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Members of our Inner Circle service ask us a lot of very interesting questions. For example, one member was buying a new home at what he considered to be an extremely attractive price. However, he had not yet sold his current home. He worried about the risk of owning two homes, even for a few months. He wanted to hedge against a drop in the value of his existing home in the period before it sold. To hedge against this Canadian real estate investing risk, his broker suggested that he buy some put options on Bank of Montreal stock....

We analyze a wide range of investments in Canadian Wealth Advisor, our newsletter for safety-conscious investors. These include the 19 common stocks we’ve selected for our “Safety-Conscious Stock Portfolio.” All these stocks are well-established companies with bright prospects and strong positions in healthy industries. As well, almost all offer dividend reinvestment plans, or DRIPs. DRIPs let shareholders reinvest dividends to buy additional shares (or fractions of shares) of the company. DRIPs bypass brokers, so shareholders save on commissions....

Today, many investors worry about a “W” shaped recession. That is, they worry that we are on the brink of a second recession that follows shortly after the first. Others are concerned that inflation will rise as the economy recovers. This explains the recent run-up in gold prices, for example, and the popularity of certain resource stocks (including crude oil stocks), which many investors see as a hedge against inflation. (See below for a full analysis of a diversified producer that’s been moving up recently.)

Stick with well-established companies no matter what the economy does

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On January 8 The Successful Investor will unveil a stock that’s primed for explosive growth in 2010. In fact, we think this blue chip stock’s prospects are so bright we’ve named it The Successful Investor’s #1 stock pick for the coming year. More on how you can get all the details on this exciting #1 pick in a moment, but first we’d like to share with you...

How we picked our #1 stock for 2010

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Grocery retailer Metro Inc. (symbol MRU.A on Toronto) is a good example of a stock that has graduated from Stock Pickers Digest, our newsletter for aggressive investors, to The Successful Investor, which focuses on more conservative selections. Stock Pickers Digest is where we analyze stocks that are attractive but not yet suitable for The Successful Investor’s conservative investing focus. Ideally, many of our Stock Pickers buys will one day mature into investments that we can recommend in The Successful Investor. We first added Metro to the stocks we analyze in Stock Pickers Digest in June 1998. At the time, it was trading at around $10. In December 2007, when we moved it to The Successful Investor, it was trading at about $32, for a 220% gain....

In our new report, Mutual Funds Canada: Inside the Top 10 Canadian Mutual Funds, we spotlight the top 10 Canadian mutual funds for your portfolio. But that’s not all. We also show you how we selected these funds, and strategies you can use to find funds that are capable of weathering a market slump, and profiting anew when the market turns up again. Perhaps more importantly, we show you what danger signs to look for when investing in mutual funds. For example, we think you should avoid funds whose managers practice a sector-rotation approach....

Blue chip stocks are well-established companies that have demonstrated their financial strength through good times and bad. They typically pay dividends, and are considered to be less risky, based on their historical patterns. There are many blue chip stocks in the consumer sector. Typically, the strongest of these companies sell staples, like soap, beverages and soup, that consumers must buy no matter what the economy is doing. Strong consumer blue chip stocks share a number of characteristics. These include geographic diversity (which helps protect them from regional economic problems), a record of rising cash flow and a strong balance sheet....

We hardly ever recommend buying new issues when they are first sold to the public, and often stay away from them for months, if not years, afterward. That’s because new issues often come to market when it’s a good time for the company and/or its insiders to sell, but that’s not necessarily a good time for you to buy.

Spinoffs are in many ways the antithesis of new issues....

One way to cut your tax bill in retirement is for you and your spouse to arrange the family finances so that you each have equal retirement income. That’s because, if one spouse earns more than the other, the higher-income spouse would, of course, be in a higher tax bracket. That means that any extra money the higher-income spouse earns on investments, such as through capital gains, interest or dividends, would be taxed at a higher rate. So, you can lower your family’s overall tax bill by aiming to have both spouses in the same tax bracket. The Canada Revenue Agency won’t let you lower your income tax by simply giving invested funds to a lower-income spouse. “Attribution” rules apply if you do that. That means the higher-income spouse must pay tax on any gains or investment income from those funds....

