cn rail

INDIGO BOOKS & MUSIC INC. $14 (Toronto symbol IDG; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 24.7 million; Market cap: $345.8 million; SI Rating: Extra risk) earned $3.2 million in its second fiscal quarter ended September 27, 2008, down 4.5% from $3.3 million a year earlier. Earnings per share were unchanged at $0.13. Sales fell 1.9%, to $205.3 million from $209.2 million. The year-earlier quarter benefitted from the release of the final Harry Potter novel. If you exclude this book, overall sales would have increased by $7.6 million. Indigo is a buy. FORTIS INC. $27 (Toronto symbol FTS; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 157.3 million; Market cap: $4.2 billion; SI Rating: Above average) earned $0.31 a share in the third quarter of 2008, up 55.0% from $0.20 a year earlier. However, the latest earnings included a $0.05 a share tax gain related to its May, 2007 acquisition of Terasen Inc., which distributes natural gas in B.C. Excluding this gain, earnings would have grown 30.0%. Higher earnings at Terasen and its regulated power utilities in Canada offset lower earnings at its Caribbean operations. Revenue rose 11.7%, to $727 million from $651 million....

One of the brightest signs in today’s market is that many great stocks now trade below 10 times earnings. That’s especially true of high-quality technology issues, since they spend so heavily on research, which gets written off against earnings like a routine expense. Low p/e ratios are also particularly appealing at times when interest rates are low, as they are now. Of course, earnings could drop next year and push up those p/e ratios. Stock prices could move lower, for a variety of reasons. But that’s always a risk. To profit best, you need to invest mainly in well-established companies that are likely to recover from the economic downturn and go on to produce still higher earnings in the future. BCE INC. $25.25, Toronto symbol BCE, fell 34% on Wednesday on fears that the $42.75-a-share takeover offer from a consortium headed by the Ontario Teachers’ Pension Plan may be dead....

I still feel that government efforts now underway are likely to solve today’s financial crisis. However, these steps come at a price. My best guess is that we’ll see much higher inflation as a result of all this newly supplied liquidity, probably in the early part of the next decade. My view is that you should keep this inflationary potential in mind, but it’s too early to try to profit from it. That’s partly due to the drawbacks of Resources stocks. They do provide a handy hedge against inflation, and even many of the most pessimistic observers now feel that resource prices are bound to rise in the next few years, as millions of Indian and Chinese workers pole-vault into the middle class. But many pessimists felt the same way following the last great resource and commodity boom, in the 1970s and 1980s. After that boom ended, the sector went into a slump that lasted 15 years or more....

TRANSCONTINENTAL INC. $13.85, Toronto symbol TCL.A, earned $30.3 million in its third fiscal quarter ended July 31, 2008, up 6.7% from $28.4 million a year earlier. Per-share earnings rose 11.8%, to $0.38 from $0.34 on fewer shares outstanding. These figures exclude unusual items. Revenue rose 6.1%, to $584.9 million from $551.1 million. If you exclude the negative impact of the higher Canadian dollar on Transcontinental’s U.S. and Mexican operations, revenue in the quarter would have grown 8%. Transcontinental’s recent investments in new printing presses should continue to keep its costs low. The company’s expertise and flexibility is also helping it win new printing contracts. For example, it recently started to print flyers for Shoppers Drug Mart in a deal worth $25 million a year. Transcontinental is a buy....

TRANSALTA CORP. $34.95, Toronto symbol TA, rose 15% this week after it received an informal takeover offer worth $39.00 a share from a private equity partnership that includes Luminus Management. Luminus currently owns about 9% of TransAlta’s stock, and has pressured the company to sell non-core assets, buy back shares and raise the dividend. The stock currently trades about 10% below the offer. That’s mainly due to concerns that problems in credit markets will make it difficult for the buyers to borrow the cash they need to complete the takeover. TransAlta is a major supplier of Alberta’s electricity. The buyers could have difficulty winning regulatory approval if the takeover significantly increases TransAlta’s debt, and limits its ability to invest in new power plants or environmental upgrades....

BCE INC. $39.25, Toronto symbol BCE, gained $4 last Friday after it agreed to stop paying common share dividends as part of a new deal with the consortium headed by the Ontario Teachers’ Pension Plan that plans to buy BCE. The consortium will still pay $42.75 a share for BCE, and aims to close the transaction by December 11, 2008. However, suspending the dividend will save the company about $900 million, and make it easier for the consortium to secure the roughly $35 billion from lenders they need to complete the acquisition. The consortium has also agreed to pay BCE $1.2 billion if it backs out of the deal, up 20% from the original break-up fee of $1 billion. BCE is still a buy....

Watch Pat McKeough’s June 20 interview on the Business News Network “Market Call” program with Michael Hainsworth. Click here to see the interview. Or, go to www.bnn.ca and you’ll find the link on the lower right side of the page. BCE INC. $34.60, Toronto symbol BCE, should move higher next week now that the Supreme Court of Canada has ruled against a lawsuit launched by the company’s bondholders. The bondholders claimed that the takeover of BCE by a consortium headed by the Ontario Teachers’ Pension Plan would reduce the security of their investments. While this latest ruling greatly improves the chances the $42.75-a-share takeover will go through, problems in the debt markets could still prompt some of the consortium members to back out. That could force the buyers to delay, reprice or scrap the deal. If so, the stock will probably fall, but it is likely to stay above its pre-takeover level of around $30 a share....

CANADIAN NATIONAL RAILWAY CO. $50 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 485.2 million; Market cap: $24.3 billion; SI Rating: Above average) is the subject of a $270 million lawsuit accusing it of failing to pay overtime to 1,000 current and former employees. However, any award is likely to be modest next to CN’s 2007 cash flow of $2.6 billion or $5.12 a share. CN Rail is a buy. CANADIAN TIRE CORP. $66 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.5 million; Market cap: $5.4 billion; SI Rating: Above average) plans to phase out the print version of its catalogue, which it publishes twice a year. That’s because more people are now shopping online rather than using catalogues. Canadian Tire will invest the money it now spends on paper and printing in its own website and direct marketing campaigns....

CANADIAN PACIFIC RAILWAY LTD. $69.08, Toronto symbol CP, fell 4% this week as the slowing U.S. economy prompted the company to lower its earnings forecast for 2008, to $4.50 a share from an earlier estimate of $4.70. Revenue in the three months ended March 31, 2008 grew 2.7%, to $1.15 billion from $1.12 billion a year earlier. Higher volumes of grain, fertilizers and industrial goods helped offset lower shipments of lumber and automobiles. Earnings before unusual items fell 3.8%, to $0.75 a share from $0.78, due to severe winter weather, rising fuel costs and foreign exchange losses. The higher costs pushed CP’s operating ratio (regular operating costs divided by revenue – the lower, the better) up to 82.7% in the latest quarter from 79.5% a year earlier....

TRANSCANADA CORP. $38.06, Toronto symbol TRP, has teamed up with U.S.-based Williams Companies Ltd. to evaluate the Sunstone project, a proposed pipeline that would transport natural gas from the Rockies to the western United States. Sunstone could begin operations in 2011. Both companies already operate pipelines in the region, which cuts the risk of this project. TransCanada is a buy. TRANSALTA CORP. $30.36, Toronto symbol TA, fell 10% this week after activist shareholder Luminus Management withdrew its slate of director nominees....