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When investing in mutual funds, all too many amateur and professional investors and advisors try to take the easy way out. Instead of looking at the hard stuff — company fundamentals, industry trends, business plans and so on — they try to profit with a strategy called “momentum investing.” You might think of momentum investing as a mutation of growth-stock investing. Traditionally, growth-stock investors zero in on companies that have reported several years of growth and seem likely to keep on growing. Whether investing in mutual funds or stocks, growth investors tend to focus on investments that they plan to hold for years. Momentum investors also focus on growth stocks and funds — but with a shorter-term focus. They want to hold these investments only while prices are rising. They don’t mind paying a high price, because they plan to sell quickly if the rise begins to falter....

On October 22, Microsoft will launch its new Windows 7 operating system. If the release goes smoothly, Microsoft stands to gain from sales of the new software. That’s because many computer users put off upgrading from earlier versions because of complaints about its previous Windows release, Vista. The company has also timed the launch of Windows 7 to coincide with the beginning of the Christmas shopping season. ...

NVIDIA CORP. $15 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 547.8 million; Market cap: $8.2 billion; Price-to-sales ratio: 3.0; WSSF Rating: Average) designs video chips that make computer games run more smoothly and appear more lifelike. It outsources most of its production to chipmakers in Asia. Nvidia earned $37.7 million in its second quarter, which ended July 26, 2009. That’s down 49.4% from $74.5 million a year earlier. Earnings per share fell 46.2%, to $0.07 from $0.13. These figures exclude charges in both quarters for extra warranty payments related to defective chips. Sales fell 13.0%, to $776.5 million from $892.7 million. The company continues to spend around 25% of its revenue on research. It’s devoting most of this to new graphic chips for mobile devices. These should cut its reliance on computer sales. Nvidia holds cash of $1.5 billion, or $2.68 a share, and has little debt....

INTEL CORP. $20 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.6 billion; Market cap: $112 billion; Price-to-sales ratio: 3.3; WSSF Rating: Above Average) is the world’s leading computer-chip maker, with 80% of the market. The company is combining its operations into two main divisions. These will be organized by function instead of by product. The first, the Intel Architecture Group, will design chips for computers, cellphones and similar devices. The second, called the Technology and Manufacturing Group, will manage Intel’s manufacturing plants. Most chipmakers focus on either design or manufacturing, but not both. The reorganization would make it easier for Intel to split itself into two companies. However, any potential breakup is probably years away....

PETSMART INC. $22 (Nasdaq symbol PETM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 125 million; Market cap: $2.8 billion; Price-to-sales ratio: 0.5; WSSF Rating: Above Average) sells pet food and supplies through 1,145 stores in the U.S. and Canada. It also provides veterinary and grooming services, and boards pets at its 156 PetHotels. In PetSmart’s second quarter, which ended August 2, 2009, its earnings rose 4.6%, to $39 million from $37.2 million a year earlier. Earnings per share gained 3.3%, to $0.31 from $0.30. Revenue rose 5.4%, to $1.3 billion from $1.2 billion. About 85% of the revenue gain came from the 70 stores and 35 PetHotels that PetSmart opened over the past year. Same-store sales rose 0.8%. Pet-service revenue, which accounts for 12% of the company’s overall sales, rose 10.2%. Because of the slow economy, PetSmart plans to open just seven to nine new stores in the second half of fiscal 2010. This will let the company focus on improving the profitability of its existing stores....

IDEXX LABORATORIES INC. $52 (Nasdaq symbol IDXX; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 58.6 million; Market cap: $3 billion; Price-to-sales ratio: 3.1; WSSF Rating: Average) makes equipment that veterinarians uses to detect diseases in animals. Idexx also makes systems that detect contaminants in water and milk. Because of the weak economy, fewer pet owners are taking their animals to veterinarians for routine screenings. This has hurt sales of Idexx’s systems and supplies. As well, Idexx gets 40% of its sales from outside the U.S. This leaves it vulnerable to a high U.S. dollar. These factors drove down Idexx’s earnings by 14.5% in the three months ended June 30, 2009, to $33.7 million from $39.4 million a year earlier. Earnings per share fell 12.7%, to $0.55 from $0.63, on fewer outstanding shares. Revenue was down 5.3%, to $265.7 million from $280.6 million. Idexx spends about 5% of its revenue on research....