We’ve analyzed junior gold and mineral stocks for many years in Stock Pickers Digest, our newsletter for more aggressive investors. Many of our picks have shot up during the recent rise in gold from around $700 U.S. an ounce in the fall of 2008 to a recent peak of above $1,200 U.S. Gold has since dropped by about $100. But we think that’s a temporary fluctuation.

Use caution when investing in Canadian gold stocks

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NCR CORP. $11 (New York symbol NCR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 159.2 million; Market cap: $1.8 billion; Price-to-sales ratio: 0.4; No dividends paid; WSSF Rating: Average) has a broader product line than Diebold, and gets just a third of its revenue from making and servicing ATMs. The rest comes from selling checkout scanners, cash registers and self-serve kiosks. NCR’s revenue rose slightly, from $6.0 billion in 2004 to $6.1 billion in 2006. Revenue fell to $5.0 billion in 2007, after NCR spun off Teradata Corp., but rose to $5.3 billion in 2008. Despite the slow sales growth, the company’s earnings rose from $0.89 a share (or a total of $171 million) in 2004 to $2.13 a share (or $389 million) in 2006. Earnings fell to $1.39 a share (or $254 million) in 2007, but rose to $1.61 a share (or $271 million) in 2008. Like Diebold, most of NCR’s earnings gains came from lower costs, mainly because it outsourced much of its ATM production to other companies. It’s also cutting 10% of its workforce. The layoffs should save it $250 million a year by the end of 2011....

DIEBOLD INC. $27 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 66.3 million; Market cap: $1.8 billion; Price-to-sales ratio: 0.6; Dividend yield: 3.9%; WSSF Rating: Average) makes automated teller machines (ATMs), as well as safes, vaults and building security systems. To cut its reliance on ATMs and related equipment, Diebold is offering more services to its banking customers. These include managing ATM networks, processing customer transactions and upgrading software. Diebold now gets over half of its revenue from these types of services. The company recently sold its electronic-voting machine business (Premier Election Solutions, Inc.) for $12.1 million. That’s a lot less than the $24.7 million that Diebold paid for this business in 2002. If you account for the money that the company invested into this subsidiary over the years, Diebold incurred a $50.8-million pre-tax loss on the sale....

THE STANLEY WORKS $52 (New York symbol SWK, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 80.4 million; Market cap: $4.2 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.5%; WSSF Rating: Average) makes a wide variety of hand and power tools for consumer and industrial users. Top brands include Stanley, FatMax and Powerlock. Stanley has agreed to buy rival toolmaker Black & Decker Corp. (New York symbol BDK) for $4.5 billion in stock. Assuming both companies’ shareholders approve, the deal should close in the first half of 2010. Stanley shareholders will own 50.5% of the combined company (to be called Stanley Black & Decker). Black & Decker investors will own the remaining 49.5%. This looks like a good move for Stanley. Black & Decker specializes in power tools, so there’s little overlap with Stanley’s hand tools. Moreover, Black & Decker’s security products, which include door locks and keyless-entry systems, are a nice fit with Stanley’s building-security business....

SNAP-ON INC. $40 (New York symbol SNA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 57.7 million; Market cap: $2.3 billion; Price-to-sales ratio: 1.0; Dividend yield: 3.0%; WSSF Rating: Average) makes hand and power tools for auto mechanics. It sells these through franchised vans that visit garages. This lets it build closer relationships with customers, which gives it an advantage over competitors. It also keeps Snap-On’s distribution costs down. Many U.S. carmakers have closed dealerships in response to weak sales. This has cut the number of repair shops that Snap-On can supply. Snap-On’s earnings fell 53.5% in the three months ended October 3, 2009, to $25.4 million, or $0.44 a share. A year earlier, it earned $54.6 million, or $0.94 a share....

