acquisition strategy

Pat McKeough responds to many personal questions about specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week, an Inner Circle member asked about the wisdom of taking profits on a high-yielding stock whose shares have had a big run-up in price. Pat assesses the prospects of this gas station operator which has done an astute job of franchising its stations but also pursues a growth-by-acquisition that adds risk in a competitive industry.

Q: Hello again Pat: I bought Parkland Fuel Corp. about 18 months ago and have enjoyed the wonderful yield and am up 60% on the stock value. I am tempted to realize my capital gain. What are your thoughts on this stock?

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A: Parkland Fuel Corp., $19.56, symbol PKI on Toronto (Shares outstanding: 67.7 million; Market cap: $1.3 billion, www.parkland.ca), operates gas stations, convenience stores and a fuel distribution business, mostly in western Canada and Ontario. The company was called Parkland Income Fund prior to its conversion to a dividend-paying corporation on December 31, 2010. Parkland owns 141 rural gas stations and convenience stores. Its brands include Fas Gas Plus, Race Trac Gas and Short Stop (convenience stores). Many stations sell propane in addition to gasoline and diesel fuel. The company also operates Esso gas stations in western Canada and Ontario under a licensing deal with Imperial Oil Ltd. (symbol IMO on Toronto)....

CGI GROUP INC. (Toronto symbol GIB.A; www.cgi.com) is Canada’s largest provider of computer outsourcing services. CGI helps its clients automate routine functions, like accounting and buying supplies. That makes them more efficient and lets them focus on their main businesses.

CGI was our #1 stock pick for 2010 and 2011. In the past few years, the company has used acquisitions to expand outside of Canada. For example, it recently paid $2.7 billion for Logica plc, a U.K.-based firm that provides computer outsourcing services in 36 countries.

Thanks to purchases like this, CGI is more geographically diversified: it now gets 47% of its revenue from the U.S., 36% from Canada and 17% from the rest of the world.

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Pat McKeough responds to many personal questions about specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week, we had a question from an Inner Circle member on one of the prominent Canadian stocks in the agricultural industry. This firm specializes in grain handling and other equipment and does the greater part of its business overseas, in the U.S. and countries of the former Soviet Union. The company is buying up small firms and Pat examines whether these acquisitions and today’s sophisticated farming methods provide steady growth in an industry that is traditionally cyclical and fickle. ...

Pat McKeough responds to many personal questions about specific stock market advice and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week, one Inner Circle member asked about a Canadian stock that plays a unique role in the transportation and utilities industries. Stella-Jones has established a niche as a maker of railroad ties and telephone poles, and Pat looks at its ambitious expansion program into the United States and the risks of this growth-by-acquisition strategy. ...

Stella-Jones Inc., $78.15, symbol SJ on Toronto (Shares outstanding: 17.2 million; Market cap: $1.3 billion; www.stella-jones.com), makes pressure-treated wood products, including railway ties (59% of sales), utility poles (27%), lumber for industrial uses, such as construction timbers and highway guardrails (8%), and treated lumber products for the residential market (6%). The company gets most of its utility poles from timberlands it leases in Quebec, B.C. and Alberta. It also buys wood for railway ties and other products from sawmills in Canada and the U.S. Stella-Jones continues to expand in the U.S., which now provides two-thirds of its sales. In April 2010, it purchased Tangent Rail Corp. for $170 million U.S. Tangent makes railway ties at plants in Alabama, Indiana, Louisiana and Pennsylvania....

Pat McKeough responds to many personal questions about specific stock market advice and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week, one question from an Inner Circle member concerned a leading Canadian waste company. This firm has made several acquisitions, and Pat takes a detailed look at the company’s strategy and the risks it takes in order to pursue the potential rewards of growth by acquisition. ...

Progressive Waste Solutions, $21.15, symbol BIN on Toronto (Shares outstanding: 115.2 million; Market cap: $2.4 billion; www.progressivewaste.com), changed its name from IESI-BFC in May 2011. IESI-BFC was called BFI Canada until June 1, 2009, when it merged with its wholly owned subsidiary, IESI-BFC Ltd. In Canada, the company mainly operates as Progressive Waste Solutions, BFI Canada and Waste Services Inc. (WSI). It uses the Progressive Waste Solutions, IESI and WSI banners in the U.S. Progressive is one of North America’s largest solid-waste-management companies. However, it does not manage, collect or dispose of hazardous or liquid waste....

Brookfield Office Properties, $16.15, symbol BPO on Toronto (Shares outstanding: 504.3 million; Market cap: $8.1 billion; www.brookfieldofficeproperties.com), owns office buildings in the downtown cores of New York, Washington, D.C., Houston, Boston and Los Angeles in the U.S.; Toronto and Calgary in Canada; Sydney, Melbourne and Perth in Australia; and London, England. In all, these holdings consist of 112 properties with 69 million square feet of leasable area. In the three months ended September 30, 2012, Brookfield’s revenue rose 17.9%, to $580 million from $492 million a year earlier. Cash flow per share fell 3.3%, to $0.29 from $0.30. The stock yields 3.5%. Brookfield will face a challenge at the end of next year when Bank of America Merill Lynch moves out of its three-million-square foot space at Brookfield’s World Financial Centre in New York (which will likely be renamed Brookfield Place New York). However, Brookfield is optimistic it can find new tenants....

CHEMTRADE LOGISTICS INCOME FUND $15.49 (Toronto symbol CHE.UN; TSINetwork Rating: Speculative) (416-496-5856; www.chemtradelogistics. com; Units outstanding: 41.7 million; Market cap: $645.9 million; Dividend yield: 7.8%) is one of North America’s largest providers of removal services for resource firms, such as oil refineries and base-metal processors. These companies create sulphur, acid and other by-products as part of their activities. Chemtrade converts these substances into useful chemicals, like sulphuric acid. In June 2011, Chemtrade bought Marsulex Inc. for $419.5 million. Marsulex provides a range of environmental services, including improving air quality and treating and handling industrial waste. In the three months ended September 30, 2012, Chemtrade’s revenue fell 10.3%, to $240.9 million from $268.5 million a year earlier. Cash flow per unit fell 25.0%, to $0.72 from $0.96. However, the decline was mostly due to a one-time accounting charge. The 2011 quarter was also particularly strong....