Search

Members of our Inner Circle service often ask for our advice on stocks they are thinking of buying that we don’t cover in our newsletters. These companies range from large multinational companies to the most speculative penny mines and gold investments. For example, an Inner Circle member recently asked for our advice on Northern Abitibi Mining. The company has reported some promising drill results from its gold project in Newfoundland. To give you a sense of how my Inner Circle service works, I’d like to share this question, and our answer, with you. I hope you enjoy and profit from it....

Fortis Inc., symbol FTS on Toronto, is the main supplier of electrical power in Newfoundland and Prince Edward Island. It also operates power plants in other parts of Canada, as well as the U.S., Belize and the Cayman Islands. As well, Fortis operates hotels and other businesses in Canada. Fortis recently raised its quarterly dividend by 3.6%, to $0.29 a share from $0.28. The new annual rate of $1.16 yields 3.5%. The company has been working to lower its reliance on Atlantic Canada. In May 2004, Fortis bought regulated electrical utilities in Alberta and B.C. for $1.5 billion in cash and stock. In May 2007, it paid $3.7 billion for the regulated gas-distribution business of Terasen Inc. (formerly called BC Gas), which has 939,600 customers in B.C. Fortis issued $1.15 billion of new common shares to help pay for this purchase....

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 investment advice. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away. Tip of the week: “Focus your investing strategy on quality and diversification—not economic forecasts.” Economic forecasts attract way more investor attention than they deserve, in view of the meagre advantage, if any, that they add to your investing strategy. In fact, most experienced, successful investors feel skeptical, if not downright cynical, about economic forecasts, for three reasons....

Toyota Motor Co. (symbol TM on New York) has been the world’s largest carmaker since GM lost that position in 2008. The company is one of the world stock market investments we analyze in our Wall Street Stock Forecaster newsletter. In its third fiscal quarter, which ended December 31, 2010, Toyota’s earnings fell 33.7%, to $1.1 billion from $1.7 billion a year earlier. Earnings per ADR dropped 33.9%, to $0.72 from $1.09, on more ADRs outstanding. Toyota’s sales declined 4.3%, to $56.3 billion from $58.3 billion a year earlier. The strength of the yen against the U.S. dollar was the main reason for the decline (a strong yen lowers the value of Toyota’s exported vehicles.) As well, the Japanese government ended incentives for lower-emission cars....

As investors near retirement, their advisors often recommend that they move a larger part of their investments from stocks to bonds and other fixed-return investments. To some extent, this is an understandable strategy, since bonds provide steady income and a guarantee to repay the principal at maturity.

Stocks are bound to be more profitable for retirement investing than bonds

...

Precision Drilling Corp. (symbol PD on Toronto) provides contract-drilling services to oil and gas producers. Precision owns 355 drilling rigs in Canada, the U.S. and Mexico. Precision recently converted from an income trust to a regular corporation. Investors received one common share for each trust unit they held. The change is in response to Ottawa’s new tax on income-trust distributions, which came into effect on January 1, 2011. In 2010, the resource stock’s revenue rose 19.4%, to $1.4 billion from $1.2 billion in 2009. Higher drilling activity was the main reason for the gain. Precision earned $62.1 million, or $0.22 a share. That’s down 61.6% from $161.7 million, or $0.63 a share, in 2009....

Encana Corp. (symbol ECA on Toronto) earned $665 million, or $0.90 a share, in 2010 (all amounts except share price in U.S. dollars). The commodity stock’s latest earnings were down 62.4% from its 2009 earnings of $1.8 billion, or $2.35 per share. Cash flow per share fell to $6.00 from $6.68 in 2009. (Note: The 2009 figures assume that the breakup of the old EnCana Corp. into the new Encana and Cenovus Energy took place at the start of 2009 instead of December 1, 2009.) Depressed natural gas prices were the main reason for lower earnings and cash flow. (Natural gas accounts for more than 95% of the commodity stock’s average daily production.) Encana’s average selling price for gas fell 22.0 % in 2010, to $5.48 per thousand cubic feet from $7.03 in 2009. The price decline offset a 12.0 % rise in the company’s total production....

