Search

FORTIS INC. $27 (Toronto symbol FTS; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 104.9 million; Market cap: $2.8 billion; SI Rating: Above average) operates electrical power plants in Atlantic Canada, Ontario, Alberta and British Columbia. It also invests in power utilities in the United States and the Caribbean region, and owns hotels and commercial real estate. In 2006, the company earned $1.37 a share (total $148.8 million), up 10.5% from $1.24 a share ($137.1 million) in 2005 (the 2005 earnings included an unusual $7.9 million after-tax gain). Most of the higher earnings came from strong growth at its regulated power plants in Western Canada and the Caribbean. Revenue rose 2.1%, to $1.47 billion from $1.44 billion. In the past few years, Fortis has used acquisitions to geographically diversify its operations. Its latest purchase is the regulated gas distribution business of Terasen Inc. (formerly called BC Gas), which supplies gas to over 900,000 customers in British Columbia....

IVY CANADIAN FUND $30.79 (CWA Rating: Conservative) invests in high-quality, large capitalization stocks. The $4.4 billion fund’s top holdings include Shoppers Drug Mart, United Parcel Service, Manulife Financial, Danaher Corporation, Reckitt Benckister plc, Bank of Nova Scotia, Bank of Montreal, Thomson Corporation, Diageo plc and PepsiCo. Ivy Canadian’s breakdown by industry is: Consumer staples, 26.5%; Financials, 17.8%; Industrials, 14.8%; Consumer discretionary, 9.6%; Energy, 3.1%; Utilities, 3.1%; Information technology, 1.4%; and Health care, 1.1%....

IVY EUROPEAN FUND $14.61 (CWA Rating: Aggressive) holds mostly good quality stocks, although it has underperformed the 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, or the closed-end European Equity Fund. Ivy European Fund is a sell.

IVY ENTERPRISE FUND $4.78 invests in smaller and medium-sized companies. The $220.1 million fund has an MER of 2.42%. The fund’s overall choice of stocks doesn’t inspire our confidence. Its top holdings are Winpak, Richie Brothers Auctioneers, Daktronics Inc., Resources Connection, Idexx Laboratories, Astral Media, Canadian Western Bank, Brown & Brown, Henry Schein and Stratasys Inc. We think investors can do better by buying some of the other small-cap funds we recommend in Canadian Wealth Advisor. ...

IVY FOREIGN EQUITY FUND $30.39 (CWA Rating: Conservative) outperformed the Morgan Stanley benchmark international index over the last 10 years. The fund gained 8.6%, and that was better than the Morgan Stanley benchmark’s gain of 6.7%. Ivy Foreign Equity Fund made 21.3% 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 10 holdings are Reckitt Benckister plc (UK household & healthcare products), Danaher Corp. (U.S. control products and tools), Essilor International SA (corrective eyewear), Henry Schein Inc., (U.S. healthcare), PepsiCo (U.S. food & beverage), William Demant (hearing health products), United Parcel Service (U.S. express carrier, Diageo plc (UK alcoholic drinks) and Ecolab Inc. (U.S. maintenance & cleaning products). The fund holds 42.1% of its assets in the U.S., 14.7% in the UK, 12.9% in France, 5.6% in Denmark, 5.0% in Canada and 3.0% in Switzerland....

IVY GROWTH AND INCOME FUND $23.87 (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 7.5% annually for the 10 years. It made 10.2% over the last year. The fund’s MER is 2.14%. The fund’s top stock holdings are Shoppers Drug Mart, PepsiCo, Omnicom Group (U.S. media services), Bank of Nova Scotia, Danaher Corp. (U.S. control products and tools), Reckitt Benckiser plc (UK household & healthcare products), Thomson Corp., Manulife Financial and United Parcel Service. This $3.5 billion fund holds 21% 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....

H&R REAL ESTATE INVESTMENT TRUST $25.75 (Toronto symbol HR.UN; SI Rating: Extra risk) holds interests in 34 office properties, 115 single-tenant industrial properties and 143 retail properties. Over half are in the Greater Toronto Area. The rest are elsewhere in Ontario, in Quebec, western Canada and the U.S. H&R aims to acquire only properties that it can lease long-term to creditworthy tenants. It now has an industry-leading portfolio occupancy rate of 99.6%. Revenue in the three months ended December 31, 2006 was $151.1 million, up 21.4% from $124.4 million a year earlier. Cash flow per unit fell 2.3%, to $0.43 from $0.44. H&R’s units now yield 5.3%....