TUPPERWARE BRANDS CORP. $40 (New York symbol TUP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 63 million; Market cap: $2.5 billion; Price-to-sales ratio: 1.3; WSSF Rating: Above Average) makes plastic food and beverage containers. It also makes beauty products. The company sells its products through a network of independent dealers instead of traditional retail stores. This keeps its distribution costs low. Tupperware gets over 80% of its sales from outside of the U.S., so it’s particularly vulnerable to a rising U.S. dollar. In the three months ended June 27, 2009, sales fell 10.1%, to $524.7 million from $583.6 million a year earlier. But if you disregard foreign-exchange rates, its sales would have risen 4%. Earnings fell 7.1%, to $0.52 a share (or a total of $33.1 million) from $0.56 a share (or $36.0 million). However, earnings rose 42% on a constant-currency basis. The company is selling more high-margin products; this was the main reason behind the earnings gain. Tupperware also benefited from lower resin and freight costs....

NEWELL RUBBERMAID INC. $16 (New York symbol NWL; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 277.7 million; Market cap: $4.4 billion; Price-to-sales ratio: 0.7; WSSF Rating: Average) makes plastic storage bins, tools, window blinds, pens and a number of other household items. Its top brands include Rubbermaid, Sharpie, Paper Mate, Waterman and Levolor. In response to falling sales, Newell is closing plants and streamlining its distribution operations. It’s also selling low-margin businesses, particularly those that use large amounts of plastic resins. These are made from oil, so these moves will cut Newell’s exposure to volatile oil prices. In all, the company will pay $475 million to $500 million in severance and other costs. However, the plan should lower Newell’s costs by $175 million to $200 million a year by the end of 2010. So far, the company has realized $100 million of these savings....

SHERWIN-WILLIAMS CO. $61 (New York symbol SHW; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 116.3 million; Market cap: $7.1 billion; Price-to-sales ratio: 1.0; WSSF Rating: Above Average) is North America’s largest paint producer. The company gets 60% of its sales from its over 3,300 paint stores. The slowdown in new U.S. housing construction has hurt demand for Sherwin’s paints. As well, many consumers have put off home-renovation projects because of the recession. In the three months ended June 30, 2009, Sherwin’s earnings fell 8.0%, to $158 million from $171.7 million a year earlier. However, the company is an aggressive buyer of its own shares, so it had fewer shares outstanding during the quarter. As a result, earnings per share fell 6.9%, to $1.35 from $1.45. Sales fell 12.6%, to $1.9 billion from $2.2 billion....

PROCTER & GAMBLE CO. $57 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.9 billion; Market cap: $165.3 billion; Price-to-sales ratio: 2.1; WSSF Rating: Above Average) is one of the world’s largest makers of household and personal-care products. Some of its top brands are Tide detergent, Head & Shoulders shampoo, Pampers diapers and Crest toothpaste. Procter is selling some of its slower-growing businesses and shifting its focus to those with better long-term prospects. In November 2008, it sold its Folgers coffee business for a $2-billion gain. Last August, it agreed to sell its prescription-drug division for $3.1 billion. The sale should close later this year. In the fiscal year ended June 30, 2009, Procter’s earnings fell 4.3%, to $11.3 billion from $11.8 billion in the prior year. However, earnings per share rose 0.6%, to $3.58 from $3.56, on fewer outstanding shares. If you exclude unusual items in both years, earnings per share would have risen by 7.6%, to $3.67 from $3.41. Sales fell 3.3%, to $79 billion from $81.7 billion. Overseas markets account for 60% of Procter’s sales, and the higher U.S. dollar cut the value of these sales by $4 billion....

3M COMPANY $74 (New York symbol MMM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 698.3 million; Market cap: $51.7 billion; Price-to-sales ratio: 2.3; WSSF Rating: Above Average) is a diversified manufacturing firm. The company was formerly known as Minnesota Mining & Manufacturing. 3M owns a large number of well-known brands. Post-it notes, Scotch tape, Scotch-Brite household-cleaning products, Scotchguard protection and Thinsulate insulation are just a few. The company has six business segments. These are the industrial and transportation division, which supplies roughly 31% of 3M’s sales and 29% of its profits, health care (17%, 23%), safety, security and protection (14%, 14%), consumer and office (14%, 13%), display and graphics (13%, 11%), and electronics and communications (11%, 10%)....