BRIGGS & STRATTON CORP. $19 (New York symbol BGG; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 50.0 million; Market cap: $950.0 million; Price-to-sales ratio: 0.5; Dividend yield: 2.3%; WSSF Rating: Above Average) gets 60% of its revenue from making lawn-mower engines. (The company is the world’s largest lawn-mower engine maker.) The remaining 40% comes from other home and garden equipment, such as pressure washers and snow blowers. Because of the weak economy and high unemployment, consumers are spending less on discretionary items, including lawn equipment. As well, major home-improvement retailers are ordering fewer of Briggs’s products. Moreover, 2009 saw fewer hurricanes than previous years. That lowered demand for portable generators. In its first quarter, which ended September 27, 2009, Briggs’s revenue fell 29.2%, to $324.6 million from $458.2 million a year earlier. Losses ballooned to $8.7 million, or $0.18 a share, from $2 million, or $0.04 a share. The lower sales and a higher income-tax rate were the main reasons behind the higher losses. Briggs typically loses money during its first quarter. That’s because demand for lawn mowers is weak during the fall....

ALLIANT ENERGY CORP. $31 (New York symbol LNT; Income Portfolio, Utilities sector; Shares outstanding: 110.6 million; Market cap: $3.4 billion; Price-to-sales ratio: 1.0; Dividend yield: 4.8%; WSSF Rating: Average) sells electricity and natural gas to 1.4 million customers in Wisconsin, Iowa, Minnesota and Illinois. In the three months ended September 30, 2009, Alliant lost $43.3 million, or $0.39 a share. However, if you exclude a one-time charge related to the early repayment of debt, it would have earned $0.77 a share. In the year-earlier quarter, Alliant earned $109.1 million, or $0.99 a share. Revenue fell 9.7%, to $885.7 million from $980.3 million. The lower earnings and revenue were mainly caused by cooler-than-usual summer weather, which prompted consumers to use less power for air conditioning. Alliant wants to raise its rates by 17%. That would add $171 million to its annual revenue. Regulators recently let it increase rates by 8%. They will decide on the remainder in early 2010....

AMEREN CORP. $28 (New York symbol AEE; Income Portfolio, Utilities sector; Shares outstanding: 236.9 million; Market cap: $6.6 billion; Price-to-sales ratio: 0.8; Dividend yield: 5.5%; WSSF Rating: Average) sells electricity and natural gas to 3.4 million customers in Illinois and Missouri. In the third quarter of 2009, Ameren’s earnings rose 3.7%, to $255 million from $246 million a year earlier. However, earnings per share fell 0.9%, to $1.16 from $1.17, on more shares outstanding. These figures exclude several non-recurring charges, including the costs to close two generating units at one of its power plants. Revenue fell 11.9%, to $1.8 billion from $2.0 billion. Electricity sales to consumers fell 10%, as cool summer weather cut air-conditioner use. Sales to industrial customers fell 3%. Ameren is seeking approval to raise its power and gas rates. This would add $621 million to its annual revenue. Regulators will likely grant Ameren’s requests, because it needs the funds to cover higher operating and interest costs....

It’s particularly easy for investors to make costly mistakes during the year-end tax-loss selling season. That’s because the lure of a lower tax bill can be a temptation to dump high-quality stocks that are near the end of a downturn, and are set to move back up. A similar pitfall exists during the end-of-the-year rush to take advantage of certain tax shelters, including charitable donations. In our view, you should be as selective about giving money to charity as you are about buying stocks. In fact, bad charities tend to have something in common with bad stocks.

Examine a charity’s “business plan” before donating

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When investors are just starting out, they typically have modest amounts of money to invest. You can start your stock portfolio with as little as $10,000, say, but keep in mind that the less you invest at any one time, the higher the percentage your broker’s minimum commission takes from each trade. (Starting and building a portfolio, and how many stocks you should own at each stage of your investing career, are just two of the stock market basics we explore in our free report, “Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada.” You can get a copy absolutely free. Click here to claim yours now.)

