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Peter Lynch, the world’s top mutual fund manager from the 1970s through the early 1990s, maintains that it’s a good idea to invest in companies you’re familiar with, companies you see in action regularly. That stock market advice could certainly be put to the test by the many Canadians who pour through the doors of the country’s best known coffee and fast food chain every day. TIM HORTONS INC. (Toronto symbol THI; www.timhortons.com) operates 3,295 coffee-and-donut stores in Canada and 714 in the U.S. It also has five recently-opened outlets in the Persian Gulf....

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 a selection of 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. Last week, one Inner Circle member asked for stock investing advice on one of the world’s largest chemical manufacturers. Pat notes that the company has made headway with new specialty chemicals, but that its future is closely tied to the economic recovery. ...

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, Canadian real estate investing is the subject, as Pat replies to a question from a reader inspired by the increase in property values. Is buying a property and becoming a landlord a good investment? Look beyond today’s prices before you act, is Pat’s advice. Below is the transcription of Pat’s comments....

PENGROWTH ENERGY $10.09 (Toronto symbol PGF; Shares outstanding: 329.3 million; Market cap: $3.3 billion; TSINetwork Rating: Average; Dividend yield: 8.3%; www.pengrowth.com) plans to invest $625
million to develop its properties in 2012. That’s up 3% from the $607 million it spent in 2011.

Pengrowth will spend about 40% of these funds on its Swan Hills light oil project in Alberta. The rest will go toward its other oil projects, including its Lindberg oil sands deposit. Due to low natural gas prices, the company will hold off on further investments in its gas properties this year.

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INNERGEX RENEWABLE ENERGY $10.27 (Toronto symbol INE; Shares outstanding: 81.3 million; Market cap: $835.8 million; TSINetwork Rating: Extra Risk; Dividend yield 5.7%; www.innergex.com) owns and operates 25 hydroelectric and wind power facilities in Quebec, Ontario, B.C. and Idaho.

Innergex gets about 80% of its power from hydroelectric plants. Wind farms supply the remaining 20%. Wind power is heavily reliant on politically sensitive government subsidies. To cut its risk, Innergex makes sure it has firm long-term power-purchase contracts in place before it makes acquisitions or starts building new plants.

In April 2011, Innergex bought Cloudworks Energy for $187 million. That added stakes in six operating hydroelectric plants in B.C. and other projects that are still under development.

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ALGONQUIN POWER & UTILITIES CORP. $6.20 (Toronto symbol AQN; Shares outstanding: 136.1 million; Market cap: $843.8 million; TSINetwork Rating: Extra Risk; Dividend yield: 4.5%; www.algonquinpower.com) holds interests in 45 hydroelectric plants in Canada and the northeastern U.S. It also owns 12 thermal energy facilities. Algonquin’s wholly owned subsidiary, Liberty Water Co., owns 19 water-distribution and sewage treatment plants in the U.S.

The company also has a partnership with Emera Inc. (Toronto symbol EMA), which is a recommendation of The Successful Investor, our conservative growth advisory. Emera holds a 24.4% interest in Algonquin. This partnership, called Liberty Energy Utilities, continues to make acquisitions.

Liberty Energy’s purchases include NV Energy, which sells power to 47,000 customers near Lake Tahoe; Atmos Energy, which distributes natural gas to 83,000 customers in Missouri, Iowa and Illinois; and two other utilities that sell electricity and natural gas to 130,000 customers in New Hampshire.

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ISHARES AUSTRALIA INDEX FUND $23.75 (New York symbol EWA; buy or sell through brokers), is an ETF that holds the 73 largest Australian stocks. Its MER is 0.52%.

The fund’s top holdings include BHP Billiton, 13.7%; Commonwealth Bank of Australia, 9.2%; Westpac Banking Corp., 7.5%; Australia and New Zealand Banking Group, 6.9%; National Australia Bank, 6.1%; Woolworths, 3.6%; Rio Tinto, 3.5%; Wesfarmers, 3.5%; Newcrest Mining, 3.0%; and Woodside Petroleum, 2.8%.

Australia benefits from its stable banking and political systems. It is also rich in natural resources, and its exports are in high demand in Asian markets, including India and China.

