

During the month, same-store sales rose 1.2% from June 2011. That missed the consensus estimate of a 1.9% increase. The weaker U.S. economy has hurt consumer spending. As well, renovations have cut sales at its flagship store in New York City.

However, the company’s websites continue to grow strongly: online sales jumped 31.8% in June 2012. Moreover, Macy’s still expects its same-store sales to rise 3.7% for its full fiscal year, which ends January 31, 2013.

...

CINTAS CORP. $38 (Nasdaq symbol CTAS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 126.5 million; Market cap: $4.8 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.4%; TSINetwork Rating: Average; www.cintas.com) earned $297.6 million in its 2012 fiscal year, which ended May 31, 2012. That’s up 20.5% from $247.0 million in 2011. Earnings per share jumped 35.1%, to $2.27 from $1.68, on fewer shares outstanding.

Revenue rose 7.7% in 2012, to a record $4.1 billion from $3.8 billion. If you exclude contributions from acquisitions, revenue still rose 6.1%.

The company continues to see rising demand for the uniforms and services, such as document shredding, that it sells to businesses. It is also doing a good job of controlling its costs.

...

INTEL CORP. $25 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.0 billion; Market cap: $125.0 billion; Price-to-sales ratio: 2.3; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.intel.com) saw its revenue rise 3.6% in the three months ended June 30, 2012, to $13.5 billion from $13.0 billion a year earlier. However, earnings fell 5.0%, to $3.0 billion from $3.1 billion. Earnings per share were unchanged at $0.57, due to fewer shares outstanding.

The company continues to invest heavily in new plants and chipmaking technology. That has hurt its earnings, but these investments will help Intel sell more chips to makers of tablet computers and other mobile devices. Intel’s advanced technologies will also give it an edge over other chipmakers.

Intel is a buy.

...

HONDA MOTOR CO. LTD. ADRs $30 (New York symbol HMC; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.8 billion; Market cap: $54.0 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.honda.com) is Japan’s second-largest carmaker and the world’s biggest motorcycle manufacturer.

Honda’s car sales fell 10.7% in fiscal 2012, which ended March 31, 2012, to 3.1 million vehicles from 3.5 million in 2011. However, motorcycle volumes rose 9.7%, to 12.6 million from 11.4 million.

The lower car volumes pushed down revenue by 9.8%, to $96.9 billion from $107.4 billion. As well, earnings fell 59.8%, to $2.6 billion, or $1.49 per ADR (each American Depositary Receipt represents one Honda common share). Honda earned $6.4 billion, or $3.55 per ADR, in 2011.

...

TOYOTA MOTOR CO. ADRs $73 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.7 billion; Market cap: $124.1 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.toyota.com) recently passed General Motors as the world’s largest carmaker based on sales.

Toyota sold 7.35 million vehicles in its 2012 fiscal year, which ended March 31, 2012. That’s up 0.6% from 7.31 million vehicles in 2011. The higher sales pushed up its revenue by 3.5%, to $236.4 billion from $228.4 billion. Earnings rose 19.6%, to $3.5 billion from $3.0 billion. Because of more shares outstanding, earnings per ADR rose at a slower pace of 12.2%, to $2.12 from $1.89. (Each American Depositary Receipt represents two Toyota common shares.)

Toyota is launching new versions of its popular models. That should push up its sales to 8.7 million vehicles in fiscal 2013.

...

IDEXX LABORATORIES INC. $88 (Nasdaq symbol IDXX; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 56.9 million; Market cap: $5.0 billion; Price-to-sales ratio: 3.9; No dividends paid; TSINetwork Rating: Average; www.idexx.com) gets 80% of its revenue by making equipment that veterinarians use to detect diseases in pets.

The company also makes systems that detect contaminants in livestock and water (20% of revenue). It sells its products in over 100 countries.

In the three months ended June 30, 2012, Idexx earned $51.3 million. That’s up 5.5% from $48.7 million a year earlier. The company spent $27.4 million on share repurchases in the latest quarter. Due to fewer shares outstanding, earnings per share rose 9.6%, to $0.91 from $0.83. Revenue rose 5.6%, to $335.6 million from $317.9 million.

...

J.P. MORGAN CHASE & CO. $35 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.8 billion; Market cap: $133.0 billion; Price-to-sales ratio: 1.4; Dividend yield: 3.4%; TSINetwork Rating: Average; www.jpmorganchase.com) now says it lost $4.4 billion in the second quarter on hedging contracts that it uses to cut the risk on corporate bonds. Its original estimate was a $2-billion loss.

Even with the bigger loss, Morgan earned $5.0 billion in the three months ended June 30, 2012, down 8.7% from $5.4 billion a year earlier. Earnings per share fell 4.7%, to $1.21 from $1.27, on fewer shares outstanding. Morgan continues to benefit as more borrowers repay their loans on time: it set aside $214 million to cover bad loans in the quarter, down 88.2% from $1.8 billion a year ago.

J.P. Morgan Chase is still a hold.

...

PROCTER & GAMBLE CO. $64 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.7 billion; Market cap: $172.8 billion; Price-to-sales ratio: 2.1; Dividend yield: 3.5%; TSINetwork Rating: Above Average; www.pg.com) rose 5% after activist investment firm Pershing Square Capital Management announced that it now owns around 1% of Procter’s shares.

Pershing Square has a long history of making undervalued companies more profitable. It often does this by encouraging management to sell real estate or underperforming divisions.

