stock pickers

Junior mining stocks Sherritt and Amerigo are adapting to lower commodity prices in different ways, but we see both as aggressive buys.

You can find a lesson about acquisitions in our latest edition of Wall Street Stock Forecaster, which we sent out last week.

Investors often under-estimate the hidden risk of a corporate strategy of growth-by-acquisition. This strategy is inherently risky. It’s a little like buying new stock issues.

Acquisitions generally come on the market when it’s a good time to sell. That may not be, and often isn’t, a good time to buy. Insiders and managers at the selling company know a lot more than the buyers about the company itself, and its business strengths and weaknesses.

Some takeovers work out well for the buyers, of course. This doesn’t diminish the inherent risk. More important, risk multiplies as takeovers become a habit.

Takeovers are more likely to succeed when the buyer is already a successful company and is under no pressure to buy anything. That way, the buyer can take its time and wait for a truly attractive, low-risk opportunity to come along.

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INTACT FINANCIAL CORP., $90.20, symbol IFC on Toronto, is Canada’s largest provider of property and casualty insurance, based on premiums. Its brands include Intact Insurance, Canada BrokerLink and belairdirect. In the three months ended June 30, 2015, Intact’s revenue rose 6.0%, to $2.34 billion from $2.21 billion a year earlier. Revenue improved across all of the company’s insurance lines and geographic regions. The early 2015 acquisition of Canadian Direct Insurance for $197 million also added to sales. Canadian Direct offers home, auto and travel insurance, mainly in Alberta and B.C. Earnings rose 1.9%, to $210 million, or $1.56 a share, from $206 million, or $1.53. Intact continues to write more profitable insurance policies and cut its operating costs....

In a tough environment, our advice on resource service firms Wajax and McCoy: both are high-yielding value stocks with better days ahead.

NEW GOLD INC., $2.85, symbol NGD on Toronto, recently started building a mine at its 100%-owned Rainy River project in Ontario. It aims to start production in mid-2017 at an average of 325,000 ounces of gold annually over nine years (along with silver as a by-product). The company has now entered into a $175-million streaming agreement with Royal Gold (Nasdaq symbol RGLD) to help fund Rainy River (all figures except share price in U.S. dollars). Royal will pay $100 million at the start of the deal and the remaining $75 million when the mine is 60% complete (projected at mid-2016)....

ALAMOS GOLD $4.36 (Toronto symbol AGI TSINetwork Rating: Speculative) (604-681- 2802; www.alamosgold.com; Shares outstanding: 127.4 million; Market cap: $1.5 billion; No dividends paid) is the company formed by the merger of Alamos Gold and Stock Pickers Digest recommendation AuRico Gold. The combined firm owns the Mulatos mine in Mexico and the Young-Davidson project in northern Ontario, which holds as much as 5.6 million ounces of gold. Young- Davidson started up in 2013 and will reach full production in 2016. But meanwhile, it’s moving from open-pit to underground mining, which will sharply increase its costs. Alamos Gold holds cash of $358.0 million, which it will use to fund the Young-Davidson mine and boost the combined firm’s gold output from 400,000 ounces this year to 700,000 in 2018....

MANULIFE FINANCIAL $22.70 (Toronto symbol MFC; Shares outstanding: 2.0 billion; Market cap: $45.4 billion; TSINetwork Rating: Above Average; Dividend yield: 3.0%; www.manulife.ca) sells life and other forms of insurance, as well as mutual funds and investment management services.

In the three months ended March 31, 2015, Manulife’s earnings per share gained 5.4%, to $0.39 from $0.37 a year earlier. Revenue rose 25.1%, to $7.83 billion from $6.26 billion.

The company continues to expand in growing Asian markets. Right now, about 40% of its insurance premiums come from that region, which is adding to its revenue and profits.

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CHIPOTLE MEXICAN GRILL, $661.95, symbol CMG on New York, offers higher-quality food and better decor and service than many fast-food chains, and charges slightly higher prices. Under its Food with Integrity initiative, it uses naturally raised meat wherever possible. The company’s all-natural meat comes from animals that are raised humanely, never given antibiotics or hormones and fed a vegetarian diet. In January 2015, the company halted sales of pork items at one-third of its nearly 1,800 U.S. restaurants after learning that a key supplier had failed to meet its pig-housing standards. Under Chipotle’s requirements, pigs must be housed in humane conditions with access to the outdoors, rather than in pens....

Two of Canada’s biggest insurance firms have the assets to forge ahead with expansion and still rank among our best low risk investments.

We continue to like two energy service stocks whose efficient technology helps them profit in spite of current oil prices.