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IBM $208 (New York symbol IBM; Shares outstanding: 1.2 billion; Market cap: $249.6 billion; TSINetwork Rating: Above Average; Dividend yield: 1.6%) is the world’s oldest computer company (it began operating in 1911), with operations in over 170 countries.

In the three months ended March 31, 2012, IBM earned $3.1 billion. That’s up 7.1% from $2.9 billion a year earlier. The company spent $3.0 billion on share buybacks in the latest quarter, and $15 billion in 2011. Due to fewer shares outstanding, earnings per share rose 13.0%, to $2.61 from $2.31.

Revenue rose 0.3%, to $24.7 billion from $24.6 billion. Computer hardware sales fell 6.7%, but that was offset by higher sales of software (up 5.5%) and computer services (up 0.7%).

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Tip of the week: There are a few good reasons to pay a little extra money for the right class of shares in the stocks you buy.

American Depositary Receipts make foreign investing easier and safer for individual investors. The foreign company must provide detailed financial information to U.S. regulators and to the sponsor, or depositary, bank or broker. As well, since ADRs trade on U.S. stock exchanges in U.S. dollars, you don’t have to worry about currency exchange rates, foreign stock exchange rules, or language barriers. Today we highlight one of the world’s most prominent commodity stocks, an ADR with its home base in Australia, and one that made headlines in Canada when its attempted takeover of Potash Corp. of Saskatchewan (Toronto symbol POT) was blocked by Ottawa in 2010....

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. This past week, one Inner Circle member asked about dividend stocks—specifically, about a pipeline firm that is one of Canada’s remaining income funds. The company has just made a major overseas acquisition and Pat assesses the potential risk and rewards. ...

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, he discusses one of the most venerable of Canadian stocks. A reader asked about CP Rail, Pat’s #1 Stock Pick for 2012, and all of the media attention it’s receiving. Shouldn’t we avoid stocks in the limelight? Not in this case, says Pat, and he explains why.
The Real News About CP Rail...

BANK OF MONTREAL $56 (www.bmo.com) has opened an office in Abu Dhabi. This will help it take advantage of rising demand for wealth management services in the United Arab Emirates. Buy.

BANK OF NOVA SCOTIA $53 (www.scotiabank.com) will get $93 million in earnings from Scotiabank Mexico, its Mexican subsidiary, in its current quarter. That’s small next to the $1.3 billion, or $1.20 a share, that Bank of Nova Scotia earned in the quarter ended January 31, 2012....

BELL ALIANT INC. $26 (www.aliant.ca) earned $0.45 a share in the three months ended March 31, 2012. That’s up 2.3% from $0.44 a year earlier. Revenue was unchanged at $682.0 million. Strong demand for high-speed Internet and TV services offset lower local and long distance revenue. Buy.

AGRIUM INC. $83 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 158.0 million; Market cap: $13.1 billion; Price-to-sales ratio: 0.8; Dividend yield: 0.5%; TSINetwork Rating: Average; www.agrium.com) makes fertilizers from natural gas. It sells its products to farmers and industrial users through its more than 1,200 stores in North America, South America and Australia. The company’s retail outlets help shield it from volatile fertilizer prices.

Agrium continues to add more stores. It recently agreed to pay $1.65 billion (all amounts except share price and market cap in U.S. dollars) for 230 outlets in western Canada operated by Viterra Inc. It will also purchase Viterra’s 17 stores in Australia, plus its 34% stake in a fertilizer plant in Alberta. Agrium will buy these businesses from Glencore International plc, which is now in the process of taking over Viterra.

Previous acquisitions boosted results

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PENGROWTH ENERGY CORP. $8.41 (Toronto symbol PGF; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 364.5 million; Market cap: $3.1 billion; Price-to sales ratio: 1.9; Dividend yield: 10.0%; TSINetwork Rating: Average; www.pengrowth.com) reported that its daily production rose 2.7% in the three months ended March 31, 2012, to 75,618 barrels of oil equivalent from 73,634 a year ago. Because of depressed natural gas prices, the company is shifting its focus to oil, which accounted for 77% of its production compared with 61% a year earlier.