Rising fuel and raw-material costs have hurt Procter’s profit margins. In response, the company recently announced a major restructuring plan, including cutting jobs and spending less on advertising. Pershing Square’s involvement should continue to spur the stock.

...

TIM HORTONS INC. $52 (New York symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 155.8 million; Market cap: $8.1 billion; Price-to-sales ratio: 2.8; Dividend yield: 1.3%; TSINetwork Rating: Average; www.timhortons.com) operates 3,315 coffee-and-donut stores in Canada, 721 in the U.S. and six in the Middle East. Franchisees operate 99.4% of these outlets.

The company continues to expand its menu. For example, it now sells ice cream in 135 of its stores in Canada and 93 in the U.S., thanks to an agreement with U.S.-based Cold Stone Creamery. Tim Hortons outlets get most of their traffic in the morning, so selling ice cream helps attract more customers in the afternoon and evening.

The company is also introducing its own new products, like soups and panini sandwiches. That’s helping it compete with larger chains. Tim Hortons now feels it can overtake McDonald’s as Canada’s leading seller of fast-food lunches in the next five years.

...

YUM! BRANDS INC. $64 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 458.0 million; Market cap: $29.3 billion; Price-to-sales ratio: 2.2; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.yum.com) operates 35,822 fast-food restaurants in over 120 countries. Its main banners include KFC, Pizza Hut and Taco Bell.

The company now gets 49% of its sales and 38% of its earnings from its 5,251 outlets in China. It was the first fast-food chain to enter China, in 1987, and is now a leader in that country. Yum plans to open 700 more restaurants in China in 2012.

Yum aims to repeat this success in India, where it now has 479 outlets and plans to open 100 more by the end of 2012. Yum’s India division now accounts for less than 1% of its overall sales and earnings.

...

MCDONALD’S CORP. $88 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.0 billion; Market cap: $88.0 billion; Price-to-sales ratio: 3.3; Dividend yield: 3.2%; TSINetwork Rating: Above Average) is the world’s largest fast-food company by sales. Its 33,735 restaurants in 119 countries serve a wide variety of foods, but they are best known for their hamburgers and french fries.

The stock is down 12% since the start of 2012, mainly due to concerns about the company’s exposure to the slowing European economy.

Europe accounts for 42% of McDonald’s sales and 38% of its earnings. The company’s other divisions include the U.S. (34% of sales, 45% of earnings), and Asia (24%, 17%).

...

EBAY INC. $43 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.3 billion; Market cap: $55.9 billion; Price-to-sales ratio: 4.3; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) gets half of its revenue from its auction websites, which now have 104.8 million users.

The company gets a further 40% from processing online payments through its PayPal service. This business has huge potential, particularly as it expands to retail stores and handling payments from smartphones.

The remaining 10% comes from GSI Commerce Inc., which helps businesses process orders from their websites. eBay paid $2.4 billion for GSI in June 2011.

...

AT&T INC. $35 (New York symbol T; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 5.8 billion; Market cap: $203.0 billion; Price-to-sales ratio: 1.6; Dividend yield: 5.0%; TSINetwork Rating: Average; www.att.com) has 105.2 million wireless subscribers across the U.S. That makes it the country’s second-largest wireless-service provider, after Verizon Wireless. AT&T gets 52% of its revenue and 70% of its earnings from its wireless business.

The wireline division supplies most of the company’s remaining revenue and earnings. This business sells land line services, TV packages and high-speed Internet access to 40.2 million customers.

AT&T’s revenue rose 3.5%, from $119.8 billion in 2007 to $124.0 billion in 2008. Revenue fell 0.8% in 2009, to $123.0 billion, due to weaker demand for traditional phone services. Revenue rebounded to $124.4 billion in 2010, and to $126.7 billion in 2011.

...

ENCANA CORP. (Toronto symbol ECA; www.encana.com) is one of North America’s largest natural gas producers. Its reserves should last over 11 years. The company 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 projects, oil refineries and conventional natural gas....

Pat McKeough responds to many personal questions on 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. Our Inner Circle Q&A frequently features questions on tech stocks. This past week, one Inner Circle member asked about a tech stock that has recently had a surge in its share price. Its unique software for submarine networks has helped this stock rise and Pat assesses whether it can sustain its momentum. ...

This is the latest in a series of video interviews in which Pat McKeough will give his advice on a variety of topics. Some will deal with his overall investment philosophy, others on specific investment strategies, and still others will be comments on events that are affecting the markets and the economy. This time, Pat discusses the fact that in his role as investment counsellor, he learns a good deal from his portfolio management clients, Inner Circle members and readers. Successful investors spend a lot of time learning about investments, he adds, and you never know how much you might learn when you start commenting and replying to other investors’ comments.
Investment Counsellor: The Value of Your Comments...

Today’s market volatility and economic uncertainty around the globe is making some investors wonder how much cash they should hold. My investment advice is to look at the longer term and not just at current conditions, or at today’s headlines. Remember, much of what we read today remains speculation....

We think conservative investors could hold up to, say, 10% of their portfolios in foreign stocks. One way to do that is to buy carefully chosen exchange traded funds (ETFs) that have an overseas focus. ISHARES MSCI SOUTH KOREA INDEX FUND (New York Exchange symbol EWY; buy or sell through brokers), is an exchange traded fund that aims to track the MSCI Korea Index....