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How we use three financial ratios to uncover bargain stocks. When you’re looking for bargain stocks, it’s best to focus on shares of quality companies

PEYTO EXPLORATION & DEVELOPMENT CORP. (Toronto symbol PEY; www.peyto.com) continues to generate higher cash flow. And it’s reinvesting that cash flow to expand production in order to deliver greater returns for its shareholders. The company produces and explores for oil and natural gas in Alberta. Peyto’s average daily production of 34,443 barrels of oil equivalent (including natural gas) is weighted 89% toward gas and 11% to oil....

Owning your primary residence has all the earmarks of a great financial deal. Mortgage payments amount to forced savings, a home is an inflation hedge, and capital gains are tax-free. However, you can easily fritter away these solid real estate investments by upgrading excessively, or moving frequently. Here are 4 reasons why:...

J.P. MORGAN CHASE & CO. $34 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.9 billion; Market cap: $132.6 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.9%; TSINetwork Rating: Average; www.jpmorganchase.com) is one of the world’s largest financial-services companies, with 5,400 retail bank branches in the U.S. It also offers credit cards, wealth-management and investment-banking services. In the three months ended September 30, 2011, Morgan earned $4.3 billion, down 3.5% from $4.4 billion a year earlier. However, earnings per share rose 1.0%, to $1.02 from $1.01, on fewer shares outstanding. If you exclude unusual items, such as costs to settle lawsuits related to subprime mortgages, Morgan would have earned $0.97 a share in the latest quarter. Revenue fell 0.3%, to $23.76 billion from $23.82 billion. Loan-loss provisions fell 25.2%, to $2.4 billion from $3.2 billion. However, the latest figure is up from $1.8 billion in the second quarter of 2011....

WELLS FARGO & CO. $26 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.3 billion; Market cap: $137.8 billion; Price-to-sales ratio: 1.7; Dividend yield: 1.8%; TSINetwork Rating: Average; www.wellsfargo.com) provides a wide variety of financial services through roughly 9,000 branches in the U.S. It also operates in Canada, the Caribbean and Central America. Warren Buffett’s Berkshire Hathaway holding company owns 7% of Wells Fargo’s shares. In the quarter ended September 30, 2011, Wells Fargo earned $4.1 billion, up 21.4% from $3.3 billion a year earlier. Earnings per share rose 20.0%, to $0.72 from $0.60, on more shares outstanding. More clients are repaying their loans on time. As a result, loan-loss provisions fell 47.4%, to $1.8 billion from $3.4 billion. That was the main reason for the earnings increase. Even so, revenue fell 6.0%, to $19.6 billion from $20.9 billion. That’s largely because Wells Fargo is getting less interest income from borrowers due to today’s low interest rates. As well, it has a smaller investment banking business than J.P. Morgan (see below), so it is more reliant on traditional lending....

Pat McKeough responds to many personal questions on 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 every Friday, we offer you one of the highlights from these Q&A sessions. This week, an Inner Circle member asked Pat about one of Canada’s major mining stocks. Labrador Iron Ore Royalty has quietly built a position as a world leader in iron ore. Now it faces several challenges in today’s volatile commodity markets....

NVIDIA CORP. $15 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 603.7 million; Market cap: $9.1 billion; Price-to-sales ratio: 2.4; No dividends paid; TSINetwork Rating: Average; www.nvidia.com) develops 3D graphics chips and related technology for computers, gaming consoles and other devices. The company’s chips make computer games run more smoothly and appear more lifelike. Nvidia focuses on design, and outsources production to other chipmakers. The company continues to see strong demand for its chips from makers of smartphones and other mobile devices; Motorola and Samsung are now using Nvidia’s new Tegra chips in their latest smartphones. Rising sales to mobile device makers are also offsetting slower sales of chips for desktop and notebook computers. In its 2011 second quarter, which ended July 31, 2011, Nvidia earned $193.5 million. That’s up 306.2% from $47.6 million a year earlier. Earnings per share rose 300.0%, to $0.32 from $0.08, on more shares outstanding. Sales rose 25.3%, to $1.0 billion from $811.2 million....

TERADATA CORP. $57 (New York symbol TDC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 168.3 million; Market cap: $9.6 billion; Price-to-sales ratio: 4.4; No dividends paid; TSINetwork Rating: Average; www.teradata.com) makes computers and software that capture and store large amounts of a business’s data, including its sales and inventory. Teradata then analyzes this information and identifies buying habits and trends. This helps its clients make better business decisions. The company continues to add to its expertise in cloud computing, which involves storing data and software on one or more centralized servers. Users access these programs or files over the Internet, or through some other computer network. For example, in January 2011 Teradata paid $525 million for privately held Aprimo, which uses a cloud computing model to sell software and services to over 150,000 clients. Aprimo’s products help its customers evaluate their marketing campaigns....