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RIOCAN REAL ESTATE INVESTMENT TRUST $27.12 (Toronto symbol REI.UN; Units outstanding: 267.0 million; Market cap: $6.9 billion; TSINetwork Rating: Average; Dividend yield: 5.1%; www.riocan.com) reported revenue of $988 million in 2011, up 12.0% from $882 million in 2010. That’s mainly due to the 38 new malls the trust bought during the year. (In all, RioCan purchased $1.1 billion of new properties in 2011.) Cash flow per unit rose 7.5%, to $1.43 from $1.33.

RioCan yields 5.1%. It paid out 96.5% of its cash flow in 2011. However, 22% of its investors prefer to receive new units instead of cash. On this basis, the actual payout was just 74.8% of its cash flow.

RioCan is still our #1 safety-conscious buy for 2012.

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IBM $197 (New York symbol IBM; Shares outstanding: 1.2 billion; Market cap: $236.4 billion; TSINetwork Rating: Above Average; Dividend yield: 1.5%) is now developing software that helps prevent online data theft.

The company’s analytics software already helps businesses and governments quickly gather and analyze a wide range of data. This technology is used in many ways, from easing traffic congestion to making power grids more efficient.

IBM recently demonstrated software that can detect and prevent unauthorized access to databases by analyzing certain patterns, such as failed login attempts. This product could be in huge demand, particularly in light of recent high-profile attacks on U.S. government websites.

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ISHARES MSCI BRAZIL INDEX FUND $69.18 (New York Exchange symbol EWZ; buy or sell through brokers), is an exchange traded fund that is designed to track the Brazilian stock market.

The fund’s top holdings are Petrobras preferred shares (energy), 10.2%; Cia Vale do Rio Doce (mining) preferred, 8.7%; Itau Unibanco Multiplo SA (banking), 8.1%; Petrobras common, 7.7%; and Banco Brandesco (banking) preferred, 5.7%.

The fund’s concentration in certain stocks, such as Petrobras and Cia Vale do Rio Doce, adds risk, as does its focus on the resource sector. However, both are high-quality stocks. Brazil’s economy is forecast to grow at a rate of 4.5% in 2012.

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ISHARES MSCI CHILE INVESTABLE MARKET INDEX FUND $67.90 (New York Exchange symbol ECH; buy or sell through brokers), is an ETF that aims to track the MSCI Chile Investable Market Index. This index consists of stocks that are mainly traded on the Santiago Stock Exchange.

The fund’s top holdings are Empresas Copec SA (conglomerate), 10.3%; Quimica y Minera de Chile (mining), 7.7%; Cencosud SA (retailer), 7.6%; Empresa Nacional de Electricidad (electric power), 7.4%; Enersis AS (electric power), 6.7%; Banco Santander Chile (banking), 6.6%; Empresas CMPC (pulp and paper), 5.2%; LAN Airlines SA (Chilean national airline), 4.8%; S.A.C.I. Falabella (retail), 4.7%; and CAP SA (iron mining and steel), 4.6%.

The fund’s industry breakdown is as follows: Utilities, 22.4%; Materials, 18.3%; Industrials, 18.0%; Financials, 17.4%; Consumer Staples, 13.0%; Consumer Discretionary, 6.1%; Telecommunications, 2.7%; and Information Technology, 1.3%.

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ISHARES MSCI GERMANY FUND $22.95 (New York Exchange symbol EWG; buy or sell through brokers) is an ETF that aims to track the stocks in the MSCI Germany Index.

This index aims to replicate 85% of the total market capitalization of the German stock market. The remaining 15% is unavailable for investment, partly due to limitations on foreign ownership.

The fund’s top holdings are Siemens AG (engineering conglomerate), 9.2%; BASF (chemicals), 8.9%; SAP (software), 6.9%; Bayer (diversified chemicals), 6.4%; Daimler AG (automobiles), 6.4%; Allianz (insurance), 6.2%; Deutsche Bank AG, 4.9%; E.ON (energy), 4.6%; Deutsche Telekom, 3.7%; and BMW AG (automobiles), 3.5%.

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ISHARES MSCI SOUTH KOREA INDEX FUND $59.87 (New York Exchange symbol EWY; buy or sell through brokers), is an exchange traded fund that aims to track the MSCI Korea Index.

The fund’s top holdings are Samsung Electronics, 20.8%; Hyundai Motor Co., 5.3%; Posco (steel), 4.4%; Hyundai Mobis (auto parts), 3.0%; LG Chemical, 3.0%; Shinhan Financial, 3.0%; Kia Motors, 2.7%; KB Financial, 2.4%; Hynix Semiconductor, 2.4%; and Hyundai Heavy Industries, 2.1%.