Even with the higher production, weak gas prices and higher royalties cut Pengrowth’s cash flow by 22.6% in the quarter, to $113.6 million from $146.8 million a year earlier. Cash flow per share fell 31.1%, to $0.31 from $0.45, on more shares outstanding.

However, the company’s high-quality western Canadian properties and its upcoming all-stock purchase of NAL Energy (Toronto symbol NAE) should let it take better advantage of high oil prices.

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CGI GROUP INC. $21 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 258.5 million; Market cap: $5.4 billion; Price-to-sales ratio: 1.3; No dividends paid; TSINetwork Rating: Extra Risk; www.cgi.com) gets about 11% of its revenue from clients in the health care industry. The company mainly helps these customers convert patient records to electronic formats and audit Medicare and Medicaid claims in the U.S.

The company’s health-care-related revenue could suffer if the U.S. Supreme Court overturns Obamacare, as recent changes to the American health care system are known. Even so, CGI’s long-term outlook remains bright, because its services help its clients cut their costs and improve efficiency.

CGI Group is a buy.

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RIOCAN REAL ESTATE INVESTMENT TRUST $27 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 280.8 million; Market cap: $7.6 billion; Priceto- sales ratio: 5.0; Dividend yield: 5.1%; TSINetwork Rating: Average; www.riocan.com) reports that its cash flow rose 14.4% in the three months ended March 31, 2012, to $103 million from $90 million a year earlier. Cash flow per unit rose 5.7%, to $0.37 from $0.35, on more units outstanding. Revenue rose 15.6%, to $274 million from $237 million.

The trust continues to acquire and open new shopping malls and expand existing ones. This was the main reason for the improved results. RioCan’s occupancy rate is a high 96.9%. Moreover, well-established national chains, such as Wal-Mart and Metro, supply 85.7% of its revenue.

RioCan is a buy.

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ENBRIDGE INC. $40 (Toronto symbol ENB; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 785.0 million; Market cap: $31.4 billion; Price-to-sales ratio: 1.6; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.enbridge.com) owns 100% of Enbridge Gas New Brunswick Inc. (EGNB), which distributes natural gas to 11,000 customers in that province. Enbridge is now expanding EGNB’s system to connect to an additional 30,000 clients.

However, the New Brunswick government recently enacted new regulations that limit the rates that EGNB can charge its customers. That makes it harder for Enbridge to recoup the funds that it has already invested in this business. As a result, the company will write down this investment by $262 million. That’s equal to 24% of the $1.1 billion, or $1.48 a share, that Enbridge earned in 2011.

Enbridge is still a buy.

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FINNING INTERNATIONAL INC. $26 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.9 million; Market cap: $4.5 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.2%; TSINetwork Rating: Above Average; www.finning.com) has won a contract to supply U.K.-based Hargreaves Services plc with heavy equipment made by Caterpillar, including four hydraulic excavators and 19 trucks. Finning will start delivering this equipment later this year.

The deal is worth $96 million, which is just 2% of its annual revenue of $5.9 billion. However, this was Finning’s first sale from its new distribution and support businesses in western Canada, South America and the U.K. Finning bought these operations from Bucyrus International for $465 million U.S. in May 2012.

Finning is a buy.

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ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $74 and ACO.Y [class II voting] $74; Income Portfolio, Utilities sector; Shares outstanding: 57.7 million; Market cap: $4.3 billion; Priceto- sales ratio: 1.1; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.atco.com) is a holding company. Its main subsidiary is 52.7%-owned Canadian Utilities (see left). It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction companies and energy exploration firms; Canadian Utilities owns the remaining 24.5%.

In the three months ended March 31, 2012, ATCO’s revenue rose 9.1% to $1.1 billion from $1.0 billion a year earlier. That’s mainly because new contracts pushed up revenue at the structures division by 32.2%. Earnings rose 10.0%, to $121 million from $110 million. Earnings per share rose 10.6%, to $2.09 from $1.89, on fewer shares outstanding.

