CP

Exchange traded funds (ETFs) are set up to mirror the performance of a stock market index or sub-index. They hold a more or less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. ETFs trade on stock exchanges, just like stocks. That’s different from mutual funds, which you can only buy at the end of the day, at a price that reflects the fund’s value at the close of trading. Prices of ETFs are quoted in newspaper stock tables and online. You pay brokerage commissions to buy and sell them, but their low management fees give them a cost advantage over most mutual funds....

POWER CORP. $30.40 (Toronto symbol POW; Shares outstanding: 412.4 million; Market cap: $14.2 billion; TSINetwork Rating: Above Average; Div. yield: 3.8%; www.powercorporation.com) is a diversified holding company. It holds its financial assets through 65.8%-owned Power Financial. These financial assets include 68.1% of Great- West Lifeco, one of Canada’s largest life insurers (see article on Great-West Lifeco in this issue), and 58.7% of IGM Financial, a leading Canadian mutual fund provider. Power Financial also owns 50% of holding company Parjointco, which holds 55.6% of Switzerland- listed Pargesa Holdings SA. Pargesa has 95% of its assets in five large European companies: Imerys (minerals), Total SA (oil), Pernod Ricard (wine and spirits), Suez Environnement (energy, water and waste services) and Lafarge (cement and building materials). Power Corp. also has investments in Asia....

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you advice on specific investment topics. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away. Today’s tip: “Selling half of hot stocks that surge helps you guard your profits. But apply this rule only to more aggressive stocks, and not to the well-established stocks that may surprise you by going a lot higher in the long run.” As you probably know, our Successful Investor business model has two parts. We publish investment advice through The Successful Investor Inc., and we manage investor portfolios through Successful Investor Wealth Management Inc. (These two companies are affiliated by common ownership; I own both but set them up as separate companies for regulatory purposes.)...

CANADIAN PACIFIC RAILWAY LTD., $200.48, Toronto symbol CP, and CANADIAN NATIONAL RAILWAY CO., $67.94, Toronto symbol CNR, both stand to gain as a lack of pipeline capacity in Western Canada forces oil producers to ship crude by rail. In 2013, oil shipments accounted for just 6% of CP’s revenue and 4% of CN’s revenue. However, an oil industry group now expects rail shipments to jump from 200,000 barrels a day in 2013 to 700,000 by 2016. Both companies are upgrading their networks to handle the rising demand. As well, Ottawa recently brought in new rules to phase out older tanker cars, like the ones that exploded in the July 2013 train crash in Lac-Mégantic, Quebec. Oil producers own most of these cars, so they would have to pay for their replacements, not the railways....

CANADIAN PACIFIC RAILWAY $190.72 (Toronto symbol CP; Shares o/s: 175.1 million; Market cap: $32.7 billion; TSINetwork Rating: Average; Dividend yield: 0.7%; www.cpr.ca) expects to ship 140,000 to 210,000 carloads of crude oil a year by the end of 2015, up from 90,000 in 2013.

Higher crude shipments and improving efficiency should increase CP’s 2014 earnings by 30% over 2013, to $8.35 a share....

CANADIAN PACIFIC RAILWAY $171.14 (Toronto symbol CP; Shares outstanding: 175.7 million; Market cap: $29.0 billion; TSINetwork Rating: Average; Dividend yield: 0.8%; www.cpr.ca), transports freight between Montreal and Vancouver, and connects with hubs in the U.S. Midwest and northeast.

In the quarter ended March 31, 2014, CP’s earnings per share rose 16.1%, to $1.44 from $1.24 a year earlier. Revenue increased 0.9%, to $1.51 billion from $1.50 billion.

CP’s operating ratio improved to 72.0% from 75.8% a year ago. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.) It continues to benefit from its efficiency improvements, mainly replacing locomotives, improving tracks and adding software that optimizes train loads and speeds.

...

CANADIAN NATIONAL RAILWAY CO. (Toronto symbol CNR; www.cn.ca) operates Canada’s largest railway. Its 32,350-kilometre network stretches across the country and through the U.S. Midwest to the Gulf of Mexico. Thanks to strong shipping volumes in the wake of the recession, CN’s revenue rose 43.5%, from $7.4 billion in 2009 to $10.6 billion in 2013....

ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $55 and ACO.Y [class II voting] $55; Income Portfolio, Utilities sector; Shares outstanding: 115.1 million; Market cap: $6.3 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.6%; TSINetwork Rating: Above Average; www.atco.com) has won a contract to operate a new camp for 1,500 potash miners in Saskatchewan....

Valeant Pharmaceuticals, $147.02, symbol VRX on Toronto (Shares outstanding: 333.4 million; Market cap: $49.8 billion; www.valeant.com), is a multinational specialty pharmaceutical company that develops, makes and markets a broad range of products, mainly in the areas of neurology, dermatology and generic drugs. On September 28, 2010, Biovail Corporation purchased Montreal-based Valeant Pharmaceuticals International. The combined company took on the Valeant name. Valeant continues to grow by acquisition: in the past few years, it has spent over $19 billion buying more than 35 companies....

Canadian Pacific Railway is up over 130% since we recommended it in March 2012. That was just after we made CP our “Stock of the Year” for 2012 in The Successful Investor, our conservative-growth advisory. CP’s CEO, Hunter Harrison, is now well into a major restructuring program aimed at improving the company’s efficiency and cutting its costs....