CP

ROYAL BANK OF CANADA $57 (Toronto symbol RY) earned $1.14 a share in its first fiscal quarter ended January 31, 2007, up 28.1% from $0.89 a year earlier, thanks to strong gains at both its Canadian and U.S. operations. The bank also raised its quarterly dividend 15%, from $0.40 a share to $0.46. It now yields 3.2%. The current rate is 35% of earnings, which is below Royal’s target of between 40% and 50%, so further hikes seem likely. Buy. CANADIAN PACIFIC RAILWAY LTD. $63 (Toronto symbol CP) has increased its quarterly dividend four times in the past three years. The new annual rate of $0.90 yields 1.4%. The company also increased its latest share repurchase authorization by 10% over 2006. Best Buy. CAE INC. $12 (Toronto symbol CAE) has sold 33 flight simulators to civilian airlines so far in fiscal 2007 (fiscal years end March 31). That’s a 57% gain over the 21 simulators it sold in fiscal 2006. The company’s pilot training business is also in a good position to profit from rising demand for new pilots, particularly in Asia. Buy....

CANADIAN PACIFIC RAILWAY LTD. $64 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 155.5 million; Market cap: $10.0 billion; SI Rating: Above average) is starting to enjoy the benefits of a recent expansion of its network in Western Canada. In the three months ended December 31, 2006, profits grew 7.5%, to $1.15 a share from $1.07 a year earlier. These figures exclude unusual items and foreign exchange losses. Revenue rose just 1.7%, to $1.19 billion from $1.17 billion, as lower coal shipments offset higher grain and fertilizer volumes. The company is also doing a good job of cutting its costs. Its operating ratio (regular operating expenses divided by revenue — the lower, the better) fell to 73.1% in the latest quarter from 73.9% a year earlier. A plan to increase locomotive speed and cut waiting times in rail yards should help improve CP’s efficiency in 2007. The recent weakening in the Canadian dollar should also help raise earnings at its U.S. operations. Canadian Pacific is a buy.

CANADIAN PACIFIC RAILWAY LTD. $64 (Toronto symbol CP) expects earnings in 2007 will rise 10% to $4.40 a share. Improving efficiencies should offset slowing coal volumes. Growing demand for other resources like potash should increase 2007 revenue by 5%. Best Buy. ALCAN INC. $57 (Toronto symbol AL) plans to build a new aluminum smelter in South Africa, and has arranged a 25-year electricity supply deal. The energy deal should make it easier for Alcan to bring in partners and offset the $2.7 billion cost (all amounts except share price in U.S. dollars); Alcan earned $461 million or $1.22 a share before special items in the third quarter of 2006. Best Buy. TRANSCANADA CORP. $40 (Toronto symbol TRP) has won a contract to build a new gas-fired power plant west of Toronto. Growing demand for power in this region should help TransCanada quickly recover the $670 million cost of the new plant; it earned $243 million or $0.50 a share before one-time items in its most recent quarter. Best Buy....

CANADIAN PACIFIC RAILWAY LTD. $64 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Above average) provides freight service through a 13,500- mile rail network between Montreal and Vancouver. It also operates in the U.S. Midwest and Northeast through subsidiaries. Alliances with other rail companies extend its reach to Mexico. CP transports a wide variety of products, such as grain, coal and manufactured goods. That helps cut its reliance on a single industry or customer....

NOVA CHEMICALS CORP. $35 (Toronto symbol NCX; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Extra risk) plans to close a polystyrene plant in the UK. Writedowns and severance costs will cut Nova’s earnings by $43 million (all amounts except share price in U.S. dollars). The closure is part of the company’s plan to cut its annual costs by $65 million. To put these figures in context, Nova earned $108 million, or $1.30 a share in the second quarter of 2006. Nova Chemicals is a buy....

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 keep them separate for regulatory purposes.) This two-business model has advantages for our subscribers. The problems we encounter as money managers, and the solutions we come up with, help us to give our readers unbiased, practical advice. This serves as a counterweight to advice you may encounter elsewhere that is based on misapplied theory, or tainted by conflicts of interest. For instance, an investor recently told me that he sold half of his Canadian Pacific stock after it doubled for him. His broker didn’t object and in fact complimented him on his conservative approach....

CANADIAN PACIFIC RAILWAY LTD. $55 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Average) also profits from the resources boom, since products such as coal, fertilizers and forest products account for a third of its freight revenue. The company is vulnerable to higher fuel prices, but so are its competitors, and it can pass much of the extra cost along to its customers. Recent investments in new locomotives and track have improved its fuel-efficiency by 5.6% in the past five years. Greater fuel efficiency also gives CP an advantage over trucking firms....

When your choose investments from the Resources sector, it’s a mistake to zero in on any one commodity, such as oil. Far better to give yourself exposure to several different commodities. Diversification within the sector cuts your risk without hurting your profit potential. In addition, remember that you can profit from the ongoing Resources boom by investing in companies that sell to businesses in the sector. Here are five top buys for exposure to the boom in Resources....

BCE INC. $29 (Toronto symbol BCE; SI Rating: Above average) has struggled in the past few years due to increasing competition in its core telephone business, which supplies 40% of its revenue and half of its profit. It also suffers from a “holding company discount": the current price of the stock is less than the total value of its various assets (wireless, Internet, satellite TV, etc.). Selling or rearranging these assets would give BCE more cash and/or income, and let it focus on its core operations. BCE now hopes that several recent announcements will simplify its operations and spur the stock price. The latest is a proposal to form a new trust that will hold its rural telephone lines in Ontario and Quebec. The new trust will also hold the land-line business of 53.2%-owned Aliant Inc., which is the main telephone company in Atlantic Canada. BCE will own 73.5% of the new trust, but that will fall to 45% after it hands out some of these units to its owns shareholders as a tax-deferred distribution. The company will also assume control over Aliant’s wireless business, which will expand the geographic reach of it’s own wireless operations....

FAIRMONT HOTELS & RESORTS INC. $50.06 (Toronto symbol FHR; SI Rating: Average) has accepted a $45.00 U.S. a share takeover offer from a private group that includes a U.S.-based hotel operator and a Saudi prince. The new offer tops a $40.00 U.S. a share bid for 51% of Fairmont from American billionaire Carl Icahn. However, Icahn has also agreed to sell his Fairmont shares to this group, and will let his takeover bid lapse. Canadian Pacific, our long-time safety-conscious favourite, split into five companies in 2001 (CP Railways, CP Ships, EnCana, Fording and Fairmont Hotels). We maintained a high opinion of all five parts. All five have performed well for us, including CP Ships, which was acquired at a premium by TUI AG late last year. Fairmont investors should tender their shares to the new offer, to get the full $45.00 U.S. without paying brokerage fees.