canadian tire

TORSTAR CORP. $11 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 79.0 million; Market cap: $869.0 million; Price-to-sales ratio: 0.6; Dividend yield: 3.4%; SI Rating: Above Average) at one time was, like Canadian Tire, a good example of a cyclical growth stock. For decades, ad revenue from The Toronto Star rose and fell with the economic cycle, but generally moved upward. Today, however, some investors feel Torstar is in a long-term or “secular” decline, due to growing competition from free or low-cost news and ads on the Internet. However, the company’s online businesses have offset some of the lost ad revenue at the print division. In January 2010, The Toronto Star’s web site (thestar.com) attracted 37% more unique visitors than in January 2009....

EMERA INC., $24.56, Toronto symbol EMA, owns Nova Scotia Power Inc., which is Nova Scotia’s main electrical-power supplier. Nova Scotia Power supplies 94% of Emera’s revenue. The remaining 6% comes from investments in power companies in the U.S. and the Caribbean. This week, Nova Scotia Power and U.S.-based NewPage Corp. agreed to build a new biomass power plant at NewPage’s Port Hawkesbury paper mill in northern Nova Scotia. Biomass power plants generate electricity by burning plant materials and wood waste. This new facility should start operating by the end of 2012. It will then supply 3% of Nova Scotia’s power needs. Under the deal, Nova Scotia Power will invest $200 million in the new plant, including $80 million to buy an existing wood-burning generator. Most of the remaining $120 million will go toward building a second generator. NewPage will build and operate the biomass plant. It will also supply the fuel....

Calloway Real Estate Investment Trust, $21.56, symbol CWT.UN on Toronto (Units outstanding: 85.2 million; Market cap: $1.8 billion), owns, develops and operates big-box outdoor malls across Canada. These malls feature large stores that are usually part of a chain. In all, Calloway owns 125 shopping centres and two office buildings, with 22.8 million square feet of leasable area. Its malls are located in the suburbs of larger cities, and have lots of room for parking and additional building. The trust gets 58% of its revenue from Ontario, 14% from Quebec, 10% from B.C., 5% from Manitoba, 4% from Saskatchewan, 3% from Newfoundland, 3% from Alberta, 1% from Nova Scotia, 1% from New Brunswick and 1% from Prince Edward Island....

Sears Canada Inc., $28.75, symbol SCC on Toronto (Shares outstanding: 107.6 million; Market cap: $3.1 billion), operates 401 department stores under the Sears name across Canada. The company owns 197 of these stores. The other 204 are dealer stores operated under independent local ownership. Sears also owns 35 home-improvement showrooms and 108 Sears Travel offices. Sears Canada also sells goods online and through printed catalogues. Customers can pick up their orders at over 1,800 locations. The company’s U.S.-based parent, Sears Holding Co., owns 73% of Sears Canada....

Many Canadian firms have tried to expand into the U.S. over the years. Some, like Tim Hortons (symbol THI on Toronto), have had difficulty in the United States. Other companies’ expansion efforts have failed miserably. Canadian Tire (symbol CTC.A on Toronto) provides a memorable example of a failed U.S. expansion. In 1982, the retailer bought a chain of Whites automotive-retail stores in Texas. By 1985, Canadian Tire had lost $300 million on this purchase. That’s when the company decided to sell the division and retreat to Canada. Its stock price has since gone up more than 600%.

This real estate investment trust’s U.S. expansion adds risk — and potential rewards

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CANADIAN TIRE CORP., $52.29, Toronto symbol CTC.A, fell 3% this week after the company reported lower-than-expected 2009 earnings. During the year, Canadian Tire earned $348.0 million, or $4.26 a share. That’s down 12.2% from $396.4 million, or $4.86 a share, in the prior year. These figures exclude several one-time items, including gains and losses on sales of securities by Canadian Tire’s finance division. The company also paid a penalty for redeeming debentures before their expiry date. That will let it take advantage of the improvement in the credit markets to issue new bonds at lower interest rates. Without these one-time items, analysts were expecting Canadian Tire to earn $4.34 a share. Revenue fell 4.8%, to $8.7 billion from $9.1 billion. Overall sales at the company’s main retail division, which consists of its Canadian Tire stores and the PartSource auto-parts chain, fell 2.8%, while same-store sales were 4.2% lower. Weak sales of electronics offset stronger sales of household-cleaning, kitchen and pet-care goods. As well, a lack of snow in Ontario and Quebec hurt sales of winter merchandise, such as snow shovels....

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST $17.47 (Toronto symbol PMZ.UN; Units outstanding: 62.5 million; Market cap: $1.1 billion; SI Rating: Extra Risk; Dividend yield: 7.0%) owns large malls in medium-sized Canadian cities. It also owns major shopping centres in suburbs of large cities. In all, the trust owns 26 properties that contain 9.3 million square feet of leasable area. Primaris has a 96% occupancy rate. Major tenants include Hudson’s Bay, Sears, Shoppers Drug Mart, Loblaw, Reitmans, Canadian Tire and Best Buy. In the three months ended September 30, 2009, Primaris’ revenue fell 0.7%, to $66.1 million from $66.5 million a year earlier. The trust earned less interest on its investments. That offset higher rental revenue. Cash flow per unit fell 14.3%, to $0.30 from $0.35, mainly because of one-time managment and office-restructuring costs. Primaris’ annual distribution of $1.22 gives the units a 7.0% yield....

Most real estate investment trusts (REITs), including our two new recommendations below, are exempt from Ottawa’s income-trust tax, which comes into effect on January 1, 2011. Even so, we still advise against overindulging in REITs. But if you stick with REITs that have steady cash flows and sound balance sheets, like the two we recommend on this page, you should earn attractive long-term returns at relatively low risk. ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $19.55 (Toronto symbol AP.UN; Units outstanding: 39.0 million; Market cap: $763.3 million; SI Rating: Extra Risk; Dividend yield: 6.8%) owns office buildings in Toronto, Montreal, Quebec City and Winnipeg. These mainly Class I properties contain over 5.8 million square feet of leasable area. Allied has a 96.2% occupancy rate....

Rona Inc., $15.55, symbol RON on Toronto (Shares outstanding: 129.7 million; Market cap: $2.0 billion), is the largest Canadian distributor and retailer of hardware, home-renovation and gardening products. Rona operates a network of about 700 stores of various sizes and formats. Franchisees own some of these outlets. The company also operates 40 stores that are geared to commercial customers, particularly contractors. Rona supplies all of its stores through its own network, which consists of nine distribution centres across Canada. Rona first sold shares to the public for $6.90, and began trading on Toronto in October 2002....

Calloway Real Estate Investment Trust, $18.11, symbol CWT.UN on Toronto (Units outstanding: 82.8 million; Market cap: $1.5 billion), owns, develops and operates large-format, outdoor shopping centres in Canada. In all, Calloway owns 125 shopping centres, one office building and two industrial buildings. These comprise 22.4 million square feet of leasable area. Its malls are located in the suburbs of larger cities; they are largely made up of “big-box” stores, and have lots of room for parking and additional building. The trust gets 57.1% of its revenue from Ontario, 14.3% from Quebec, 9.9% from B.C., 4.7% from Manitoba, 3.8% from Saskatchewan, 3.5% from Newfoundland, 3.4% from Alberta, 1.5% from Nova Scotia, 1.1% from New Brunswick and 0.60% from Prince Edward Island....