CAE Inc.

Bombardier and CAE continue to diversify. This cuts their exposure to the air-travel industry, which has struggled lately. Both stocks are also attractive in relation to their earnings. BOMBARDIER INC. (Toronto symbols BBD.A $4.53 and BBD.B $4.51; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $7.7 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.2%; SI Rating: Extra Risk) is the world’s third-largest maker of commercial aircraft, behind Boeing and Airbus. Bombardier’s aerospace division supplies roughly half of its revenue, and two-thirds of its profits. The remaining revenue and earnings come from Bombardier’s transportation division, which is the world’s largest maker of passenger railcars and commuter trains....

Titan Medical, $0.40, symbol TMD on Toronto (Shares outstanding: 19.4 million; Market cap: $7.8 million), is developing Amadeus, a four-armed robotic surgical system. Amadeus is designed to let surgeons remotely manipulate surgical instruments. Titan’s products are still under development, so it has yet to generate any revenue. In the nine months ended September 30, 2009, the company lost $295,498, or $0.08 a share. It holds cash of $1.4 million, or $0.07 a share. Titan recently signed a contract with flight-simulator maker CAE Inc. Under the terms of the deal, CAE will be the exclusive training provider for Amadeus. In exchange, Titan will gain access to CAE’s modelling and simulation expertise. The contract has attracted a lot of investor interest in Titan....

BANK OF MONTREAL, $52.93, Toronto symbol BMO, earned $1.8 billion in its latest fiscal year, which ended on October 31, 2009. That’s down 9.7% from $2.0 billion in the prior year. Earnings per share fell 18.1%, to $3.08 from $3.76, on more shares outstanding. The latest earnings included several unusual charges. These include writedowns of securities the bank holds and severance costs from a 3% cut it made to its workforce. Without these items, the bank would have earned $4.02 a share in fiscal 2009. Analysts were expecting $3.98 a share on that basis. Revenue rose 8.4%, to $11.1 billion from $10.2 billion. That’s mainly because low interest rates continue to push up demand for mortgages and other loans. However, the bank set aside $1.6 billion for bad loans, up 20.5% from $1.3 billion in the prior year. Most of this increase came from its U.S. operations, particularly loans related to the commercial real-estate and manufacturing industries. The U.S. accounts for about 10% of the bank’s revenue....

PENGROWTH ENERGY TRUST, $10.26, Toronto symbol PGF.UN, earned $78.3 million, or $0.30 a unit, in the three months ended September 30, 2009. That’s down 81.5% from $422.4 million, or $1.69 a unit, a year earlier. Cash flow per unit fell 42.7%, to $0.63 from $1.10. Revenue fell 37.3%, to $325.3 million from $518.7 million. These declines mainly reflect lower oil and natural-gas prices. On a combined basis, Pengrowth’s average selling price dropped 33%. As well, its average daily production fell 4%. That’s partly because of a maintenance shutdown at the Sable Offshore Energy Project last summer. The trust owns 8.4% of this business, which operates three offshore-drilling platforms south of Nova Scotia. In October, Pengrowth raised $285 million in a unit issue. It put these funds toward its $1.3-billion long-term debt, which is now a manageable 40% of its market cap. The trust also cut its monthly distributions by 30%, to $0.07 a unit from $0.10. The new annual rate of $0.84 yields 8.2%. Distributions accounted for 44% of Pengrowth’s cash flow in the latest quarter....

CAE INC. $8.75 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 255.6 million; Market cap: $2.2 billion; Price-to-sales ratio: 1.4; SI Rating: Average) recently won $55 million of orders for new flight simulators from several new customers, including Malaysia Airlines, Kenya Airways and New Zealand’s Mount Cook Airlines. CAE has sold 10 flight simulators in its current fiscal year, which ends March 31, 2010. It’s now halfway to its forecast of 20 simulators. CAE also announced $75 million in new military-related contracts. These deals are small in relation to CAE’s $1.7 billion of annual revenue. But the company’s strong reputation should continue to help it attract new business. CAE is a buy.

CANADIAN PACIFIC RAILWAY LTD. $53 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 168.1 million; Market cap: $8.9 billion; Price-to-sales ratio: 1.4; SI Rating: Above Average)...

CANADIAN IMPERIAL BANK OF COMMERCE, $64.11, Toronto symbol CM, set aside roughly $3 billion in August 2005 to settle a class-action lawsuit related to its involvement with failed energy company Enron Corp. In its 2008 fourth quarter, which ended October 31, 2008, the bank recorded a $486-million tax benefit related to this settlement. The Canadian Revenue Agency is now challenging this deduction, and may take CIBC to court. If CIBC wins, it will recognize a further tax gain of $214 million. If it loses, it will have to pay $826 million. To put these figures in context, CIBC earned $434 million, of $1.02 a share, in the three months ended July 31, 2009. That’s a big improvement over the $71 million, or $0.11 a share, it earned a year earlier. However, if you exclude several unusual items, such as writedowns of securities, earnings per share fell 21.9%, to $1.29 from $1.65. On that basis, analysts were expecting $1.41 a share....

We recently read the Yahoo news story of Ddalgi (Korean for “Strawberry”), a five-year-old parrot from Papua, New Guinea, who competed with 10 human investors in a stock-picking contest in South Korea. Strawberry’s stock market picks reportedly posted a 13.7% return. While not good enough for first, the result put her in a respectable third place. Her human competitors, on the other hand, posted an average loss of 4.6%. (The story reminded me of a Globe and Mail stock-picking contest in which I was pitted against eight other human competitors and a plastic Santa. More on that in a moment...) Stories like these are not uncommon, and are not limited to stock-picking contests. You may have heard of Maggie the Monkey, who makes yearly hockey playoff picks that routinely beat those of human analysts....

CANADIAN TIRE CORP., $59.20, Toronto symbol CTC.A, reported quarterly profits that were higher than the year-earlier period, despite lower sales. Cooler-than-normal weather in Ontario and Quebec hurt demand for seasonal goods, such as barbecues and patio furniture. But sales of home-improvement products, like paint, were stronger. In the three months ended July 4, 2009, the retailer’s earnings per share rose 8.6%, to $1.26 from $1.16 a year earlier. These figures exclude unusual items, like gains and losses on asset sales. On this basis, the latest earnings were much better than the $1.02 a share that analysts were expecting. The higher earnings were mainly the result of Canadian Tire’s new inventory-management systems, which improved the productivity of its stores. Revenue fell 5.1%, to $2.3 billion from $2.45 billion a year earlier. Same-store sales at its main retail division (which includes Canadian Tire stores and the PartSource auto-parts chain) fell 2.7%. As well, lower gasoline prices caused a 21.4% revenue drop at Canadian Tire’s gas-station division, despite the fact that its sales volume rose by 1.3%....

CAE INC. $6.68 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 255.1 million; Market cap: $1.7 billion; Price-to-sales ratio: 1.0; SI Rating: Average) stands to gain from both developments. CAE makes flight simulators and operates pilot-training facilities. Lower fuel prices leave its airline customers with more cash to spend on new simulators and training. Falling oil prices cut consumer costs, leaving more funds for travel. In addition, CAE gets 90% of its revenue from customers outside of Canada. A low Canadian dollar increases the value of these sales....