option

Every Wednesday, we publish our “Investor Toolkit” investing advice series. Whether you’re a new or experienced investor, these weekly updates are designed to give you our specific advice on successful investing. Each Investor Toolkit update gives you a fundamental piece of investing advice and shows you how you can put it into practice right away. Tip of the week: “Short selling stocks may seem like a potential money-making opportunity, but there are pitfalls that don’t exist when you’re buying stocks.”...

A high short position is no longer a particularly telling stock market indicator, since traders and hedge funds often combine a short sale with some other transaction in stock options. For instance, rather than having to buy the stock back in the market, short sellers may hold call options that they can exercise; that way, they buy the stock from the option seller. The short sale may say more about options trading than it does about the company’s fundamentals. Bombardier is bound to have a high short position; its shares are highly liquid, and there are plenty available to borrow from the many institutions that own the stock....

Walgreen Co., $34.03, symbol WAG on New York (Shares outstanding: 858.5 million; Market cap: $29.2 billion; www.walgreens.com), is the largest retail drug chain in the U.S., with over 8,359 outlets across the country. It also sells a wide variety of general merchandise. In addition, the company sells its goods online through its own website and Beauty.com, SkinStore.com and VisionDirect.com. In early 2011, Walgreen paid $409 million for Drugstore.com Inc., which sells over 60,000 health and personal care items. The purchase further strengthened Walgreen’s Internet presence and lets it compete with other online drug sellers....

BCE INC. $42 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 775.9 million; Market cap: $32.6 billion; Priceto- sales ratio: 1.6; Dividend yield: 5.5%; TSINetwork Rating: Above Average; www.bce.ca) has 5.4 million telephone customers in Ontario and Quebec, as well as 2.1 million high-speed Internet subscribers and 2.2 million TV clients. In addition, the company’s wireless business now has 7.7 million subscribers across Canada. BCE also owns 45% of Bell Aliant (see box this page).

In the three months ended June 30, 2013, the company’s earnings fell 20.5%, to $594 million, or $0.77 a share. A year earlier, it earned $747 million, or $0.97. The drop is mainly due to non-cash losses on hedges the company uses to cut the risk of its employee stock option plans.

Revenue rose 1.5%, to $5.0 billion from $4.9 billion. Revenue from its wireline division (traditional telephone, Internet and TV; 48% of total revenue) fell 0.9%. That’s partly because more of its customers are switching to wireless service. Revenue at BCE’s wireless division (28% of revenue) rose 5.4%, thanks to strong demand for smartphones and rising mobile data use.
...

BOMBARDIER INC., Toronto symbols BBD.A $4.04 and BBD.B $3.91, rose 5% this week after the company received a firm order for 100 of its Challenger business jets from NetJets Inc., a private company owned by billionaire investor Warren Buffett. In addition to the implied endorsement by Mr. Buffett, this sale is worth $2.6 billion (all amounts except share prices in U.S. dollars), or 13% of Bombardier’s annual sales of $20 billion. The company will begin delivering these planes in 2014. NetJets also has an option to buy an additional 175 planes. If it exercises this option, the value of the entire order would rise to $7.3 billion. And if you include a related long-term contract to maintain these planes, the value of the entire agreement could reach $9.6 billion....

Dividends are in fashion with investors right now, and that’s always a good thing. Creative accounting can produce false impressions of prosperity and hide embarrassing financial problems. But accounting can’t create cash for this year’s dividend, let alone conjure up a history of past dividends. If you restrict your stock market picks to dividend payers, you’ll avoid most of the market’s greatest disasters. It’s odd that while investors periodically crave cash dividends, they rarely get excited about stock buybacks. But in some ways, stock buybacks are better than dividends. In particular, they give you a tax-deferral option that you don’t get with cash dividends....

FORD MOTOR CO. $12 (New York symbol F; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 3.8 billion; Market cap: $45.6 billion; Price-to-sales ratio: 0.3; Dividend yield: 1.7%; TSINetwork Rating: Extra Risk; www.ford.com) is expanding its Chinese operations. Its plan involves spending $760 million to build a new car assembly plant and an additional $600 million to expand an existing facility. The total cost of $1.4 billion is equal to 23% of the $6.1 billion, or $1.51 a share, that Ford earned in 2011. Chinese car sales are expected to rise to 30 million vehicles a year by 2020 from 18.5 million in 2011. Ford’s latest investments will help it take advantage of that trend. Ford is a buy....

ALLIANT ENERGY CORP. $45 (New York symbol LNT; Income Portfolio, Utilities sector; Shares outstanding: 111.0 million; Market cap: $5.0 billion; Price-to-sales ratio: 1.4; Dividend yield: 4.0%; TSINetwork Rating: Average; www.alliantenergy.com) has won regulatory approval to buy the Riverside gas-fired power plant in Beloit, Wisconsin. Right now, the company purchases power from this plant under a long-term contract. This deal also gives Alliant an option to buy the plant by May 31, 2012. The company is still deciding whether to do so.

If Alliant exercise its option, it would have to pay $392 million for the plant. That’s equal to 1.3 times the $305.3 million, or $2.76 a share, that it earned in 2011. Still, a purchase would let Alliant cut the plant’s costs. It would also lower the company’s need to buy power at unpredictable market prices.

Alliant Energy is a buy.

...

This is the latest in a series of video interviews in which Pat McKeough will give his advice on a variety of topics. Some will deal with his overall investment philosophy, others on specific investment strategies and still others will be comments on events that are affecting the markets and the economy. This time, Canadian real estate investing is the subject, as Pat replies to a question from a reader inspired by the increase in property values. Is buying a property and becoming a landlord a good investment? Look beyond today’s prices before you act, is Pat’s advice. Below is the transcription of Pat’s comments....

Dividends are in fashion with investors right now, and that’s always a good thing. After all, creative accounting can produce false impressions of prosperity and hide embarrassing financial problems. But accounting can’t create cash for this year’s dividend, let alone conjure up a history of past dividends. Stick to dividend payers and you’ll avoid most of the market’s greatest disasters. It’s odd that while investors periodically crave cash dividends, they rarely get excited about stock buybacks. But in some ways, stock buybacks are better than dividends. In particular, they give you a tax-deferral option that you don’t get with cash dividends. Stock buybacks raise the value of a given stock holding in two ways:...