Price-to-sales is one of the key financial ratios we look at when we assess a company. That’s the ratio you get when you compare a stock’s price to its sales per share (you get sales per share by dividing total annual sales by the number of shares outstanding). Price-to-sales, or p/s, is one of the financial ratios you’ll find displayed with every stock we cover in our Successful Investor newsletter. The basic rule is that a high p/s tends to mean that a stock is expensive, and a low p/s tends to mean that a stock is cheap. However, many individual stocks seem to run counter to this rule. Stocks with deservedly high p/s ratios can rise for lengthy periods, and stocks with deservedly low p/s ratios can fall....

In spite of the weak economy, governments around the world continue to invest heavily in wind projects and electrical-power grids. On Monday, for example, the Ontario government committed $2.3 billion over the next three years to expand and strengthen the province’s grid. Upgrades to power grids are important to wind power stocks because, while most power plants are located near big cities to keep transmission costs down, wind farms tend to be in more remote areas with steady winds. As well, low transmission capacity, or none at all, has hurt the ability of wind power stocks to build new projects.

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When you join my Inner Circle service, you get to ask me your own personal investment questions, plus you get to see what other Inner Circle members have asked. So you can see how the service works, and get a sense of how it might be able to help your portfolio, I’d like to share a recent member question about inflation’s impact on different stock sectors. I hope you enjoy and profit from it. Q: Pat: If an investor is expecting a surge in inflation in the U.S. within the next 12-18 months, which stock sectors should we invest less in, and which sectors would benefit from high inflation? Thank you. A: Governments have dramatically increased spending in order to pull their economies out of recession. Moreover, central banks have cut interest rates to record lows. These moves will likely help solve the financial crisis. But the cost will be much higher inflation, possibly starting in the next decade. This will have an impact on all stock sectors....

Natural-gas prices have recently moved dramatically higher, jumping 57.5% to $3.78 U.S. per thousand cubic feet since early September. That’s when natural gas hit a seven-year low of $2.40 U.S. per thousand cubic feet. Since then, a number of economic reports have pointed to a continued rebound. The resulting increase in industrial activity will lift natural-gas demand. ...

STANTEC INC. $28.57 (Toronto symbol STN; SI Rating: Extra Risk) (780-917-7288; www.stantec.com; Shares outstanding: 45.5 million; Market cap: $1.3 billion) sells a range of consulting, project delivery, design/build and technology services to clients in a number of markets. These markets include industry, environment, transportation and construction. The company has over 9,000 employees in 150 North American locations. In the three months ended June 30, 2009, Stantec’s revenue rose 13.0%, to $388.1 million from $343.3 million a year earlier. However, excluding acquisitions and foreign-exchange gains, revenue actually fell by $49.8 million. The company’s earnings rose 1.1%, to $22.4 million, or $0.49 a share, from $22.1 million, or $0.48 a share, a year earlier. Higher costs pushed down Stantec’s profit margins in the quarter....

FIRSTSERVICE CORP. $18.58 (Toronto symbol FSV; SI Rating: Extra Risk) (416-960-9500; www.firstservice.com; Shares outstanding: 28.1 million; Market cap: $522.3 million) operates in the following areas of the real-estate services market: commercial real estate; residential property management; and property services. FirstService has more than 17,000 employees. In the three months ended June 30, 2009, FirstService’s revenue fell 6.5%, to $425.3 million from $454.8 million a year earlier. (All figures except share price in U.S. dollars.) Earnings per share fell 17.9% to $0.46 from $0.56. FirstService’s overall revenue was held back by a 32% drop at its commercial real-estate division. However, that was partially offset by a 42% revenue gain at its property-services division, which helps maintain foreclosed houses in the U.S. As well, residential property management posted a 3% rise....

CIMAREX ENERGY $43.10 (New York symbol XEC; SI Rating: Extra Risk) (303-295-3995; www.cimarex.com; Shares outstanding: 83.4 million; Market cap: $3.6 billion) is an oil and gas explorer and producer that mainly operates in the U.S. Natural gas makes up 70% of its production. Cimarex has properties in western Oklahoma; Kansas; the upper Gulf Coast regions of Texas and southern Louisiana; the Permian Basin area of western Texas; and the Gulf of Mexico. In the three months ended June 30, 2009, the company produced an average of 453.9 million cubic feet of natural gas per day. That’s down 7% from a year earlier. Cimarex slowed drilling and production to await higher gas prices....