Based on current prices, you can buy a share of ATCO for $74 and get roughly $83 worth of Canadian Utilities. That means you get ATCO’s non-utility businesses for free.

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CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $72 and CU.X [class B voting] $72; Income Portfolio, Utilities sector; Shares outstanding: 127.6 million; Market cap: $9.2 billion; Price-to-sales ratio: 3.0; Dividend yield: 2.5%; TSINetwork Rating: Above Average; www.canadianutilities.com) distributes electricity and natural gas in Alberta. It also operates 19 power plants in Canada, Australia and the U.K. ATCO Ltd. (see below) owns 52.7% of the company.

In July 2011, Canadian Utilities paid $1.1 billion for a company that distributes natural gas in Perth, Australia. This purchase helped push up revenue by 3.5% in the first quarter of 2012, to $837 million from $809 million a year earlier. Earnings rose 9.7%, to $193 million from $176 million. Because it had more shares outstanding, its earnings per share rose at a slower pace of 8.3%, to $1.44 from $1.33.

Canadian Utilities will probably earn $4.06 a share in 2012. The stock trades at 17.7 times that estimate. The company has raised its dividend every year since 1972. The current rate of $1.77 a share yields 2.5%.

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SAPUTO INC. $44 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 199.2 million; Market cap: $8.8 billion; Price-to-sales ratio: 1.3; 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.

In its fiscal 2012 third quarter, which ended December 31, 2011, Saputo’s earnings rose 15.8%, to $129.8 million from $112.1 million a year earlier. Earnings per share rose 18.5%, to $0.64 from $0.54, on fewer shares outstanding. Sales rose 17.1%, to $1.8 billion from $1.5 billion.

These gains mainly reflect the contribution of DCI Cheese, a specialty cheese distributor in the U.S., which Saputo bought for $270.5 million in March 2011. Higher selling prices for cheese in Canada and Argentina also contributed to the sales increase. However, the milk pricing formula in California recently changed; that’s hurting profit margins at Saputo’s U.S. operations.

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CENOVUS ENERGY INC. $33 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 755.6 million; Market cap: $24.9 billion; Price-to-sales ratio: 1.5; Dividend yield: 2.7%; TSINetwork Rating: Extra Risk; www.cenovus.com) produced an average of 156,850 barrels of oil per day in the three months ended March 31, 2012. That’s up 14.2% from 137,355 barrels a day a year earlier.

The gain is mostly the result of Cenovus’s ongoing expansion of its Alberta oil sands properties. Production of conventional oil also rose 10.2%.

The company recently started shipping oil to Asia. That lets it sell this oil at international prices, which are higher than what it can get from North American refineries.

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TRANSCANADA CORP. $43 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 704.0 million; Market cap: $30.3 billion; Price-to-sales ratio: 3.3; Dividend yield: 4.1%; TSINetwork Rating: Above Average; www.transcanada.com) has settled on a new route for its proposed Keystone XL pipeline that would avoid environmentally sensitive areas in Nebraska. When the pipeline is finished, it will pump crude oil from Alberta’s oil sands to refineries on the U.S. Gulf Coast.

The U.S. government initially refused to approve the project, but TransCanada feels this new route will help it win the necessary permits. The company aims to begin building the pipeline in early 2013. It could begin operating by the end of 2014.

TransCanada is a buy.

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TORSTAR CORP. $9.95 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 79.5 million; Market cap: $791.0 million; Price-to-sales ratio: 0.5; Dividend yield: 5.3%; TSINetwork Rating: Above Average; www.torstar.com) publishes The Toronto Star, Canada’s largest daily newspaper by circulation. It also publishes three other daily newspapers and over 110 weeklies, mainly in Southern Ontario. Torstar’s newspapers and related websites provide about 70% of its revenue and 60% of its earnings.