The fund’s industry breakdown is as follows: Information Technology, 30.8%; Consumer Discretionary, 16.3%; Industrials, 14.7%; Financials, 13.9%; Materials, 13.0%; Consumer Staples, 4.5%; Energy, 3.3%; Telecommunication Services, 0.9%; Utilities, 1.2%; and Health Care, 0.6%.

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ISHARES MSCI EMERGING MARKETS INDEX FUND $44.33 (New York symbol EEM; buy or sell through brokers), is an exchange traded fund that aims to track the MSCI Emerging Markets Index. Its geographic breakdown includes: China, 17.6%; Brazil, 15.6%; South Korea, 14.7%; Taiwan, 10.7%; South Africa, 7.4%; India, 6.8%; Russia, 6.5%; Mexico, 4.4%; Malaysia, 3.3%; and Indonesia, 2.6%.

iShares MSCI Emerging Markets Index Fund’s top holdings are Samsung Electronics (South Korea: electronics), 3.2%; Gazprom (Russia: gas utility), 1.8%; China Mobile, 1.7%; Petrobras Petroleo preferred (Brazil: energy), 1.6%; Vale SA (Brazil: mining), 1.3%; Taiwan Semiconductor (Taiwan: computer chips), 1.3%; China Construction Bank (China: banking), 1.3%; America Movil (Brazil: wireless), 1.3%; Itau Unibanco Holding (Brazil: banking), 1.3%; and Industrial & Commercial Bank of China (China: banking), 1.2%.

The fund’s industry breakdown is as follows: Financials, 24.0%; Energy, 14.4%; Materials, 13.4%; Information Technology, 13.3%; Consumer Staples, 7.7%; Consumer Discretionary, 7.7%; Telecommunication Services, 7.6%; Industrials, 7.0%; Utilities, 3.7%; and Health Care, 1.0%.

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ISHARES MSCI JAPAN INDEX FUND $9.99 (American Exchange symbol EWJ; buy or sell through brokers; us.ishares.com) is an exchange traded fund that tries to match the return of the Morgan Stanley Capital International (MSCI) Japan index.

The fund’s top holdings include Toyota Motor, 5.1%; Mitsubishi UFJ Financial, 2.9%; Honda Motor, 2.7%; Canon, 2.2%; Sumitomo Mitsui Financial, 2.1%; Mizuho Financial Group, 1.7%; Takeda Pharmaceutical, 1.6%; Mitsubishi Corporation, 1.5%; Fanuc Corp., 1.5%; and Mitsui & Co., 1.3%.

The fund’s industry breakdown is as follows: Industrials, 21.3%; Consumer Discretionary, 20.0%; Financials, 17.8%; Information Technology, 12.2%; Materials, 7.1%; Health Care, 6.1%; Consumer Staples, 5.9%; Telecommunication Services, 4.1%; Utilities, 3.6%; and Energy, 1.8%.

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ENCANA CORP. $20.16 (Toronto symbol ECA; Shares outstanding: 735.4 million; Market cap: $14.8 billion; TSINetwork Rating: Average; Dividend yield: 4.0%; www.encana.com) has agreed to sell 40% of its undeveloped Cutbank Ridge shale gas property in northeastern B.C. to Japan’s Mitsubishi Corp.

Encana will receive $1.45 billion (Canadian) when the sale closes at the end of February 2012. Mitsubishi will also invest an additional $1.45 billion over the next five years to develop this property. To put these figures in context, Encana’s cash flow was $4.2 billion U.S., or $5.66 U.S. a share, in 2011.

Adding a partner to help develop this field cuts Encana’s risk. Mitsubishi’s involvement will also help Encana open up new markets for its gas in Asia.

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ARC RESOURCES $25.55 (Toronto symbol ARX; Shares outstanding: 288.5 million; Market cap: $7.4 billion; TSINetwork Rating: Speculative; Dividend yield: 4.7%; www.arcresources.com) produces oil and natural gas in western Canada. Its average daily production of 892,021 barrels of oil equivalent is weighted 64% to gas and 36% to oil.