CANADIAN REIT $32.98 (Toronto symbol REF.UN; SI Rating: Extra Risk) owns a portfolio of more than 140 income properties consisting of retail, industrial and office properties across Canada and in the Chicago, Illinois area. The company’s portfolio contains more than 19.1 million square feet of space.

CREIT’s revenue in the three months ended December 31, 2006 was $71.8 million, up 13.4% from $63.3 million a year earlier. Cash flow per unit was unchanged at $0.49. The units now yield 3.9%.

CREIT focuses on acquiring properties in prime locations, usually near major metropolitan centres, that attract strong tenants, maintain high occupancy rates and deliver a reliable stream of rental income.

Canadian REIT is a buy.

RIOCAN REAL ESTATE INVESTMENT TRUST $26.61 (Toronto symbol REI.UN; SI Rating: Average) is Canada’s largest REIT. RioCan has total assets of $4.6 billion, consisting of ownership interests in a portfolio of 206 retail properties across Canada, including nine under development. These properties contain over 52.1 million square feet of leasable area. RioCan’s revenue in the three months ended December 31, 2006 was $151.2 million, up 8.8% from $138.9 million a year earlier. Cash flow per unit rose 14.7%, to $0.39 from $0.34. Portfolio occupancy is at an all-time high of 97.7%. RioCan’s annual distribution of $1.32 gives it a current yield of 5.0%. RioCan is still a buy.

GREAT-WEST LIFECO $36.20 (Toronto symbol GWO; SI Rating: Above-average) is a leading Canadian insurance company, with $210.6 billion in assets under administration. The company also provides wealth management and other financial services. It also operates in the U.S. and Europe. Power Financial controls about 75% of Great-West. Great-West’s earnings in the three months ended December 31, 2006 rose 4.9%, to $491 million or $0.55 a share from $456 million or $0.51. Revenues rose 29.7%, to $8.5 billion from $6.5 billion. Great-West recently raised its quarterly payout by 6.3%, to $0.255 from $0.24. It now yields 2.8%. Great-West has agreed to buy U.S.-based investment management firm and mutual fund company Putnam Investments Trust for $3.9 billion U.S. The deal also gives Great-West a 25% stake in Thomas H. Lee Partners, a private equity firm. It will more than double Great-West’s assets under administration....

MANULIFE FINANCIAL $39.22 (Toronto symbol MFC; SI Rating: Above-average) sells life and other forms of insurance, as well as mutual funds and investment management services. It operates in 19 countries and territories worldwide. Manulife has assets under administration of $414 billion, up 11.4% from $371.5 billion at the end of 2005. In the three months ended December 31, 2006. Manulife’s earnings rose 14%, to $1.1 billion or $0.70 a share, from $908 million or $0.56 a share a year earlier. Revenue rose 9.5%, to $9.2 billion from $8.4 billion. The shares yield 1.8%. Manulife’s operations are well diversified among life and health insurance, segregated mutual funds, and reinsurance. Its geographic diversification in the U.S. and Asia, including China, offers growth prospects....

SUN LIFE FINANCIAL $50.54 (Toronto symbol SLF; SI Rating: Above-average) offers savings, retirement, pension and life and health insurance products and services to individuals and corporations. The company operates mainly in Canada, the U.S. and the UK, and also in Asia and India. It has assets under administration of $436.5 billion. In the three months ended December 31. 2006, Sun Life’s earnings rose 14%, to $545 million or $0.95 a share, from $478 million or $0.82 a share a year earlier. Revenue rose 15%, to $6.1 billion from $5.3 billion a year earlier. The company recently raised its quarterly dividend by 6.7%, to $0.32 from $0.30. The shares now yield 2.4%. Sun Life is still a buy.

BORDERS GROUP INC. $22 (New York symbol BGP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 59.4 million; Market cap: $1.3 billion; WSSF Rating: Average) is the nation’s second-largest bookseller, with 473 superstores and 678 mall-based stores. It also has 55 stores overseas, mostly in the UK. Overall sales grew 3.5% during Christmas. But on a same-store basis, sales fell 1.9% at its U.S. superstores, and 6.3% at the mall stores. The lower sales growth probably cut the company’s fiscal 2007 profit to $0.50 a share from $1.42 a year earlier. The stock trades at 44.0 times that estimate. The lower earnings also reflect the start-up costs of a new loyalty card program. The company has signed up 14 million members, but this does not appear to have raised sales so far. Store renovations have also hurt earnings. But these initiatives should improve customer satisfaction, and encourage more return visits....

