royal bank
BCE INC. $33 (www.bce.ca) earned $621 million before unusual items in the three months ended September 30, 2010, down 4.3% from $649 million a year earlier. Because of fewer shares outstanding, earnings per share fell 2.4%, to $0.82 from $0.84. The company had a lower tax bill in the year-earlier period. This was the main reason behind the lower earnings. Best Buy. ROYAL BANK OF CANADA $54 (www.rbc.com) continues to expand in Asia. It recently paid an undisclosed sum for the Hong Kong-based wealth management business of Belgium bank BNP Paribus Fortis. This purchase will help Royal profit from China’s growing middle class, who are preparing for retirement. Buy. PENGROWTH ENERGY TRUST $12 (www.pengrowth.com) saw its cash flow per share fall 14.3% in the latest quarter, to $0.54 from $0.63 a year earlier. That’s because unusually wet weather cut its combined oil and natural-gas production by 3.7%. Buy.
ISHARES MSCI CANADA INDEX FUND $29.28 (New York symbol EWC; buy or sell through brokers; ca.ishares.com) is like a market-cap-based index fund, but its managers try to improve performance by tinkering with the index-fund formula. They do this through their Morgan Stanley Capital International Canada Index. The fund has an MER of 0.55%. The index’s top holdings are Royal Bank, 6.5%; TD Bank, 5.5%; Bank of Nova Scotia, 4.8%; Suncor Energy, 4.4%; Barrick Gold, 4.0%; Potash Corp., 3.7%; Canadian Natural Resources, 3.3%; Bank of Montreal, 2.8%; Goldcorp, 2.8%; CN Railway, 2.6%; CIBC, 2.5% and TransCanada Corp., 2.2%. If you want to own a Canadian index fund, you should buy the iShares S&P/TSX 60 Index Fund (see previous page). You’ll pay about a third of the management fees....
ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $20.26 (Toronto symbol XDV; buy or sell through a broker; ca.ishares.com) holds 30 of the highest-yielding Canadian stocks. Its selections are based on dividend growth, yield and payout ratio. The weight of any one stock is limited to 10% of assets. The fund’s MER is 0.50%. It yields 5.3%. The fund’s top holdings are CIBC, 8.0%; Bank of Montreal, 6.4%; National Bank, 5.7%; TD Bank, 5.6%; Telus, 5.2%; Bank of Nova Scotia, 4.6%; Manitoba Telecom, 4.5%; IGM Financial, 4.2%; Royal Bank, 4.0%; Enbridge, 3.5%, TMX Group, 3.5%; and TransCanada Corp., 3.3%. The fund holds 60.1% of its assets in financial stocks. Utilities are next, at 23.0%. The top Canadian finance stocks have sound prospects. However, if you invest in this ETF, be sure to adjust the rest of your portfolio so it won’t be overly concentrated in the financial sector....
ISHARES S&P/TSX 60 INDEX FUND $18.24 (Toronto symbol XIU; buy or sell through a broker; ca.ishares.com) (units split 4-for-1 in August 2008) is a good, low-fee way to buy the top stocks and income trusts on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.17% of assets. Most of the stocks in the index are high-quality companies. However, as it must ensure that all sectors are represented, it holds a few we wouldn’t include, such as Yellow Pages Income Fund. The index’s top holdings are: Royal Bank, 7.2%; TD Bank, 5.9%; Bank of Nova Scotia, 5.2%; Suncor Energy, 4.7%; Barrick Gold, 4.5%; Potash Corp., 4.0%; Canadian Natural Resources, 3.7%; Bank of Montreal, 3.1%; Goldcorp, 3.1%; CN Railway, 2.8%; CIBC, 2.8%; Research in Motion, 2.5%; and Trans- Canada Corp., 2.4%....
