Search

Among other bargain stocks, we’ve discovered a diversified Canadian food processing company whose brands have a lot of enduring value, and whose core business, meat processing, represents 70 percent of total sales. We figure that no matter what the economy does, people will always need to eat. So, we doubt that consumer spending on groceries will decline very much. The key for smart, conservative investors is to be in food company bargain stocks that have sound fundamentals. ----------...

CANADIAN PACIFIC RAILWAY LTD. $65 (Toronto symbol CP; SI Rating: Average) transports freight over a rail network between Montreal and Vancouver. In the United States, subsidiaries connect CP’s Canadian lines to major hubs in the Midwest and Northeast. Alliances with other railways extend its reach to Mexico. In the three months ended June 30, 2008, CP’s revenue was unchanged at $1.2 billion. The lower U.S. dollar and lower shipments of automobiles and forest products slowed revenue growth. Earnings before one-time items fell 13.4%, to $0.97 a share from $1.12. CP’s profits dropped, despite steady revenues, partly from costs related to the U.S. Midwest flooding, but mostly due to higher fuel costs. However, by the end this year, CP expects to have provisions in all of its contracts to let it pass on fuel price increases. It also aims to improve long-term efficiency with several new initiatives, including sharing more tracks with other railways, as well as better scheduling....

IVY CANADIAN FUND $24.81 (CWA Rating: Conservative) invests in high-quality, large capitalization stocks. The $2.6 billion fund’s top holdings include Shoppers Drug Mart, Toronto-Dominion Bank, Manulife Financial, Canadian National Railway, Becton Dickinson & Co., Enbridge, McDonald’s Corp., Thomson Reuters, Imperial Oil and Nestle SA. Ivy Canadian’s breakdown by industry is: Consumer staples, 30.4%; Financials, 18.8%; Consumer discretionary, 13.5%; Energy, 10.9%; Industrials, 9.7%; Health care, 6.7%; and Information technology, 4.7%....

IVY ENTERPRISE FUND $4.23 invests in small and medium-sized companies. The $139.9 million fund has an MER of 2.38%. The fund’s overall choice of stocks doesn’t inspire our confidence. Its top holdings are Richie Brothers Auctioneers, National Instruments, CH Robinson Worldwide, Idexx Laboratories, Hibbett Sports, Astral Media, Canadian Western Bank, Daktronics Inc., Henry Schein and Stratasys Inc. The fund has lost 6.8% over the last year. We think investors can do better by buying some of the other small-cap funds we recommend in Canadian Wealth Advisor....

IVY EUROPEAN FUND $12.72 (CWA Rating: Aggressive) holds mostly good quality stocks, although it has underperformed the longer-term benchmark Morgan Stanley indexes. We don’t see any reason to hold a mutual fund that concentrates in Europe. If you want European exposure, consider Ivy Foreign Equity Fund (see above), or the closed-end EUROPEAN EQUITY FUND $7.11 (New York symbol EEA; CWA Fund Rating: Conservative). European Equity Fund sells for an 18% discount from the current value of its assets. European Equity Fund is a buy. Ivy European Fund is a sell.

IVY FOREIGN EQUITY FUND $26.81 (CWA Rating: Conservative) outperformed the Morgan Stanley benchmark international index over the last 10 years. The fund gained 5.0%, and that was better than the Morgan Stanley benchmark’s gain of 1.7%. Ivy Foreign Equity Fund lost 2.2% over the last year. The fund invests in companies based outside of Canada, but cuts risk by avoiding direct investment in emerging markets. Ivy Foreign Equity is one of our top foreign fund recommendations. Still, we think non-U.S. international funds should make up at most 10% of the holdings of a conservative investor. The fund’s top holdings are PepsiCo (U.S. food & beverage), Reckitt Benckiser plc (UK household & healthcare products), McDonald’s Corp., Synthes Inc. (Swiss health care equipment), Walgreen Co. (U.S. pharmacies), Diageo plc (UK alcoholic beverages), Becton Dickinson (U.S. medical technology), Nestle SA, Henry Schein Inc., (U.S. healthcare) and Danaher Corp. (U.S. tools & controls)....