DEVON ENERGY CORP. $72.21 (New York symbol DVN; SI Rating: Speculative) (405-235-3611; www.devonenergy.com; Shares outstanding: 443.8 million; Market cap: $32.0 billion) is one of the largest independent U.S.-based oil and gas explorers and producers. Its production mix is about 65% gas and 35% oil. Devon’s properties are mainly in Canada and the U.S. Aside from conventional production, they include shale oil in northern Texas, oil sands in Canada and deep-water wells in the Gulf of Mexico. In the three months ended June 30, 2009, lower oil and gas prices caused Devon’s cash flow per share to drop 56.2%, to $2.71 from $6.19....

When analyzing any new investment, including value stock picks, one key question we ask early on is, “What can this cost us if something goes wrong?” (You can learn more about our value-investing approach to selecting stocks in our new free report, “Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada.”) There is no simple rule for calculating cost-if-something-goes-wrong. It takes common sense and guesswork. For instance, to determine the cost of a warm winter to a ski-hill operator, we need to see how many ski centres it operates, and if they are in the same or different weather systems. In fact, geographical diversification plays a prime role in most calculations of the cost-if-something-goes-wrong. [ofie_ad]...

A market slump like the one we’ve experienced since 2007 demonstrates the appeal of a conservative, risk-averse portfolio investing philosophy like ours. While the well-established companies we invest in may not fly as high as speculative stocks when the market is soaring, they hold up much better in market downturns.

As part of our portfolio investing strategy, we diversify by spreading the investments of clients of our Successful Investor Wealth Management service out across the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; Utilities), even when much of the market’s action is concentrated in one or two industries or sectors.

That’s because the market’s hottest segments can unpredictably jump from hot to cold....

Markets have risen considerably since their March lows. In light of this, investors who sold at the bottom have missed out on the 40% or so that the TSX has gained since then. They now no doubt feel that they’ve made a grave investment error. Successful investors avoid market predictions as part of their stock market strategy. Instead, they stick with well-established, mostly dividend-paying stocks, like those we include among the safety-conscious investments we cover in our Canadian Wealth Advisor newsletter. Regardless of their investment approach, all investors can improve their long-term results by understanding and avoiding these common investment mistakes....

Starting in 2011, Ottawa will impose a tax on the distributions of Canadian income trusts. This will put trusts on an equal tax footing with regular corporations. Many trusts are converting to corporations as a result. Some are even cutting their distributions. Real estate investment trusts, or REITs, will remain exempt from the tax on Canadian income trusts, and will likely remain in their current form. (REITs invest in income-producing real estate, such as office buildings and hotels.)

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ROYAL BANK OF CANADA $56 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $78.4 billion; Price-to-sales ratio: 2.1; SI Rating: Above Average) is Canada’s largest bank, with total assets of $659.9 billion. In its third quarter, which ended July 31, 2009, Royal’s earnings rose 23.7%, to $1.6 billion, or $1.05 a share, from $1.3 billion, or $0.92 a share, a year earlier. Revenue rose 32.3%, to $7.8 billion from $5.9 billion. Royal has steadily expanded its capital-markets division over the past few years. Through this subsidiary, the bank helps businesses raise capital by selling shares and issuing debt. It also provides security-trading and research services. Royal gets about a quarter of its revenue from this division....

TORONTO-DOMINION BANK $67 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; Shares outstanding: 854 million; Market cap: $57.2 billion; Price-to-sales ratio: 2.2; SI Rating: Above Average) is the second-largest Canadian bank, with total assets of $544.6 billion. TD has built up its U.S. retail-banking operations in the past few years, mostly through acquisitions. In May 2008, it paid $8.5 billion for Commerce Bancorp Inc. Commerce now operates as “TD Bank,” and has over 1,000 branches from Maine to Florida. TD’s U.S. operations now account for about 20% of its profits. But even with Commerce, earnings at TD’s U.S. operations fell 11% in the bank’s most recent quarter, which ended July 31, 2009. This was mainly because the division’s loan-loss provisions climbed 141% from a year ago. The jump was largely the result of depressed real-estate prices in some markets. It added to a 93.4% rise in TD’s overall loan-loss provisions, to $557 million from $288 million....