BARNES & NOBLE INC. $43 (New York symbol BKS; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 65.6 million; Market cap: $2.8 billion; WSSF Rating: Average) is the largest bookseller in the United States, with 681 full-size stores and 118 mall-based stores. It has no foreign operations. Due to a lack of best-selling titles and growing competition from online booksellers, same-store sales during the busy Christmas shopping season fell 0.1%. Sales should improve over the next few months due to this summer’s release of the final Harry Potter novel. TV-host Oprah Winfrey is once again recommending books on her show, which should also spur sales. Despite the lackluster sales and uncertainty over the possible backdating of options, Barnes & Noble’s stock has moved up on takeover rumors. Insiders control roughly 25% of the shares, which could scare off some bidders. Still, the company’s steady cash flow makes it an appealing target....

WEYERHAEUSER CO. $84 (New York symbol WY; Conservative Growth Portfolio, Resources sector; Shares outstanding: 236.5 million; Market cap: $19.9 billion; WSSF Rating: Average) is a leading forest products company, with 6.4 million acres of timberland in the United States, and 30 million acres of leased timberland in Canada. It makes a wide variety of wood products for the construction industry, as well as cardboard packaging. In August 2006, Weyerhaeuser agreed to merge its fine-paper operations with Canadian forest products company Domtar Inc. Weyerhaeuser will own 55% of the new company, which will be North America’s largest producer of uncoated paper. Domtar will also pay Weyerhaeuser $1.35 billion. Weyerhaeuser is giving its investors the choice of keeping their Weyerhaeuser shares, or exchanging them for stock in the new company....

ENCANA CORP. $48 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 772.0 million; Market cap: $37.1 billion; WSSF Rating: Average) is a leading Canadian energy company. Natural gas accounts for 80% of its production, while oil supplies the remaining 20%. In the three months ended December 31, 2006, lower gas prices cut EnCana’s profit 42.5%, to $0.84 a share from $1.46 a year earlier. These figures exclude unusual items such as gains on the sale of assets and hedging gains. Cash flow per share fell 24.3%, to $2.18 from $2.88, while revenue fell 37.3%, to $3.7 billion from $5.9 billion. In the past few years, EnCana has sold its overseas assets to focus on unconventional properties in North America, such as early-stage gas fields and the oil sands in Alberta....

CHEVRON CORP. $70 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.2 billion; Market cap: $154.0 billion; WSSF Rating: Above average) is the second-largest integrated oil company in the United States, after ExxonMobil Corp. The company produces oil and natural gas in 35 countries, and refines oil into gasoline and petrochemical products. It also operates 26,500 gas stations. The U.S. accounts for 30% of Chevron’s total production. In the three months ended December 31, 2006, Chevron’s earnings fell 6.5% to $1.74 a share (total $3.8 billion) from $1.86 a share ($4.1 billion) a year earlier. Revenue fell 11.3%, to $47.7 billion from $53.8 billion....

PEPSICO INC. $65 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $104.0 billion; WSSF Rating: Above average) is the world’s second-largest maker of soft drinks after Coca-Cola. Leading brands include Pepsi, Mountain Dew and Slice. Through its Frito-Lay division, PepsiCo is also the world’s leading maker of salty snack foods, such as corn chips (Doritos, Fritos) and potato chips (Lay’s, Ruffles, Stax).

New products cut risk

...

CANADIAN TIRE CORP. $70 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer Growth Portfolio; Shares outstanding: 81.7 million; Market cap: $5.7 billion; SI Rating: Above average) and its associated dealers operate 465 stores that specialize in automotive equipment, home improvement and sporting goods. The group also operates 260 gas stations, 60 auto parts stores and 330 Mark’s Work Wearhouse casual clothing stores. Canadian Tire saw the threat from Wal-Mart in the mid-1990s, and began to replace its older stores with bigger ones. It also developed a new store format it calls “Concept 20/20", which tends to generate higher customer traffic and sales than its regular stores. About 20% of Canadian Tire’s stores now use this format. Like Loblaw and Sobeys, Canadian Tire has also overhauled its distribution networks and computerized its inventory control systems. Ongoing savings from these investments will help Canadian Tire stay competitive....

