Toronto-Dominion Bank

TRANSCONTINENTAL INC. $13.85, Toronto symbol TCL.A, earned $30.3 million in its third fiscal quarter ended July 31, 2008, up 6.7% from $28.4 million a year earlier. Per-share earnings rose 11.8%, to $0.38 from $0.34 on fewer shares outstanding. These figures exclude unusual items. Revenue rose 6.1%, to $584.9 million from $551.1 million. If you exclude the negative impact of the higher Canadian dollar on Transcontinental’s U.S. and Mexican operations, revenue in the quarter would have grown 8%. Transcontinental’s recent investments in new printing presses should continue to keep its costs low. The company’s expertise and flexibility is also helping it win new printing contracts. For example, it recently started to print flyers for Shoppers Drug Mart in a deal worth $25 million a year. Transcontinental is a buy....

ISHARES DIVIDEND INDEX FUND $20.44 (Toronto symbol XDV; buy or sell through a broker) began trading in December, 2005. The fund currently holds the 30 highest yielding Canadian stocks. These stocks are included in the index based on their dividend growth, yield and average payout ratio. The weight of any one stock in the fund is limited to 10% of the fund’s assets. Its MER is 0.50%. The fund now yields 3.8%. The fund’s top holdings are: CIBC at 7.3%; Manitoba Telecom at 5.6%; National Bank, 5.6%; Bank of Montreal, 5.5%; Russel Metals, 5.3%; TD Bank, 4.7%; Royal Bank, 4.5%; Transcontinental Inc., 4.3%; Bank of Nova Scotia, 4.0%; IGM Financial, 3.8%; and Telus Corp., 3.8%....

AIC DIVERSIFIED CANADA FUND $42.87 (CWA Rating: Conservative) mainly holds shares of Canadian companies of average or above-average quality. It also holds stocks of some U.S. firms. The $1.0 billion fund’s 10 largest holdings are Power Financial, Canadian Oil Sands Trust, TD Bank, Shoppers Drug Mart, FedEx, Thomson Reuters Corporation, Brookfield Asset Management, Royal Bank of Canada, Manulife Financial and Johnson & Johnson. AIC Diversified Canada holds just 17 stocks. The fund holds 49.6% of its assets in Financial services stocks. The rest of the portfolio breaks down as follows: Energy, 15.2%; Consumer staples, 10.6%; Consumer discretionary, 8.0%; Health care, 7.4%; Industrials, 3.6%; and Conglomerates, 2.3%....

These two AIC funds hold much of their portfolios in financial services stocks. This sector has moved down lately, mostly on concerns over a lack of liquidity for asset-backed securities and exposure to the U.S. subprime residential mortgage market. We prefer diversified funds. But if you must focus on something, the finance sector still offers sound long-term prospects. If you invest in these funds, be sure to adjust the rest of your portfolio so you won’t overly concentrate your stock and mutual fund holdings in the financial sector. AIC AMERICAN ADVANTAGE FUND $5.70 (CWA Rating: Aggressive) (AIC Group of Funds, 1375 Kerns Road, Burlington, Ont., L7R 4X8, 1-800-263-2144; Web site: www.aicfunds.com. Buy or sell through brokers) invests mostly in U.S. stocks, with over 99% of assets in the financial services area....

FIDELITY GROWTH AMERICA FUND $18.32 (CWA Rating: Conservative) (Fidelity Investments Canada, 483 Bay St., Suite 200, Toronto, Ont. M5G 2N7. 1-800-263-4077; Web site: www.fidelity.ca. Load fund — available from brokers) uses a broad “bottom-up” approach to identify undervalued companies using fundamentals such as earnings, dividend yield, book value, cash flow and low debt. The $262.1-million Fidelity Growth America Fund’s top holdings include Exxon Mobil, Apple, Hewlett-Packard, Medco Health Solutions, Agco, National OilWell Varco, Travelers Companies, CF Industries Holdings, Lockheed Martin and ENSCO. Fidelity Growth America Fund is broken down by economic segment as follows: 15.7% in financials, 15.6% in information technologies, 13.4% in health care, 12.9% in energy, 11.9% in industrials, 10.1% in consumer staples, 9.5% in consumer discretionary, 3.9% in materials, 3.4% in utilities and 2.9% in telecommunication services. The fund’s one-year loss in Canadian dollars is 21.4%, compared to a loss of 14.4% for the S&P 500 in Canadian funds over the same period. The fund’s MER is 2.59%....

