investment

On occasion, we come across an investment that provides a clear example of one or more investment principles. Global X Social Media ETF, which we analyze in this week’s first question, touches on several. ETFs. Exchange traded funds are a relatively recent and benign investment innovation. Unlike many investment innovations, ETFs can cut investor risk and cost. They are a little like conventional open-ended mutual funds, but fees and trading costs are much lower, since they only aim to duplicate the performance of a market index. However, not every index is a good model for investing. You might say that ETFs make it easier and cheaper to pursue a variety of investment ideas, regardless of whether the ideas are good or bad. Theme investing. This particular ETF gives you an easy and low-cost way of investing in stocks associated with the “Social media” investing theme. These stocks are now in the broker/media limelight (see next investment principle). That’s not a particularly good time to buy. By the time the media has identified an investment theme like social media, and the investment industry has begun offering ETFs and other short cuts to investing in it, the best opportunities may have already come and gone....

U.S. Oil Sands, $0.13, symbol USO on Toronto (Shares outstanding: 853.1 million; Market cap: $110.9 million; www.usoilsandsinc.com), owns oil sands leases that cover 32,005 acres in Utah. The company aims to use a process it developed to recover bitumen without the need for tailings ponds. U.S. Oil Sands’ system uses a solvent that it believes is both renewable and biodegradable. In October 2013, U.S. Oil Sands raised $81 million by issuing new shares at $0.15 each. It will use the funds to bring its proposed 2,000-barrel-a-day PR Spring project to production. The stock has since dropped down below the new issue price, and this is generally not a promising sign....

Ottawa continues to impose new rules on Canada’s main wireless firms in an effort to encourage more competition. These measures include restricting the new radio frequencies (or spectrum) they can buy, cutting wireless contract terms from three years to two and capping roaming charges. Meanwhile, new rules will force TV providers to let subscribers buy the channels they want, instead of having to purchase a package....

TOROMONT INDUSTRIES LTD (Toronto symbol TIH; www.toromont.com) distributes a broad range of industrial equipment, including machinery made by Caterpillar Inc. It also makes refrigeration systems through its CIMCO division. The company completed the spinoff of Enerflex Ltd. (see below) in July 2011. Shareholders received shares of both the new Toromont Industries and Enerflex....

PRECISION DRILLING CORP. $14 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 292.1 million; Market cap: $4.1 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.7%; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract drilling services to land-based oil and gas producers, mainly in North America. The company operates 330 rigs.

Higher oil and gas prices have spurred demand for Precision’s drilling services. As a result, its revenue rose 12.8% in the first quarter of 2014, to $672.2 million from $595.7 million a year earlier. Earnings gained 8.8%, to $101.6 million from $93.3 million. Per-share earnings rose 6.1%, to $0.35 from $0.33, on more shares outstanding.

In response to stronger-than-expected drilling activity, Precision now plans to spend $833 million to build and upgrade rigs in 2014, up 31.4% from its earlier forecast of $634 million. Drillers have already signed contracts for these new rigs, which cuts the risk of this investment.

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TORONTO-DOMINION BANK, $53.39, Toronto symbol TD, reported better-than-expected quarterly earnings this week, thanks to steady loan demand in Canada and the U.S. It’s also profiting from its recent deal with Aimia (Toronto symbol AIM) to become the main credit card issuer for the popular Aeroplan travel-reward program. In the quarter ended April 30, 2014, TD’s earnings rose 13.5%, to $2.1 billion from $1.8 billion a year earlier. Due to fewer shares outstanding, per-share earnings gained 14.7%, to $1.09 from $0.95. These figures exclude unusual items, such as costs related to the new Aeroplan card business. On that basis, the latest earnings beat the consensus estimate of $1.02 a share. Revenue rose 12.5%, to $7.4 billion from $6.6 billion. In addition to the new Aeroplan deal, TD is benefiting from last year’s purchase of retailer Target Corp.’s U.S. credit card portfolio. As well, higher debt-underwriting volumes and merger and acquisition fees pushed up revenue at TD’s wholesale banking division by 5.4%....

ISHARES MSCI CHILE INVESTABLE MARKET INDEX FUND $46.03 (New York Exchange symbol ECH; buy or sell through brokers) is an ETF that aims to track the MSCI Chile Investable Market Index, which consists of stocks that mainly trade on the Santiago Stock Exchange.

The fund’s top holdings are S.A.C.I. Falabella (retail), 9.0%; Enersis SA (electricity), 8.8%; Empresas Copec SA (conglomerate), 8.5%; LATAM Airlines, 6.9%; Empresa Nacional de Electricidad (electricity), 6.7%; Cencosud SA (retailer), 5.2%; Banco Santander Chile (banking), 4.7%; Quimica y Minera de Chile (mining), 4.5%; Banco de Chile, 4.4%; and Empresas CMPC (pulp and paper), 4.0%.

The fund’s industry breakdown is: Utilities, 25.0%; Financials, 17.3%; Materials, 13.7%; Consumer Discretionary, 10.6%; Industrials, 9.9%; Consumer Staples, 9.9%; Energy, 8.5%; Telecommunications, 2.4%; and Information Technology, 2.0%.

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ISHARES MSCI GERMANY FUND $31.68 (New York Exchange symbol EWG; buy or sell through brokers) tracks the stocks in the MSCI Germany Index.

This index aims to replicate 85% of the total market capitalization of the German stock market. The remaining 15% is unavailable for investment, partly due to limitations on foreign ownership.

The ETF’s top holdings are Bayer (diversified chemicals), 8.8%; Siemens (engineering conglomerate), 8.5%; BASF (chemicals), 8.3%; Daimler (autos), 7.1%; Allianz (insurance), 6.2%; SAP (software), 5.8%; Deutsche Telekom, 3.7%; Deutsche Bank, 3.6%; and BMW, 3.3%.

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Pat McKeough responds to many requests from members of his Inner Circle for specific advice about investing in stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week an Inner Circle member asked us about a drug company that specializes in combatting viruses. Hepatitis C is the primary target of treatments developed by Gilead Sciences, but it also plays a significant role in treatments for HIV/AIDS. Pat examines the status of the company’s leading drugs and analyzes its ability to maintain a position of leadership in a fiercely competitive field. ...

METRO INC. (Toronto symbol MRU; www.metro.ca) operates about 600 supermarkets in Quebec and Ontario. It also has over 250 drugstores that operate under the Brunet, The Pharmacy and Drug Basics banners. Metro continues to cut costs in response to competition from larger Canadian chains, like Loblaw and Sobeys, and big box stores like Wal-Mart and Costco. It is also converting some of its underperforming Metro outlets in Ontario to the faster-growing Food Basics discount banner....