stock pickers

Computer Modelling Group Ltd., symbol CMG on Toronto, makes software and supplies services that help its clients get as much oil as possible from their existing wells. The stock market pick makes mostly recurring revenue from software licences and consulting contracts. That gives it long-term stability. Computer Modelling Group is one of the stocks we analyze in Stock Pickers Digest, our newsletter for aggressive investing. In the three months ended March 31, 2011, Computer Modelling’s revenue rose 0.6%, to $14.4 million from $14.3 million a year earlier. A 17% increase in consulting and contract research revenue more than offset a 2% drop in software licence sales due to the strong Canadian dollar....

Exxon Mobil, $80.34, symbol XOM on New York (Shares outstanding: 4.9 billion; Market cap: $389.3 billion; www.exxonmobil.com), was formed in 1999, following the merger of Exxon and Mobil. It is the world’s largest publicly traded oil company. Exxon Mobil owns 70% of Imperial Oil, symbol IMO on Toronto. In the three months ended March 31, 2011, Exxon Mobil’s earnings jumped to $2.14 a share from $1.33 a year earlier. That beat the consensus estimate of $1.75. The improved performance came from higher oil and natural gas prices, increased refining margins, and record performance from the chemicals division. The company continues to buy back large amounts of its stock. In the latest quarter, it bought back 69 million shares for $5.7 billion....

When you’re looking for stock market investments with the potential for strong gains, it pays to be skeptical of companies that mainly grow through acquisitions. That’s because the buyer of something rarely knows as much about it as the seller. So it follows that if a company makes enough acquisitions, it might eventually buy something that has hidden problems. At some point, those problems will come out into the open and hurt the buyer’s earnings.

How bad acquisitions can hurt a stock market investment’s prospects

...

BREAKWATER RESOURCES, $7.41, symbol BWR on Toronto, is now the subject of a $663-million friendly takeover bid from Belgium-based Nyrstar, a major global producer of zinc and lead, as well as silver, gold and copper. The offer is for $7.00 a share in cash for all of Breakwater’s shares. In addition, Breakwater shareholders will get a special dividend of $0.50 a share in cash. At $7.50, that’s up 155% from the $2.94 we recommended the stock at a year ago in our July 2010 issue of Stock Pickers Digest....

Another one of our buys —Breakwater Resources $7.42, symbol BWR on Toronto — has attracted a takeover bid. Breakwater is now the subject of a friendly, $663-million offer from Belgium-based Nyrstar, a major global producer of zinc and lead, as well as silver, gold and copper. Nyrstar’s offer is for $7.00 a share in cash for all of Breakwater’s shares. In addition, Breakwater shareholders will get a special dividend of $0.50 a share in cash....

The Churchill Corp., symbol CUQ on Toronto, sells construction, general-contracting, maintenance, insulation, fireproofing, electrical and power-line construction services. Its clients are in the resource, industrial, utility and power-generation industries. Churchill has customers throughout western Canada. We analyze Churchill in Stock Pickers Digest, our newsletter for investing in stocks that are more aggressive. In the three months ended March 31, 2011, Churchill’s revenue rose 67.0%, to $304.7 million from $182.5 million a year earlier. The rise was mainly due to Seacliff Construction, which Churchill bought for $380 million in May 2010. Seacliff sells general contracting, electrical-contracting and earth-moving services. Like Churchill, Seacliff mostly operates in western Canada....

RuggedCom Inc., symbol RCM on Toronto, makes computer networking equipment that is used in harsh environments. The stock pick’s products include ethernet switches, network routers, wireless devices and software. RuggedCom’s products are designed to reliably operate under high levels of electromagnetic interference. They can also cope with wide variations in temperature and humidity, as well as vibration and exposure to dust. They also work while exposed to such things as corrosive gases and water. The stock pick’s revenue jumped 38.0% in the three months ended March 31, 2011, to $26.7 million from $20.6 million a year earlier. Sales to clients in the electric-power market jumped 65%, and now account for 71% of the stock pick’s total sales....

Trilogy Energy Corp., symbol TET on Toronto, owns oil and gas properties in the Kaybob and Grande Prairie areas of central Alberta. About 78% of Trilogy’s production is natural gas. The remaining 22% is oil. In the three months ended March 31, 2011, Trilogy produced an average of 25,362 barrels of oil equivalent per day (including natural gas). That was up 9.9% from 23,079 barrels a day a year earlier. However, the natural gas stock’s cash flow per share fell 13.3%, to $0.39 from $0.45 a year earlier, mostly due to lower gas prices. Still, the company continues to bring new wells into production. Its daily production should jump to an average of 30,000 barrels for 2011....

SINO-FOREST CORP. $4.92 (Toronto symbol TRE) has attracted a great deal of news coverage in the past few days as it dropped from $20 to below $5. The price collapse follows the release of an independent research report that accused the company of fraud. We recommended Sino-Forest as a buy in December 2003 in Stock Pickers Digest, our newsletter that focuses on aggressive stocks. We recommended selling Sino-Forest three months later, for a gain of nearly 100%. We didn’t advise selling just because we had an opportunity to take a profit. In fact, we had developed qualms about the quality of information that the company was supplying to investors, and corporate actions it was taking....

Calian Technologies, symbol CTY on Toronto, operates in two areas: the business and technology services division, which accounts for 74% of Calian’s revenue, provides engineers, health-care workers and other skilled professionals to clients on a contract basis. The small cap stock’s systems-engineering division contributes the remaining 26% of revenue, and sells hardware and software that is used for testing, operating and managing satellite and other communications systems. In the three months ended March 31, 2011, the small cap stock’s revenue rose 11.9%, to $59.4 million from $53.1 million a year earlier. Earnings rose 6.5%, to $3.3 million from $3.1 million. Earnings per share rose 5.0%, to $0.42 from $0.40, on more shares outstanding. Calian earned higher profit margins on the business and technology service division’s contracts. That pushed up the company’s overall earnings. The strong Canadian dollar held back the systems-engineering division’s earnings....