CAE Inc.

TRANSCANADA CORP. $34 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 615.1 million; Market cap: $20.9 billion; Price-to-sales ratio: 3.0; SI Rating: Above average) plans to build a new pipeline called Pathfinder that would transport natural gas from Colorado to North Dakota. The company planned to offset the $2 billion cost of building the new line by selling a minority stake in it to two local gas producers. However, these producers had to withdraw from the project as the credit crisis has hurt their borrowing ability. TransCanada now hopes to find new partners. But even if it has to cancel the Pathfinder project, it’s only a small part of its overall operations. TransCanada is a buy....

BANK OF MONTREAL $32.30, Toronto symbol BMO, has agreed to buy the Canadian life insurance business of major U.S. insurer American International Group Inc. (AIG). The bank will pay $375 million, which is equal to 19% of the $2.0 billion or $3.76 a share that it earned in the fiscal year ended October 31, 2008. Bank of Montreal’s insurance operations currently supply just 2% of its total revenue, and this purchase will not significantly expand this division’s contribution. However, insurance is a future growth area. As well, Bank of Montreal probably got this business for a bargain price in light of AIG’s severe financial problems. Bank of Montreal is a buy....

TECK COMINCO LTD. $6.35, Toronto symbol TCK.B, fell 50% this week largely due to concerns over its ability to carry a $5.8 billion U.S. short-term loan it used to finance its recent $15.0 billion U.S. takeover of Fording Canadian Coal Trust. That loan itself is now equal to roughly 2.3 times Teck’s market cap. Falling prices for zinc, copper and gold could hurt Teck’s ability to quickly repay the new debt. The company may have to cut or eliminate its $1.00 dividend, which now yields a high 15.7%. It may also have to issue new shares at depressed prices. Teck feels it can pay down a big part of this loan in 2009. It will receive a $1 billion (Canadian) tax refund on the Fording transaction. It also plans to raise cash by selling some of its operations. This could include its gold mining businesses. As well, Teck will delay capital spending on several new projects....

CAE INC. $6.60 (Toronto symbol CAE; Conservative Portfolio - Growth, Manufacturing & Industry sector; Shares outstanding: 254.9 million; Market cap: $1.9 billion; SI Rating: Average) is a leading maker of flight simulators. It also operates pilot-training facilities. CAE’s shares have fallen from a recent peak of $14 in June 2008, largely due to fears that the credit crisis will force airlines to scale back new aircraft purchases. This, in turn, could hurt demand for new flight simulators. However, CAE gets roughly 45% of its revenue from military customers. This limits its exposure to the cyclical air travel industry. As well, demand for CAE’s pilot-training services should remain strong because many pilots are approaching retirement age, and demand for new pilots will rapidly expand when the economy improves....

Despite a stream of nerve-rattling financial news, starting with the failure of the first U.S. bailout package, the Dow Industrials and the S&P 500 managed to hold above Monday’s lows this week until just before Friday’s close. It’s a mistake to read too much into this, of course. But it is encouraging to see these two indexes move sideways in this depressing news environment. The plunge to new lows by the Canadian market reflects the heavy resources content in our economy and stock market. The Resources sector stands to suffer in an economic setback, and that’s already begun to happen with the drop in oil, copper and other metals. In addition to the decline in our market, our dollar lost nearly four cents this past week, relative to the U.S. dollar. We continue to recommend that you spread your investments our across the five main economic sectors, and devote around a quarter of your portfolio to U.S. stocks. Market turnarounds often occur in times of high volatility and bad news. Our advice is to resist any urge you may feel to sell good-quality stocks, just because you fear they may go lower....

CAE INC. $11 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 254.9 million; Market cap: $2.8 billion; SI Rating: Average) continues to win new orders for its flight simulators and pilot training services. It recently received contracts for four simulators worth $54 million. CAE sold 18 simulators in the first half of its current fiscal year, compared with 37 in the fiscal year ended March 31, 2008. Demand should continue to grow as airlines upgrade their aging fleets. Meanwhile, CAE earned $0.18 a share in its first fiscal quarter ended June 30, 2008, up 20% from $0.15 a year earlier. Revenue grew 9.4%, to $392.1 million from $358.3 million. CAE is a buy.

CAE INC. $11.05, Toronto symbol CAE, has won new contracts potentially worth $106 million to supply flight simulators and support services to Canada’s Department of National Defence, the U.S. Navy and military contractors. The company’s military-related operations provide around 40% of its total revenue. That helps offset its exposure to the cyclical air travel industry. Meanwhile, CAE earned $0.18 a share in its first fiscal quarter ended June 30, 2008, up 20% from $0.15 a year earlier. Revenue grew 9.4%, to $392.1 million from $358.3 million. CAE is a buy....

TRANSCANADA CORP. $38.00, Toronto symbol TRP, and U.S.-based oil producer ConocoPhillips each own half of the proposed Keystone pipeline project, which will transport crude oil from Alberta’s oil sands to the United States. Due to strong interest from oil shippers, the partners now plan to extend the pipeline from the U.S. Midwest to refineries in the Gulf Coast region. They will also expand Keystone’s total capacity. This $7 billion U.S. expansion will increase the total cost of the project to $12.2 billion U.S. TransCanada’s share of that total comes to $6.1 billion U.S., which is equal to 2.4 times its 2007 cash flow of $2.6 billion (Canadian) or $4.93 a share. Keystone will reduce TransCanada’s reliance on its traditional gas pipeline business. The partners aim to complete this extension by the end of 2011....

CAE INC. $13 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 254.0 million; Market cap: $3.3 billion; SI Rating: Average) has paid an undisclosed sum for Sabena Flight Academy, which operates pilot training facilities in Belgium and Arizona. The acquisition expands CAE’s annual training capacity, from 1,000 pilots to 1,400. Demand for pilot training services should continue to rise, as many airlines face pilot shortages due to increasing interest in air travel in Asia and the Middle East. CAE also continues to win new orders for its flight simulators. It recently sold five simulators for $56 million. That’s about 4% of CAE’s annual revenue of $1.4 billion. CAE sold 37 flight simulators in the fiscal year ended March 31, 2008, and has sold 10 so far in fiscal 2009. Sales should continue to grow as airlines upgrade their aging fleets. CAE is a buy.

BCE INC. $37.30, Toronto symbol BCE, earned $0.57 a share in the three months ended march 31, 2008, up 9.6% from $0.52 a year earlier. These figures exclude restructuring costs and gains on the sale of investments. Most of the increase was due to savings from the restructuring, as well as lower taxes and interest expenses. Revenue crept up to $4.39 billion from $4.38 billion, as growing demand for BCE’s wireless and Internet services offset lower revenue from its traditional telephone operations. The stock is now trading 13% below the $42.75 a share that a group led by the Ontario Teachers’ Pension Plan has offered for the company. That’s because investors fear that problems in the debt markets will force the consortium to delay, reprice or scrap the deal. However, we feel the takeover will go through by the end of the year. BCE is still a buy....