SOBEYS INC. $42 (Toronto symbol SBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 65.5 million; Market cap: $2.8 billion; SI Rating: Average) is Canada’s secondlargest grocery retailer, after Loblaw. It operates around 1,300 stores, mainly in Central and Atlantic Canada. Major banners include Sobeys, Foodland, IGA and Price Chopper. Empire Company owns 70% of Sobeys. Like Loblaw, Sobeys has expanded into non-food merchandise. It has also re-modeled many of its stores, and installed new computerized cash registers. Over half of Sobeys’ stores now use the same computerized inventory system, which should cut its long-term operating costs. The company also plans to streamline more of its distribution activities, including consolidating its operations into a planned automated facility near Toronto....

LOBLAW COMPANIES LTD. $51 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 274.1 million; Market cap: $14.0 billion; SI Rating: Above average) is Canada’s largest food seller, with about 1,700 stores under the Loblaws, Fortinos, No Frills, Provigo and Zehrs banners. It also distributes groceries to other stores. George Weston Ltd. owns 63% of Loblaw’s shares. In 2004, the company began a major restructuring in the face of growing competition from Wal- Mart and Costco. It expanded the amount of non-food merchandise its stores carry, and consolidated its distribution centres. However, problems with the new distribution system led to shortages of popular items at some stores. In addition, the new merchandise did not draw as many customers as Loblaw hoped....

MAPLE LEAF FOODS INC. $14 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 127.6 million; Market cap: $1.8 billion; SI Rating: Average) is Canada’s largest supplier of fresh and frozen meat products, mostly under the Maple Leaf and Schneiders brands. It also makes animal feeds and owns 87.5% of Canada Bread Company, Ltd., which makes bread, pasta and sauces. Maple Leaf’s revenue hovered around $5.0 billion from 2001 to 2003. In 2004, it acquired rival Schneider Corp. for $499 million. Consequently, revenue grew to $6.4 billion in 2004, and $6.5 billion in 2005. Profits rose from $0.55 a share (total $57.4 million) in 2001 to $0.71 a share ($84.7 million) in 2002, but fell to $0.27 a share ($35.1 million) in 2003 due to restructuring costs. The Schneider acquisition helped lift earnings in 2004 to $0.89 a share ($102.3 million), but more restructuring costs cut profits in 2005 to $0.72 a share ($94.2 million)....

SAPUTO INC. $39 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 103.2 million; Market cap: $4.0 billion; SI Rating: Average) is Canada’s largest producer of dairy products. Major brands include Saputo, Armstrong, Stella and Dairyland. The company is also the fifth-largest cheese producer in the United States, and the third-largest dairy company in Argentina. Saputo’s Canadian businesses supply 80% of its profit. Revenue fell from $3.5 billion in 2002 (fiscal years ended March 31) to $3.4 billion in 2003, but climbed steadily to $4.0 billion in 2006. Profits rose from $1.54 a share (total $160.2 million) in 2002 to $2.20 a share ($232.1 million) in 2005. A writedown cut profits in 2006 to $1.82 a share ($192.1 million). Much of Saputo’s recent growth has come from acquisitions. That’s because the North American dairy business is a mature, slow-growing industry, and acquisitions are a faster and at times cheaper way to expand market share than internal growth....

SCOTIA CANADIAN GROWTH FUND $69.01 (CWA Rating: Conservative) (Scotia Securities, 40 King Street West, 6th Floor, Toronto, Ontario M5H 1H1. 1-800-268-9 269; Website: www.scotiabank.com. No load — deal directly with the company.) uses fundamental analysis to identify what the managers see as investments that have the potential for above-average growth. The $609.0 million Scotia Canadian Growth Fund’s 10 largest holdings are Manulife, Suncor Energy, Royal Bank, TD Bank, Goldcorp, Petro-Canada, CN Railway, CIBC, Sun Life Financial and EnCana. Scotia Canadian Growth currently holds 31.5% of its portfolio in the Financial services industry. Its next-largest holding is Energy at 19.7%....

CIBC CANADIAN EQUITY FUND $25.59 (CWA Rating: Conservative) (CIBC Securities, 5140 Yonge Street, Suite 900, Toronto, Ontario M2N 6X7. 1-800-631-7008; Website: www.cibc.com. No load — deal directly with the company.) uses a “bottom-up” approach (using fundamentals such as earnings, cash flow and low debt) to identify companies that trade at reasonable valuations and yet have growth potential. The $644.5 million fund’s top holdings are Petro- Canada, EnCana, Manulife Financial, Teck Cominco, Bank of Nova Scotia, TD Bank, Canadian National Railway, Bank of Montreal, National Bank and Suncor Energy. CIBC Canadian Equity holds 39.4% of its portfolio in Financial services stocks and 24.1% in Energy stocks....