IVY GROWTH AND INCOME FUND $20.21 (CWA Rating: Conservative) (Mackenzie Financial Corp., 150 Bloor St. West, Toronto, Ont. M5S 3B5. 1-800-387-0780; Web site: www.mackenziefinancial.com. Load fund — available from brokers) is a balanced fund, holding a mixture of stocks, bonds and cash. The fund has returned 5.7% annually for the 10 years. It lost 0.8% over the last year. The fund’s MER is 2.09%. The fund’s top stock holdings are Shoppers Drug Mart, Manulife Financial, Enbridge, Canadian National Railway, McDonald’s Corporation, Thomson Reuters Corp., Toronto-Dominion Bank and Imperial Oil. The $2.4 billion Ivy Growth & Income Fund holds 22% of its assets in bonds. Interest rates on bonds are now under 5% annually in Canada. That’s the total return that a bond can provide, from today until it matures. However, bonds leave investors at the mercy of inflation, which shrinks the purchasing power of all fixed-return investments. In fact, an upsurge in inflation could wipe out all returns on bonds, and some of their principal besides....

TEMPLETON EMERGING MARKETS FUND $15.32 (New York symbol EMF; CWA Fund Rating: Speculative) is a closed-end fund that invests in equities from emerging economies. The fund’s manager is Franklin Templeton. Templeton Emerging Market Fund provides broad geographic diversification. Although volatile, it provides access to fast-growing economies such as Brazil, China, India and others. The $445.4 million fund’s regional allocation is Asia (58.2%), Europe (18.7%) and Latin America (23.1%)....

NEW GERMANY FUND $10.41 (New York symbol GF; CWA Fund Rating: Speculative) is a closed-end fund that invests mostly in middle-market (small and mid-cap) German equities. The fund’s manager is Deutsche Asset Management. The $378 million fund’s 51 holdings are currently in Germany (95%) and the Netherlands (5%). The New Germany Fund’s focus on mid-tier German stocks provides investors with access to some of Germany’s fastest-growing companies. The New Germany Fund’s top holdings are K+S (chemicals), 12.9%; Fresenius (health care equipment & supplies), 6.0%; SGL Carbon (electrical equipment), 4.7%; Salzgitter (metals & mining), 4.2%; Q-Cells (solar cell manufacturing), 3.9%; GEA Group (chemicals), 3.8%; Bilfinger Berger (construction & engineering), 3.3%; Stada Arzneimittel (pharmaceuticals), 3.0%; European Aeronautical Defense (Dutch-based aerospace and defense), 2.9%; and United Internet (Internet service provider), 2.6%....

KOREA FUND $15.09 (New York symbol KF; CWA Fund Rating: Speculative) is a closed-end fund that invests at least 80% of its assets in Korean equities. Currently, 99% of its assets are in South Korean stocks. The fund’s manager is RCM Asia Pacific. The fund’s top holdings are Samsung Electronics at 9.1%; Posco (steel), 6.5%; KT&G Corporation (cigarette maker), 4.3%; Shinhan Financial, 3.7%; Daewoo International (computers & peripherals), 3.4%; KT Corporation (telecommunications), 3.3%; Dongkuk Steel Mill, 3.3%; Hyundai Engineering & Construction, 3.1%; Samsung C&T Corporation (engineering & construction), 3.1%; and Hynix Semiconductor (computer chips, formerly Hyundai Electronics), 3.0%. The industry exposure of the 38 stocks in the Korea Fund’s $467.3 million portfolio is as follows: Industrials, 25%; Information technology, 17%; Financial services, 15%; Materials, 11%; Consumer staples, 11%; Telecommunications services, 8%; Health care, 3%; Consumer discretionary, 3% and Energy, 1%....

CENTRAL EUROPE AND RUSSIA FUND $30.15 (New York symbol CEE; CWA Fund Rating: Speculative) is a closed-end fund that invests mostly in larger cap stocks from Russia and central Europe. The fund’s manager is Deutsche Asset Management International. The $940 million fund’s 67 holdings are currently invested in Russia (59%), Poland (20%), Turkey (7%), Czech Republic (5%) and Hungary (4%). Central Europe and Russia Fund’s top holdings are Gazprom (a Russian gas utility) at 11.4%; Lukoil (Russian oil and gas), 8.0%; Rosneft Oil Company (Russian oil and gas), 6.2%; Powszechna Kasa Oszczednosci (Polish bank), 5.4%; MMC Norilsk Nickel (Russian metals and mining), 5.2%; Cez (Russian electric utility), 5.2%; Bank Pekao (Polish bank), 4.9%; Sberbank (Russian bank), 4.9%; KGHM Polska Miedz (Polish metals & mining), 3.5%; and Telekomunikacja Polska (Polish telecom), 3.1%....