In the three months ended December 31, 2011, ARC’s cash flow per share rose 25.4%, to $0.79 from $0.63. That’s because the company raised its production by 8.7%. It also benefited from higher oil prices.

ARC has $2.4 billion of tax pools that are letting it offset taxes and maintain its 4.7% yield. The company’s long-term debt is $721.2 million, or a low 9.7% of its market cap. The shares trade at 8.5 times ARC’s forecast 2012 cash flow of $2.98 a share.

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ENERPLUS CORP. $23.94 (Toronto symbol ERF; Shares outstanding: 181.2 million; Market cap: $4.3 billion; TSINetwork Rating: Extra Risk; Dividend yield: 9.0%) produces an average of 77,221 barrels of oil equivalent per day (weighted 55% to natural gas and 45% to oil). Its properties are mainly in Alberta, Saskatchewan, B.C., North Dakota and Montana, as well as the Marcellus Shale, which passes through Pennsylvania, New York, Ohio and West Virginia.

In the three months ended December 31, 2011, Enerplus’ cash flow per share fell 5.4%, to $0.87 from $0.92. That’s mainly due to lower gas prices, which offset gains from higher oil prices.

In 2011, the company sold 91,000 of its 201,000 acres of natural gas properties in the Marcellus Shale for $568 million U.S. It used the funds to continue rapidly expanding its exploration drilling.

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TELUS $57.67 (Toronto symbol T.A; Shares outstanding: 324.5 million; Market cap: $18.7 billion; TSINetwork Rating: Above Average; Dividend yield: 4.2%; www.telus.com) plans to merge its common shares and its non-voting class A into a single class of shares.

Telus created the non-voting shares in 1998, when U.S.-based Verizon Communications (symbol VZ on New York) held a major stake in the company. The move let Telus comply with regulations preventing foreign control of Canadian telecom firms. Verizon sold its non-voting shares in 2004. Non-Canadian investors now hold less than 20% of Telus’s stock.

Telus now has about 174.9 million common shares and 149.9 million non-voting shares outstanding. Under the proposal, each non-voting share will become one common share. Investors holding two-thirds of each share class, voting separately, must approve the change.

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CANADIAN PACIFIC RAILWAY $74.14 (Toronto symbol CP; Shares outstanding: 170.0 million; Market cap: $12.6 billion; TSINetwork Rating: Average; Dividend yield: 1.6%; www.cpr.ca), transports freight between Montreal and Vancouver, and connects with hubs in the U.S. midwest and northeast.

In the three months ended December 31, 2011, CP’s revenue rose 8.8%, to $1.41 billion from $1.29 billion a year earlier. Earnings rose 18.8%, to $221 million, or $1.31 a share, from $186 million, or $1.10. CP’s $4.7 billion of debt is a manageable 37.3% of its market cap.

CP’s operating ratio worsened to 78.5% from 77.0%, mostly due to 29% higher fuel costs. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.) But CP plans to lower that to between 70% and 72% in the next three years with a number of upgrades, like new snow-clearing equipment, new trains and software that optimizes train loads and speeds.

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Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on successful investing, and not least on successful retirement planning. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Tip of the week: “When you’re planning for retirement, make sure you make realistic calculations rather than indulging in wishful thinking.”...

Yesterday, we discussed U.S. drug store chain Walgreen, a name familiar to many Canadian investors. Today we examine a U.S. drug distributor that has a strong and growing Canadian presence, but is not as well known. We first included this stock in the Aggressive Growth portfolio of Wall Street Stock Forecaster in June, 2002. McKesson Corp. (New York symbol MCK; www.mckesson.com) is the largest wholesale drug distributor in the U.S. and Canada. It also owns 49% of Mexico’s largest drug distributor....

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 a selection of 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 week, we heard from an Inner Circle member asking for investment advice on America’s largest drug store chain. Pat discussed the company’s prospects following a big acquisition last year, and this year’s decision to put an end to a key commercial relationship....

TORONTO-DOMINION BANK $80 (www.tdbank.com) is looking for new ways to cut its costs, as low interest rates have shrunk the revenue the bank earns from loans. However, its credit losses continue to fall as more borrowers repay their loans on time....

ROYAL BANK OF CANADA $56 (www.rbc.com) has completed the sale of its struggling U.S. retail-banking business, which consists of 424 branches in six southeastern states. That will free up cash that the bank can invest in its more profitable banking operations in Canada and the Caribbean....