Economic forecasts attract far more investor attention than they deserve, in view of the meagre advantage, if any, they provide in terms of investing advice. That’s especially true today in light of the debt crisis that keeps flaring up in Europe and the uncertainty that lingers in the U.S. Small wonder, then, that most experienced, successful investors feel skeptical, if not downright cynical, about economic forecasts, for three reasons....

ADOBE SYSTEMS INC. $28 (Nasdaq symbol ADBE; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 490.9 million; Market cap: $13.7 billion; Price-to-sales ratio: 3.4; No dividends paid since June 2005; TSINetwork Rating: Average; www.adobe.com) makes software that lets computer users create, edit and share documents in the popular PDF format. As well, graphic designers use Adobe’s software to create print publications and web pages. The company also makes Adobe Flash, which lets web site developers add animation and video. In its third quarter, which ended September 2, 2011, Adobe’s earnings fell 15.2% to $195.1 million, or $0.39 a share. A year earlier, it earned $230.1 million, or $0.44 a share. Without one-time items, earnings per share would have risen 1.9%, to $0.55 from $0.54. Revenue rose 2.3%, to $1.01 billion from $990.3 million....

How to be a successful investor by cutting down on your risk. Many people come up with unrealistic answers to the question of how much risk is right for them.

CONAGRA FOODS INC. $25 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 414.5 million; Market cap: $10.4 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.8%; TSINetwork Rating: Average; www.conagrafoods.com) makes a wide variety of packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter and Orville Redenbacher popcorn. The company gets 65% of its sales from consumers. Businesses, such as restaurants, account for the remaining 35%. The company’s sales fell 3.5%, from $12.0 billion in 2007 to $11.6 billion in 2008. That’s because ConAgra sold its commodity trading operations. Sales rebounded to $12.7 billion in 2009, but fell 5.1%, to $12.1 billion, in 2010. Sales rose to $12.3 billion in 2011, thanks to acquisitions and price increases....

Dividend reinvestment plans, or DRIPs, are plans some companies offer to allow shareholders to receive additional shares in lieu of cash dividends. DRIPs bypass brokers, so shareholders save on commissions. DRIPs also eliminate the nuisance effect of receiving small cash dividend payments. Second, some DRIPs let you reinvest your dividends in additional shares at a 5% discount to current prices. Third, many DRIPs also allow optional commission-free share purchases on a monthly or quarterly basis. Generally, investors must first own and register at least one share before they can participate in a DRIP. Registration will generally cost $40-$50 per company. The investor must then notify the company that he or she wishes to participate in the company’s DRIP....

Companies with dominant market shares of widely used products are in an enviable position. But as markets become more saturated, those companies must look elsewhere for growth. Diebold aims to take on this challenge in several ways. DIEBOLD INC. (New York symbol DBD; www.diebold.com) is a leading maker of automated teller machines (ATMs). It also makes safes, vaults and building-security systems. To cut its reliance on ATMs, the company now offers more services, such as software, ATM maintenance and processing customer transactions. The company now gets over 50% of its revenue from services. That gives it recurring revenue and helps cut its risk....

H.J. HEINZ CO. $53 (New York symbol HNZ; Income Portfolio, Consumer sector; Shares outstanding: 321.0 million; Market cap: $17.0 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.6%; TSINetwork Rating: Above Average; www.heinz.com) makes a wide variety of processed foods, including condiments, sauces, soups, baked beans, pastas and baby food. Its flagship product, Heinz ketchup, accounts for about 60% of U.S. ketchup sales. Heinz’s sales rose 18.9%, from $9.0 billion in 2007 to $10.7 billion in 2011 (fiscal years end April 30). Earnings rose 16.6%, from $791.6 million in 2007 to $923.1 million in 2009. Earnings per share rose 21.8%, from $2.38 to $2.90, on fewer shares outstanding. Unfavourable foreign-exchange rates cut Heinz’s earnings to $914.5 million, or $2.87 a share, in 2010. In 2011, earnings rebounded to $991.9 million, or $3.08 a share....

Pat McKeough responds to many personal questions on 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 every Friday, we offer you one of the highlights from these Q&A sessions. An interesting question came up this week about Ocean Power Technologies, a company that is generating electricity from ocean waves. This raised the issue of the risks and rewards associated with a renewable energy stock. In particular, Pat drew the comparison between the long-term prospects of wave power and wind power....