POWER CORPORATION $31.55 (Toronto symbol POW; SI Rating: Above average) is a diversified holding company. Power Corp. controls one of Canada’s largest mutual-fund companies, IGM Financial, and Great-West Lifeco, one of the largest life insurers. Power Financial, 66.4% held, is a holding company for Power Corp.'s financial assets, including 72.9% of Great-West Lifeco and 58.4% of IGM Financial. As well, Power Financial holds 50% of Parjointco, which in turn owns a 54.3% interest in Swiss-listed Pargesa Holdings SA. Pargesa has 95% of its assets in five large European companies: Imerys (minerals), Total SA (oil), Pernod Ricard (wine and spirits), Suez (energy, water and waste services) and Lafarge SA (cement and building materials). In the three months ended June 30, 2008, Power Corp.'s earnings excluding one-time items rose 3.5%, to $382 million or $0.82 a share, from $369 million or $0.79. Great-West Lifeco contributed $254 million to earnings and IGM Financial contributed $88 million....

VERIZON COMMUNICATIONS INC. $31 (New York symbol VZ; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 2.9 billion; Market cap: $89.9 billion; WSSF Rating: Average) provides telephone services to over 140 million customers in 28 states. Through 55%-owned Verizon Wireless, a joint venture with UK-based Vodafone, it also has 59 million wireless subscribers in 50 states. Verizon’s wireless operations supply about half of its revenues, but 75% of its profits. These figures should rise now that Verizon Wireless has agreed to buy privately held Alltel Corp., which provides wireless services to 13 million customers in mainly rural areas of 34 states. The purchase will make Verizon Wireless the largest wireless provider in the United States, with over 80 million customers. Verizon Wireless will pay $5.9 billion in cash and assume Alltel’s debt of $22.2 billion, for a total price of $28.1 billion. Verizon’s share works out to $15.5 billion. Verizon feels the merger will generate annual cost savings of $1 billion in the second year after closing....

APACHE CORP. $113 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 334.5 million; Market cap: $37.8 billion; WSSF Rating: Average) explores for and produces oil and gas, mostly in North America. It also has operations in the UK, Argentina, Australia and Egypt. Oil accounts for about 67% of its production. Thanks to record high oil and gas prices, Apache’s earnings in the three months ended June 30, 2008 jumped to $4.28 a share (total $1.4 billion) from $1.89 a share ($632.1 million) a year earlier. Cash flow per share rose 57.0%, to $6.94 from $4.42. Revenue grew 57.7%, to $3.9 billion from $2.5 billion. Apache prefers to sell its oil at spot prices, instead of using supply contracts or hedges to lock in prices. Thanks to this strategy, Apache’s stock shot up to $149 in May, 2008, but has since moved down to its current price on lower oil prices....

ENCANA CORP. $70 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 750.2 million; Market cap: $52.5 billion; WSSF Rating: Average) is a major North American producer of natural gas (about 80% of total production) and oil (20%). EnCana prefers to focus on what it calls “key resource plays”, including early-stage natural gas fields and oil sands projects. These assets cost more to develop, at least initially, but can last decades longer than conventional properties. The stock rose to a new peak $99 in May, 2008, partly due to EnCana’s plan to split itself up into two companies — one focusing on natural gas, the other on oil sands and oil refineries. Stockholders will receive one new common share in each new company for every EnCana share they hold. EnCana aims to complete the plan early next year....