Exchange-traded funds (ETFs) may have a place in your portfolio. That’s because, unlike many other financial innovations, they don’t load you up with heavy management fees, or tie you down with high redemption charges if you decide to get out of them. Instead, they give you a low-cost, flexible, convenient alternative to mutual funds. ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You’ll have to pay brokerage commissions to buy and sell ETFs. However, ETFs’ low management fees still give them a cost advantage over most conventional mutual funds. As well, shares are only added or removed when the underlying index changes. As a result of this low turnover, you won’t incur the regular capital-gains bills generated by the yearly distributions most conventional mutual funds pay out to unitholders....
TRANSCANADA CORP. $37.42 (Toronto symbol TRP; Shares outstanding: 693 million; Market cap: $25.9 billion; SI Rating: Above Average; Dividend yield: 4.3%; www.transcanada.com) agreed to build a natural-gas-fired electrical-power plant in Oakville, Ontario, in 2008. It also signed a 20-year deal to sell this plant’s electricity to Ontario’s power regulators. However, the Ontario government now feels that the plant is no longer needed, and has cancelled the project. As a result, the government will pay TransCanada an undisclosed termination fee to compensate the company for the funds it has spent on the project to date. TransCanada is still a buy....
ENCANA CORP., $28.26, Toronto symbol ECA, fell 7% this week after the company reported lower-than-expected earnings. In the three months ended September 30, 2010, Encana earned $98 million, or $0.13 a share (all amounts except share price in U.S. dollars). These figures exclude a $331-million gain on hedging contracts that the company uses to lock in selling prices for its natural gas, and a $140-million foreign-exchange gain. On this basis, the latest earnings fell well short of the consensus estimate of $0.19 a share. They were also down 74.1% from the company’s year-earlier earnings of $378 million, or $0.50 a share. Cash flow per share fell 9.4%, to $1.54 from $1.70. (Note: The year-earlier figures assume that the breakup of the old EnCana Corp. into the new Encana and Cenovus Energy Inc. took place at the start of 2009 instead of December 1, 2009.)...
POTASH CORP. OF SASKATCHEWAN, $145.00, Toronto symbol POT, has moved down from its recent peak of $160.65. That’s mostly because the Canadian government appears more likely to block or impose conditions on BHP Billiton Ltd.’s (New York symbol BHP) $130.00 U.S.-a-share takeover of Potash Corp. As well, Potash Corp. has launched a lawsuit to stop the takeover. The suit accuses BHP of making misleading statements about the potash industry to depress Potash Corp.’s share price prior to making its offer. Potash Corp. is still a hold....
POTASH CORP. OF SASKATCHEWAN, $154.99, Toronto symbol POT, continues to trade above the $130.00 U.S.-a-share hostile takeover offer from BHP Billiton Ltd. (New York symbol BHP). BHP is a recommendation of our Wall Street Stock Forecaster newsletter. Based on today’s exchange rate, Potash Corp. shares trade at 13.2% more than BHP’s offer. That suggests investors expect a higher bid. However, because of Potash’s $45.5-billion market cap (or the value of all of its outstanding shares), there are only a handful other companies that could afford to buy it. As well, the federal government would probably block an offer from a company controlled by a sovereign wealth fund. (Sovereign wealth funds are state-owned investment funds that are usually financed by an economic surplus. For example, China Investment Corp. is China’s sovereign wealth fund.) Moreover, BHP has little room to raise its offer. That’s because BHP’s shares also trade on the London Stock Exchange, which would require BHP to hold a special shareholders’ vote if the value of the deal is more than 25% of BHP’s market cap just prior to the takeover announcement. On this basis, BHP’s current offer represented 21% of its market cap....
Many Canadian firms have tried to expand into the U.S. over the years. Some, like Royal Bank of Canada (symbol RY on Toronto) have had difficulty in the United States. Other companies’ expansion efforts have failed miserably. Canadian Tire (symbol CTC.A on Toronto) provides a memorable example of a failed U.S. expansion. In 1982, the retailer bought a chain of Whites automotive-retail stores in Texas. By 1985, Canadian Tire had lost $300 million on this purchase. That’s when the company decided to sell the division and retreat to Canada. Its stock price has since gone up more than 360%. Canadian Tire is one of the stocks we cover in our Successful Investor newsletter.