Toronto-Dominion Bank $64 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; Shares outstanding: 802.9 million; Market cap: $51.4 billion; SI Rating: Above average) is Canada’s second-largest bank, with assets of $503.6 billion. TD recently completed its acquisition of U.S.-based Commerce Bancorp for $8.5 billion in cash and stock. To put the purchase price in context, TD earned $973 million or $1.32 a share in its second fiscal quarter ended April 30, 2008. The acquisition doubled TD’s retail banking operations in the United States to around 1,100 branches. TD estimates that its larger U.S. operations will contribute $750 million to its earnings in fiscal 2008, and $1.2 billion in 2009. The bank originally planned to re-brand all of its U.S. operations as “TD Commerce Bank”. However, a legal challenge from a smaller bank with a similar name prompted TD to make this change. It’s unlikely that dropping the Commerce name will force TD to writedown any of the $6.1 billion in goodwill it recorded on the purchase....

Bank stocks have struggled since late last year, due to fears that the problems with subprime mortgages in the United States will spread to Canada. Most of Canada’s big five banks have some exposure to these troubled loans, and writedowns have hurt their recent earnings. Despite the losses, Canada’s major banks have enough capital to continue making new loans. We feel every Canadian investor should own at least two of these five banks. Bank of Nova Scotia is still our top choice for new buying. Royal Bank of Canada $48 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.3 billion; Market cap: $62.4 billion; SI Rating: Above average) is Canada’s largest bank, with total assets of $627.5 billion....

MAPLE LEAF FOODS INC. $8.75, Toronto symbol MFI, moved down again this week after it expanded its recall of meat products that may contain listeria bacteria. Maple Leaf has now recalled all of the over 220 products produced at its Toronto plant, instead of the 20 or so that it first identified as possibly containing the bacteria. There is no evidence of listeria contamination at the company’s 22 other facilities, which continue to operate normally. Maple Leaf is working with federal food safety officials to fix the problems at the Toronto plant. It will not re-open the plant until it completes its investigation. The company now estimates the recall will cost it $20 million. To put that in context, Maple Leaf lost $9.4 million or $0.07 a share in the three months ended June 30, 2008 due mostly to restructuring costs. The company also faces several class-action lawsuits....

TORONTO-DOMINION BANK $61 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; Shares outstanding: 802.9 million; Market cap: $49.0 billion; SI Rating: Above average) will take a $96 million pre-tax charge in its third fiscal quarter ending July 31, 2008, due to a pricing error on certain financial Instruments at its UK trading operations. The charge is equal to 10% of TD’s second-quarter earnings of $973 million or $1.32 a share. This seems to be a one-time incident, and TD plans to tighten control over its traders. TD’s focus on its retail banking operations in Canada and the United States has helped it avoid the big writedowns of subprime mortgages and illiquid securities that have hurt profits at other big banks. The retail operations accounted by 90% of TD’s earnings in the most recent quarter. TD Bank is a buy.

TRANSCANADA CORP. $38.00, Toronto symbol TRP, and U.S.-based oil producer ConocoPhillips each own half of the proposed Keystone pipeline project, which will transport crude oil from Alberta’s oil sands to the United States. Due to strong interest from oil shippers, the partners now plan to extend the pipeline from the U.S. Midwest to refineries in the Gulf Coast region. They will also expand Keystone’s total capacity. This $7 billion U.S. expansion will increase the total cost of the project to $12.2 billion U.S. TransCanada’s share of that total comes to $6.1 billion U.S., which is equal to 2.4 times its 2007 cash flow of $2.6 billion (Canadian) or $4.93 a share. Keystone will reduce TransCanada’s reliance on its traditional gas pipeline business. The partners aim to complete this extension by the end of 2011....