CHEVRON CORP. $85 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $178.5 billion; WSSF Rating: Above average) is the secondlargest integrated oil company in the United States after ExxonMobil. Production accounts for about 80% of its earnings. The remaining 20% comes from refineries and retail gas stations. Chevron’s revenue in the second quarter of 2008 rose 47.9%, to $83.0 billion from $56.1 billion a year earlier. However, earnings rose just 15.1%, to $2.90 a share (total $6.0 billion) from $2.52 a share ($5.4 billion). That’s mainly because Chevron’s refineries had to pay about 70% more for crude oil. Due to the combination of lower sales and higher operating costs, the company’s U.S. refineries lost $682 million in the latest quarter. Cash flow per share in the quarter rose 29.4%, to $7.66 from $5.92. The stock hit a new all-time high of $105 in May, 2008, but fell to $78 in September as oil prices fell to about $90 a barrel. However, the stock has moved up to its current price due to the recent surge in oil to $110 a barrel....

YUM! BRANDS INC. $35 (New York symbol YUM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 468.7 million; Market cap: $16.4 billion; WSSF Rating: Average) operates over 35,000 restaurants in over 100 countries. It has five main banners: KFC (fried chicken), Pizza Hut, Taco Bell (Mexican food), A&W (hamburgers) and Long John Silver (seafood).

China offsets slowing U.S. sales

Like McDonald’s, most of Yum’s recent growth comes from its overseas operations. Its fastest-growing division is China, which now accounts for 25% of its revenue and earnings. Yum’s U.S. operations supply 45% of its revenue and earnings, while its international division (excluding China) supplies the remaining 30%. The company’s revenue grew from $8.4 billion in 2003 to $10.4 billion in 2007. Earnings grew 44.7%, from $628.0 million in 2003 to $909.0 million in 2007. Earnings per share rose 63.1%, from $1.03 in 2003 to $1.68 in 2007, on fewer shares outstanding....

MCDONALD’S CORP. $61 (New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.1 billion; Market cap: $67.1 billion; WSSF Rating: Above average) operates over 31,400 fast food restaurants in 118 countries. Much of McDonald’s recent growth comes from its overseas operations, which provide two-thirds of its sales and half of its earnings. That’s mainly because growing prosperity is making the company’s products more affordable in developing countries. The higher value of most foreign currencies compared with the U.S. dollar has also expanded the contribution from McDonald’s international operations. The company also continues to enjoy the benefits from a major overhaul of its operations in 2002. This included slowing the growth of new stores. Instead, it focused on re-modeling older stores to encourage repeat visits. It also added healthier foods such as salads to its menu, to appeal to health-conscious consumers who usually avoid fast food. McDonald’s also sold its investments in several casual dining chains....

WINDSTREAM CORP. $11 (New York symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 439.6 million; Market cap: $4.8 billion; WSSF Rating: Average) provides local and long distance telephone service to 3.1 million customers in 16 states. Most of its customers are in rural areas. Windstream has no wireless operations, so it aims to spur growth with high-speed Internet services. Recent upgrades to its systems have expanded high-speed availability to 93% of its customers. Just 45% of its residential customers currently use highspeed service, so there’s lots of room to grow. As well, Windstream’s focus on rural areas limits competition from larger phone and cable companies....

AT&T INC. $29 (New York symbol T; Income Portfolio, Utilities sector; Shares outstanding: 5.9 billion; Market cap: $171.1 billion; WSSF Rating: Average) provides traditional local and long-distance telecommunication services to over 59 million customers in 22 states. It also has 73 million wireless subscribers nationwide, and 14.7 million high-speed Internet customers. Unlike Verizon, AT&T gets just half of its earnings from its wireless business. However, demand for its wireless services is growing strongly. That’s partly due to AT&T’s exclusive deal to sell Apple’s iPhone. AT&T offers the iPhone at a discount to entice customers to sign a long-term contract. As part of a new deal with Apple, AT&T will now pay more to subsidize the initial cost of the latest version of the device. However, the new iPhone can access the Internet and receive email much more quickly than the older version. Rising revenues from Internet use should help AT&T offset the higher subsidies....