Canada’s oil sands continue to face strong opposition from environmentalists. That’s mainly because the process of recovering heavy oil from the oil sands produces higher carbon emissions than conventional sources. However, new technology has let oil stocks cut way down on their oil-sands emissions. As well, turmoil in Egypt and other Middle Eastern countries highlights the oil sands’ strategic importance to the U.S. and Canada. These factors make it less likely that Ottawa will introduce regulations that would slow oil-sands development.

Cenovus: a diversified producer with a focus on the oil sands

...

Western Union Co. (New York symbol WU) provides money-transfer and foreign-exchange services in over 200 countries. In 2010, Western Union reported revenue of $5.2 billion. That’s up 2.1% from $5.1 billion in 2009. If you exclude the negative impact of exchange rates, revenue would have risen 3%. The company earned $909.9 million in 2010, up 7.2% from $848.8 million in 2009. During the year, Western Union spent $584 million on share buybacks. Due to fewer shares outstanding, the growth stock pick’s earnings per share rose 12.4% to $1.36 from $1.21 the year before. If you exclude one-time items, including restructuring expenses, earnings per share would have risen 10.1%, to $1.42 from $1.29....

This time of year, you’ll often hear discussions about the proper “asset allocation”, or the mix of stocks, bonds and cash that you should hold in your portfolio at various stages of life. A Successful Investor Wealth Management client once asked a related question that rarely gets the attention it deserves. He asked where investing in real estate fits in your asset allocation.

Investing in real estate: More like running a business than owning stocks

In reality, owning investment real estate doesn’t quite fit within any of asset allocation’s pigeonholes. It’s more of a small business than a passive investment like stocks and bonds. (I call them “passive” because you don’t need and aren’t expected to help manage the companies you are investing in. Of course, you do have to manage your investment portfolio, or hire somebody to do it for you.)...

C.R. Bard Inc. (symbol BCR on New York) makes medical devices in four main areas: urology products, such as vascular products, including stents and catheters (28% of 2010 sales); oncology products that detect and treat various types of cancer (27%); drainage and incontinence devices (26%); and surgical tools and other products (19%). Bard is one of the stock market picks we analyze in our Wall Street Stock Forecaster newsletter. In 2010, Bard’s sales rose 7.3%, to $2.7 billion from $2.5 billion in 2009. Earnings rose 10.7%, to $509.2 million from $460.1 million a year earlier. Earnings per share climbed 15.7% to $5.32 from $4.60, on fewer shares outstanding. If you exclude unusual items, such as merger costs, earnings per share would have risen 10.0%, to $5.60 from $5.09....

The Indian government recently projected that the country’s economy will grow at a rate of 8.6% this year. That’s up from the 8.0% growth rate the country recorded last year. That would be the country’s fastest growth rate since 2008. The government expects the fastest growth to come in India’s service sector (11%), followed by manufacturing (8.8%) and agriculture (5.4%).

Exchange traded funds make foreign investing simple

...

Briggs & Stratton (symbol BGG on New York) is the world’s largest lawnmower engine maker. This business accounts for 62% of Brigg’s revenue. It gets the remaining 38% by making other home and garden equipment, such as portable and standby generators, pressure washers and snow blowers. In the three months ended December 26, 2010, sales rose 14.6%, to $450.3 million from $393.0 million a year earlier. Larger shipments of engines to European and Asian manufacturers boosted revenue, as did sales of snow blowers, lawn mowers and pressure washers. However, the company lost $1.3 million, or $0.03 per share, compared to earnings of $3.0 million, or $0.06 a share, a year earlier. The loss resulted in part from $4.6 million in restructuring and refinancing charges....

Arkansas Best Corp. (symbol ABFS on Nasdaq) specializes in “less-than-truckload” shipping, which involves loading freight from a number of customers onto a single truck. In 2010, Arkansas Best’s revenue rose 12.6%, to $1.7 billion from $1.5 billion on 2009. The company lost $32.7 million, or $1.30 per share, in 2010. However, that was a big improvement on the $127.5 million, or $2.46 per share, that it lost in 2009. Arkansas-Best shipped more freight as the economy gradually recovered in 2010, particularly during the fourth quarter. Strong competition has been keeping shipping rates down, however. Arkansas-Best is now raising its rates to cover rising fuel costs....