Stick to these stock market basics as your portfolio grows

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When you analyze a stock, it’s important to have an idea of how likely it is to survive a business slump and go on to prosper when economic growth resumes. A number of factors can help you to do that. These include the interest rate on the company’s debt, how sensitive it is to economic cycles, its advantages and disadvantages in relation to competitors and so on. (These are just a few of the factors we take into account in our stock market research when we manage the portfolios of our Successful Investor Wealth Management clients.) Many successful investors start their stock market research on a company by looking at its debt-to-equity ratio. This ratio comes in several variations, but the basic idea is that you measure a company’s financial leverage by comparing its debt with its shareholders’ equity....

Exchange-traded funds (ETFs) offer investors more benefits than ever before, mainly because of increased competition. That can make them good choices for certain parts of your portfolio — such as the portion you devote to global stock market investing. That’s because directly investing in foreign markets can be complicated and risky, and high-quality ETFs let you make global stock market investments with greater safety. (Below, we examine an ETF that may be appropriate for investors looking for exposure to emerging markets, such as Brazil and South Korea. Read on for further details.)...

Investors are paying more attention to dividend yields (a company’s total annual dividends paid per share divided by the current stock price) as volatile stock markets continue to recover. Companies are responding by doing their best to maintain, or even increase, their dividend payments. That’s good news for investors, because dividends are more dependable than capital gains as a source of income. In fact, dividends typically contribute up to a third of an investor’s long-term return. Tax cuts in recent years also mean that you pay roughly the same tax on dividend income and capital gains.

Look at the complete picture when buying high dividend stocks

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TORSTAR CORP. $6.25 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 79.0 million; Market cap: $493.8 million; Price-to-sales ratio: 0.4; Dividend yield: 5.2%; SI Rating: Above Average) publishes The Toronto Star, which is Canada’s largest daily newspaper in terms of circulation. The company also publishes three other daily papers and over 100 weeklies, mainly in southern Ontario. Newspapers and web sites account for about 70% of Torstar’s 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. Harlequin also publishes non-fiction titles, such as self-help and diet books. Torstar’s aggressive cost cutting has helped it stay profitable in the face of falling advertising revenue and increased competition from the Internet. For example, it has cut roughly 8% of its workforce over the past year. These layoffs lowered the company’s expenses by $26.2 million in the first three quarters of 2009. Torstar expects to realize an additional $8.2 million in savings in the fourth quarter....

TRANSCONTINENTAL INC. $12 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.8 million; Market cap: $969.6 million; Price-to-sales ratio: 0.3; Dividend yield: 2.7%; SI Rating: Average) is the largest commercial printer in Canada, and the sixth-largest in North America. This business provides 60% of its revenue and profit. The company also publishes newspapers and magazines (25% of revenue, 30% of profit). As well, its marketing communications division (15%, 10%) designs direct mail and other advertising campaigns, and analyzes customer-purchasing data. These services help its clients expand sales and build loyalty. The stock fell to $5.42 last March. That’s because the recession hurt the company’s direct-mail volumes. As well, many of its clients are U.S.-based financial institutions. Higher credit losses prompted many of these customers to cut their advertising spending. Transcontinental has cut its costs in response. This involved closing a direct-mail plant in Pennsylvania and merging some printing plants. So far, these moves have lowered its costs by $50 million a year. It should achieve its goal of $100 million in annual savings sometime next year....

THOMSON REUTERS CORP. $34 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 829.7 million; Market cap: $28.2 billion; Price-to-sales ratio: 2.0; Dividend yield: 3.5%; SI Rating: Above Average) has two main divisions: Markets accounts for 60% of revenue, and sells financial-information products to banks and other financial institutions. Professional (40% of revenue) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. The company gets about 60% of its revenue from the Americas, followed by Europe (30%) and Asia (10%). The financial crisis prompted banks and brokerage firms to cut spending on information products. As a result, Thomson Reuters’ revenue fell 3.7% in the third quarter of 2009, to $3.2 billion from $3.3 billion a year earlier (all amounts except share price and market cap in U.S. dollars). Earnings fell 8.5%, to $0.43 a share (or a total of $359 million), from $0.47 a share (or $392 million). Thomson is taking advantage of the slump in the financial industry to expand its operations. For example, it will pay an undisclosed sum for breakingviews.com, a privately held web site that supplies financial news and commentary....