Our TSI Network rating system is a key guide we use to find the best stocks to recommend in our newsletters and investment services, including Wall Street Stock Forecaster, our newsletter that focuses on top-quality U. S. stocks.

Stock market strategy: This is a good time to add high-quality U.S. companies to your portfolio

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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 how you can make the best investments for your portfolio. Each Investor Toolkit update gives you a fundamental piece of investment strategy, and shows you how you can put it into practice right away. Tip of the week: “Insider trading is just one indicator when you’re looking for the best investments”...

Technological advances can spur on some powerful growth stocks. However, when a company bases its future growth on the widespread adoption of a single technological breakthrough, it can also add risk. Intuitive Surgical (Nasdaq symbol ISRG; www.intuitivesurgical.com) makes the da Vinci, a computerized surgical system....

Here are 4 keys we consistently rely on when picking the stocks we recommend in our newsletters and investment services. We believe they can help you succeed in stock market investing in all kinds of markets, including today’s volatile conditions.

1. Always ask yourself, “What can go wrong with this investment?” What upcoming event/technology/political trend could derail its profitability? In other words, don’t fall in love with a stock just because it has a great track record.
   When a company’s profits have been rising for years, its stock price will always be expensive in relation to its per-share profit. If something goes wrong and profit starts to erode or, worse, turns into a loss, the stock can go through a devastating drop. In stock market investing, too much enthusiasm for a favourite can lead investors to ignore its risks and price it as if those risks don’t exist.
2. Remember that high profits attract competition. This is related to rule #1. When a company is making a lot of money, you can be sure that other companies are making plans to enter its market with a competitive product that is slightly cheaper, or better, or more effectively marketed or whatever. Unless demand is exploding, this is bound to limit sales growth and depress profit margins....

CAE INC. $9.67 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 257.2 million; Market cap: $2.5 billion; Price-to-sales ratio: 1.5; Dividend yield: 1.7%; TSINetwork Rating: Average; www.cae.com) makes military and airline flight simulators. It also runs pilot-training schools. CAE continues to apply its simulator expertise to new fields, such as medical training. It recently bought Florida-based Medical Education Technologies, Inc. (METI), which makes medical simulators and other products, including life-like mannequins, for training paramedics and medical students. Since 1996, METI has sold about 6,000 simulators to medical schools in 40 countries. This purchase will add $60 million U.S. to CAE’s annual revenue of $1.6 billion (Canadian)....

Pat McKeough responds to many personal questions on 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 every Friday, we offer you one of the highlights from these Q&A sessions. This week, an investor asked about one of the telecommunications giants of the world stock market, Telefonica. That prompted Pat to examine the balancing act a company like Telefonica undergoes when it experiences weakness in some markets and strength in others....

BOMBARDIER INC. (Toronto symbols BBD.A $4.10 and BBD.B $4.01; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $6.8 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.4%; TSINetwork Rating: Average; www.bombardier.com) is the world’s third-largest commercial-aircraft maker, behind Boeing and Airbus. It is also the world’s largest passenger railcar manufacturer. In the three months ended July 31, 2011, Bombardier’s earnings rose 56.7%, to $210 million, or $0.12 a share (all amounts except share prices and market cap in U.S. dollars). A year earlier, it earned $134 million, or $0.07 a share. Sales rose 17.4% to $4.7 billion from $4.0 billion. Sales at the railcar division (which supplies 56% of Bombardier’s total sales) rose 26.0%, mainly due to strong demand from European public-transit systems. In the latest quarter, this business received $3.9 billion of new orders, down from $4.3 billion a year earlier. Its order backlog is $33.9 billion, up from $33.5 billion on January 31, 2011....

Sweeping up after the 1929 Crash


Today, many investors might not immediately recognize the name of master investor John Templeton. In the final quarter of the last century, however, Templeton was as famous and highly regarded as Warren Buffett is today.

Templeton’s investing strategy focused on value, not negative predictions

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TORSTAR CORP. $8.97 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 79.5 million; Market cap: $713.1 million; Price-to-sales ratio: 0.5; Dividend yield: 5.6%; TSINetwork Rating: Above Average; www.torstar.com) publishes The Toronto Star, which is Canada’s largest daily newspaper by circulation. The company also publishes three other daily newspapers and over 100 weeklies, mainly in southern Ontario. Torstar’s newspaper business accounts for 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 publisher of romance novels. Torstar recently received $291.6 million from the sale of its 20% stake in CTVglobemedia to BCE Inc. (Toronto symbol BCE). CTVglobemedia owns CTV Television and other broadcasting businesses....