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST $20.25 (Toronto symbol PMZ.UN; Units outstanding: 68.6 million; Market cap: $1.4 billion; TSINetwork Rating: Extra Risk; Dividend yield: 6.0%) owns large malls in medium-sized Canadian cities. It also owns major shopping centres in suburbs of large cities. In all, the trust owns 29 properties that contain 11.1 million square feet of leasable area. Primaris has a 97.0% occupancy rate. Its major tenants include Hudson’s Bay Company, Sears, Shoppers Drug Mart, Loblaw, Reitmans, Canadian Tire and Best Buy. In June 2010, Primaris raised $85.2 million in a unit issue. In August 2010, it used the funds to help pay for the Cataraqui Town Centre, an enclosed shopping mall in Kingston, Ontario....

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 investment advice. 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: “Smart investing limits the danger of lawsuits.” Lawsuits are an everyday risk in business. For example, U.S. lawnmower engine maker Briggs & Stratton (symbol BGG on New York) recently paid $18.7 million U.S. to settle a lawsuit that accused the company of using misleading labels on its lawnmower engines....

Archer Daniels Midland Co., New York symbol ADM, processes corn, wheat, soybeans, canola, flaxseed, peanuts, cocoa and other crops into a wide variety of food ingredients, such as flour, oils and sweeteners. It mainly sells its products to firms that make and process food for both humans and animals. The company is also the largest maker of ethanol from corn in the U.S. Ethanol is a gasoline additive that lowers harmful emissions. Archer Daniels has more than 270 plants worldwide. The company is one of the commodity investments we analyze in our Wall Street Stock Forecaster newsletter. In its 2011 second quarter, which ended December 31, 2010, the commodity investment’s revenue rose 31.6% to $20.9 billion from $15.9 billion a year earlier. That beat the consensus revenue forecast of $17.2 billion. Earnings rose 29.1%, to $732.0 million, or $1.14 a share, from $567.0 million, or $0.88 a share. The latest earnings beat the consensus estimate of $0.78 a share....

Small cap stocks are companies with a “market cap” (the value of shares they have outstanding) below $2 billion, or some other arbitrary figure. (In the latest Wall Street Stock Forecaster, we updated our buy/sell/hold advice on a former U.S. small cap stock that has jumped that’s 89.1% since we first recommended it in May 2007. At the time, the company’s market cap was $1.6 billion. But it has more than doubled since, to $3.4 billion today. See below for further details.) Small cap stocks have the potential for strong gains, but they are generally more volatile than large-cap stocks. Temporary setbacks, such as a poor quarterly earnings report or the loss of a contract, can quickly cut their share prices. That’s why we view even the best small cap stocks as aggressive, and advise investors not to overindulge in small caps....

Saputo Inc. (symbol SAP on Toronto) is Canada’s largest producer of dairy products, including milk, butter and cheese. The company also makes snack cakes and tarts. Aside from Saputo, the Canadian stock pick’s main brands include Neilson, Stella and Dairyland. The company also has operations in the U.S., Argentina and Europe. Saputo is one of the stock picks we analyze in our Successful Investor newsletter. In its third quarter, which ended December 31, 2010, Saputo earned $111.8 million, or $0.55 a share. That fell short of the consensus earnings forecast of $0.57 a share. Even so, the latest earnings are up 7.2%, from $104.3 million, or $0.50 a share, a year earlier. The company reported revenue of $1.54 billion in the latest quarter, up 3.0% from $1.48 billion....

ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $21.54 (Toronto symbol AP.UN; Units outstanding: 42 million; Market cap: $904.4 million; TSINetwork Rating: Extra Risk; Dividend yield: 6.1%) owns office buildings in Toronto, Montreal, Quebec City and Winnipeg. These mainly Class I properties contain over 6.3 million square feet of leasable area. Class I refers to 19th and early 20th-century light industrial buildings that have been restored and converted to office and retail space. These properties usually feature high ceilings, natural light, exposed beams, interior brick and hardwood floors. The trust added four new properties in 2010. It now has 60 mainly Class I properties in Toronto (these contain 49.4% of Allied’s leasable area). It also has 10 Class I buildings in Montreal (34.2%), eight in Winnipeg (6.4%), five in Quebec City (2.9%), two in Kitchener-Waterloo (4.2%), two in Calgary (1.4%) and one in Vancouver (1.5%)....

Blue chip stocks in Canada’s telephone industry continue to face rising competition. Along with wireless and cable companies, Internet-based phone services, such as Skype, continue to gain popularity. As well, three new wireless providers (Globalive’s WIND Mobile, Mobilicity and Public Mobile) entered the Canadian market in 2010. More new wireless firms are likely to follow. This rising competition will continue to put pressure on BCE Inc. (symbol BCE on Toronto), Canada’s largest telephone-service provider. In light of this and other developments surrounding the stock, we’ve updated our buy/sell/hold advice on BCE in the latest Canadian Wealth Advisor, our newsletter for safety-conscious conservative investing....

ISHARES DEX UNIVERSE BOND INDEX FUND $29.48 (CWA Rating: Income) (Toronto symbol XBB; buy or sell through a broker) mirrors the performance of the DEX Universe Bond Index. This index consists of a wide range of investment-grade Canadian government and corporate bonds with terms to maturity of more than one year. The 406 bonds in the portfolio have an average term to maturity of 9.05 years. The fund’s MER is 0.30%. The bonds in the index are 69.6% government and 30.4% corporate. The fund sticks with high-quality government bonds from issuers such as Canada Housing Trust, Government of Canada and Province of Ontario, plus high-quality corporate bonds from issuers such as Bank of Montreal, TransCanada Pipelines, Bank of Nova Scotia and Bell Canada....

ISHARES DEX SHORT TERM BOND INDEX FUND $28.78 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the DEX Short-Term Bond Index. This index consists of a wide range of investment-grade federal, provincial, municipal and corporate bonds with between one- and five-year terms to maturity. The fund holds 221 bonds with an average term to maturity of 2.86 years. Top issuers include the Government of Canada, Canada Housing Trust and the Province of Ontario. The bonds in the index are 69.2% government and 30.8% corporate. The fund’s MER is 0.25%....

Stanley Black & Decker Inc., New York symbol SWK, makes power and hand tools and security devices. It took its current form on March 12, 2010. That’s when Stanley Works bought the Black & Decker Corp. for about $4.5 billion in stock. Stanley shareholders own 50.5% of the combined company, and Black & Decker investors own the remaining 49.5%. In 2010, the U.S. stock’s earnings per share rose 35.5%, to $4.12 from $3.04. This excludes one-time merger costs. Sales improved in both the U.S. and internationally, especially in Latin America. Sales in Canada and Australia declined slightly. Adding Black & Decker’s pre-merger sales in early 2010 to sales of the merged company in 2010 results in $9.3 billion total sales for 2010. Stanley Black & Decker expects that figure to rise by 5% to 6% in 2011....

TELUS CORP. $47.65 (Toronto symbol T.A; Shares outstanding: 320.7 million; Market cap: $15.6 billion; TSINetwork Rating: Above Average; Dividend yield: 4.2%; www.telus.com) is Canada’s second-largest telephone company, after BCE Inc. Telus has 6.9 million wireless subscribers across Canada. Its traditional phone business has 3.8 million customers in B.C., Alberta and eastern Quebec. Telus also has 1.2 million Internet subscribers. Its new “Telus TV” service, which operates through phone lines, has just 266,000 subscribers. In the three months ended September 30, 2010, Telus’ earnings rose 6.0%, to $0.89 a share from $0.84 a year earlier. The company earned higher profits from wireless and Internet services. That offset a decline in local and long-distance customers. Telus gets 51% of its earnings from wireless. It added 53,000 wireless subscribers in the latest quarter, up 22.4%. High-profit-margin smartphones account for 28% of its wireless subscribers, up from 18%....