The company’s other main business is wholly owned Harlequin Enterprises Ltd., the world’s leading romance novel publisher. Harlequin publishes over 110 titles a month in 34 languages in 114 countries. It gets 95% of its revenue from outside of Canada.

Torstar continues to expand its websites. That’s helping it offset weaker advertising revenue at its newspapers.

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TRANSCONTINENTAL INC. $11 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 81.0 million; Market cap: $891.0 million; Price-to-sales ratio: 0.5; Dividend yield: 5.3%; TSINetwork Rating: Average; www.tctranscontinental.com) is the largest commercial printer in Canada, and the fourthbiggest in North America. It also publishes newspapers and magazines.

Transcontinental continues to invest heavily in its online division. The company now has over 1,000 websites, which supply 10% of its revenue. Their contribution will continue to rise over the next few years as advertisers spend more on the Internet than on printed publications.

The company recently swapped its printing plants in Mexico for six facilities in Canada. This deal should ultimately add $230 million to Transcontinental’s yearly revenue.

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THOMSON REUTERS CORP. $30 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 829.2 million; Market cap: $24.9 billion; Price-to-sales ratio: 1.7; Dividend yield: 4.3%; TSINetwork Rating: Above Average; www.thomsonreuters.com) gets 58% of its revenue and 48% of its earnings by selling news and information products to professionals in the banking industry and the legal (25%, 32%), accounting (10%, 11%) and scientific research (7%, 9%) fields.

Over 85% of the company’s revenue comes from products it sells under subscriptions and contracts. That gives it predictable revenue streams and cuts its risk. As well, more of its customers are switching from printed to electronic products; that’s lowering its printing and postage costs.

Thomson Reuters recently agreed to sell its health care business, which provides data and software that helps hospitals and clinics lower their costs and cut fraud. This business supplied 6% of the company’s revenue. Thomson Reuters will get $1.25 billion when the sale closes by the end of 2012 (all amounts except share price and market cap in U.S. dollars).

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HOME CAPITAL GROUP INC. $45 (Toronto symbol HCG; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 34.8 million; Market cap; $1.6 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.0%; TSINetwork Rating: Average; www.homecapital.com) offers mortgages and other loans to borrowers who don’t meet the stricter criteria of larger, traditional lenders.

The company is seeing higher demand for mortgages. That’s mainly because fears of higher interest rates and slowing housing prices have prompted Canada’s big banks to make fewer loans to riskier borrowers.

In the three months ended March 31, 2012, Home Capital’s revenue rose 16.3%, to $214.7 million from $184.6 million a year earlier. Earnings per share rose 16.0%, to $1.52 from $1.31.

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CANADIAN TIRE CORP. $67 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.5 million; Market cap: $5.5 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.canadiantire.ca) gets 90% of its revenue and 80% of its earnings from its various retail stores.

These outlets include 488 Canadian Tire stores, which specialize in automotive, household and sporting goods. The company owns these stores, but franchisees operate most of them. Canadian Tire also operates 289 gas stations and 87 PartSource auto parts stores.

The company has added a number of new product lines by purchasing other retailers. For example, in 2001 it bought the Mark’s Work Wearhouse chain of casual clothing stores. The company now has 385 Mark’s stores and carries a variety of Mark’s products in its main Canadian Tire stores.

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AGILENT TECHNOLOGIES INC. $41 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 348.0 million; Market cap: $14.3 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.0%; TSINetwork Rating: Average; www.agilent.com) makes testing systems that help improve electronic products, such as cellphones and computer equipment.

To cut its exposure to the cyclical electronics industry, Agilent is expanding its medical and drug-testing businesses, mainly through acquisitions. In May 2010, it paid $1.5 billion for Varian Inc., which makes testing equipment for medical research labs.

As well, the company recently announced that it will pay $2.2 billion for Dako, a Denmark-based firm that makes equipment that detects cancers in blood and other tissue samples. Thanks to deals like these, medical- and chemical-testing equipment now supplies half of Agilent’s overall sales.

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