NEW GOLD $4.20 (Toronto symbol NGD; SI Rating: Speculative) (888-315-9715; www.newgold.com; Shares outstanding: 212.1 million; Market cap: $891.0 million) is the result of the merger completed on June 30, 2008 of three companies: Peak Gold, symbol PIK on Toronto, Metallica Resources, symbol MR on Toronto, and New Gold, symbol NGD on Toronto. New Gold operates three mines: the Peak gold/ copper mine in Australia, the Cerro San Pedro gold/ silver mine in Mexico and the Amapari gold mine in Brazil. New Gold expects to produce 297,000 ounces of gold in 2008 and 350,000 ounces in 2009. The company also has $319 million in cash to expand production at the Amapari mine, to develop the El Morro gold/copper mine in Chile and to develop the gold/ silver/copper Afton mine in British Columbia....

EUROPEAN GOLDFIELDS $3.06 (Toronto symbol EGU; SI Rating: Speculative) (44 (20) 7408 9534; www.egoldfields.com; Shares outstanding: 179.4 million; Market cap: $548.9 million) holds a 95% interest in Hellas Gold. Hellas owns three gold and base metal deposits in Northern Greece. The deposits are the Stratoni zinc/ lead/silver property, the Olympias gold/zinc/lead/silver project and the Skouries copper/gold property. Production started at Stratoni in September 2005. Permits to develop the Skouries and Olympias projects are moving steadily forward. European Goldfields also owns 80% of the Certej gold/silver project in Romania, where it has completed a positive feasibility study, and applied for environmental approval and a mining permit. The company also owns 51% of a joint venture developing a goldcopper project in northeastern Turkey....

IAMGOLD $5.94 (Toronto symbol IMG; SI Rating: Speculative) (1-888-464-9999; www.iamgold.com; Shares outstanding: 295.6 million; Market cap: $1.8 billion) has interests in eight operating gold mines: 100% of the Mupane gold mine in Botswana, 38% of the Sadiola gold mine and 40% of the Yatela gold mine, both located in Mali, 18.9% interests in both the Tarkwa and Damang gold mines in Ghana, 100% of the Doyon mine and the Sleeping Giant mine, both in Quebec, and 100% of the Rosebel mine in Suriname, South America. IAMGold also a 1% royalty interest in the Diavik diamond mine in northern Canada and 100% of the Niobec niobium mine in Quebec. It has development projects and exploration activities in Africa, as well as in North and South America. The company reported a sharp rise in cash flow in the three months ended June 30, 2008, to $70.5 million or $0.24 a share, from $23 million or $0.08 a share (All figures except share price and market cap in U.S. dollars.) Revenues rose 34.5%, to $225.1 million from $167.3 million, largely due acquisitions....

YAMANA GOLD $9.99 (Toronto symbol YRI; SI Rating: Speculative) (416-815-0220; www.yamana.com; Shares outstanding: 699.5 million; Market cap: $7.0 billion) owns and operates seven operating mines in five countries in North and South America, along with interests in two others plus five development stage properties. It also holds extensive exploration properties. Yamana’s revenues in the three months ended June 30, 2008 rose 83.5%, to $336.9 million from $183.7 million a year earlier. (All figures except share price and market cap in U.S. dollars.) Last year’s acquisitions of Meridian Gold and Northern Orion Resources accounted for most of the increase. Cash flow rose 94.1%, to $176.5 million from $90.9 million. However, cash flow per share was unchanged at $0.26 due to a 93.3% rise in shares outstanding following the acquisitions. Excluding onetime items, earnings per share fell 31.8%, to $0.15 from $0.22....

STORNOWAY DIAMOND CORP. $0.22 (Toronto symbol SWY; SI Rating: Start-up) (1-888-338-2200; www.sornowaydiamonds.com; Shares outstanding: 227.2 million; Market cap: $50.0 million) holds interests in over 14 diamond exploration properties in Canada and one in Botswana. TSE-listed Agnico-Eagle holds a 17.7% interest in the combined company. Global mining giant Rio Tinto Limited holds an 11.2% interest. Stornoway’s projects include a 50% interest in the Renard diamond project in Quebec, which has the potential to become Quebec’ s first diamond mine. Bulk sampling has produced promising carat-grade recoveries. The project is now in the pre-feasibility stage to define a total resource estimate. Renard is the company’s most advanced project, but close behind is the Aviat project on the Melville Peninsula in the eastern Arctic. This project is a joint venture between Stornoway (90%) and Hunter Exploration (10%). The partners have discovered 12 kimberlites at the Aviat project. Early results have shown high sample grades of diamonds....