telus

High quality Real Estate Investment Trusts, or REITs, are among the most stable of the royalty and investment trusts. That’s because they own nondepleting assets, and can lock in lease rates and financing costs for long terms. Investors are also aware of the takeover prospects for REITs these days. That’s not reason enough alone to buy them, but it’s a plus. The REITs we recommend hold top-quality assets. In contrast, many other types of trusts hold lowquality assets in volatile industries such as resources and commodities, sugar production or restaurants. These trusts expose holders to hidden business risks that could have a sudden, devastating effect on their cash flow and yields....

IMPERIAL OIL LTD. $45 earned $0.85 a share in the three months ended June 30, 2006, up 63.5% from $0.52 a year earlier. If you disregard a one-time tax credit, Imperial’s second quarter profits would have grown 34.6%, to $0.70 a share. Revenue slipped to $6.7 billion from $6.8 billion, due to lower natural gas production and prices. Rising costs at Imperial’s proposed oil sands and gas pipeline projects could hurt future growth. Hold. TELUS CORP. $52 continues to benefit from growing demand for wireless services. In fact, it now has more wireless customers than traditional telephone customers. Thanks to a 14% jump in the number of wireless subscribers in the past year, Telus earned $0.69 a share before one-time items in the second quarter of 2006, up 32.7% from $0.52 a year earlier. Revenue rose 7.0%, to $2.14 billion from $2.0 billion. Buy. BANK OF MONTREAL $64 is the first Canadian bank to receive permission to provide banking services in Beijing using China’s local currency. That will let it offer a broader array of services, and give it an advantage over other foreign banks. Buy.

TELUS CORP. (Toronto symbols T $46 and T.A $45 (old symbol T.NV); Conservative Growth Portfolio, Utilities sector; SI Rating: Above average) continues to offer new wireless services, which should help it attract new customers and squeeze more revenue out of current users. Telus now plans to offer satellite radio services from XM Canada to its wireless customers. Only 10% of cellphone users subscribe to an entertainment service, so there’s plenty of room for growth. The company should also benefit from a new federal telecommunications policy. That will give Telus and other traditional phone service providers greater flexibility to compete with cable and Internet-based phone services....

We’ve often pointed out that perhaps a third of your stocks will perform much better than you expect. Telus, up nine-fold from its 2002 low, is a good example. It’s also a good example of why we never set target prices for our recommendations. Targets spur investors to quit buying or even sell our best picks way too early. If we had to offer a sell target for Telus in mid-2002, we might have guessed $10 — even $15. But if you sold at that price, you’d have missed out on the subsequent rise to recent highs near $50. That’s why we focus on investment value. It’s a far better tool than sell targets for filling your portfolio with performers like Telus.

TELUS CORP. (Toronto symbols T $44 and T.NV $44; SI Rating: Above average) is Canada’s second-largest telecommunications provider, after BCE Inc. It provides local and long distance telephone services to roughly 5 million customers, mainly in Alberta, British Columbia and parts of Quebec. It also provides Internet access services to roughly 1 million subscribers. Telus’s revenue slipped from $7.1 billion in 2001 to $7.0 billion in 2002, but rose to $8.1 billion in 2005. It lost $0.51 a share (total $145.8 million) from continuing operations in 2001, as well as $0.75 a share ($235.8 million) in 2002, mainly due to restructuring costs following the Clearnet acquisition. However, earnings improved from $0.92 a share ($324.4 million) in 2003 to $1.94 a share ($700.3 million) in 2005. Most of Telus’s recent growth comes from its wireless division, which is Canada’s largest wireless service provider with 4.5 million customers (36% of the market). The company is also doing a good job of hanging on to its customers, and getting them to sign long-term service contracts....

In 2000, Telus Corp. acquired money-losing wireless provider Clearnet. It looked like a bad move at the time, but it has paid off. In 2005, wireless provided 40% of Telus’s revenue, 44% of its profit and 53% of its cash flow. New services such as video, music and game downloads should continue to spur wireless demand, and Telus’s profits. The stock has risen nine-fold (see box next page) in the past few years, but we foresee further gains. TELUS CORP. (Toronto symbols T $44 and T.NV $44; SI Rating: Above average) is Canada’s second-largest telecommunications provider, after BCE Inc. It provides local and long distance telephone services to roughly 5 million customers, mainly in Alberta, British Columbia and parts of Quebec. It also provides Internet access services to roughly 1 million subscribers. Telus’s revenue slipped from $7.1 billion in 2001 to $7.0 billion in 2002, but rose to $8.1 billion in 2005. It lost $0.51 a share (total $145.8 million) from continuing operations in 2001, as well as $0.75 a share ($235.8 million) in 2002, mainly due to restructuring costs following the Clearnet acquisition. However, earnings improved from $0.92 a share ($324.4 million) in 2003 to $1.94 a share ($700.3 million) in 2005....

FIDELITY TRUE NORTH FUND $26.61 (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 “bottom-up” approach (using fundamentals such as earnings, cash flow and low debt) to identify undervalued companies. Fidelity True North Fund’s top holdings include high-quality stocks such as Manulife Financial, EnCana, TD Bank, Sun Life, CN Railway, Canadian Natural Resources, Bank of Nova Scotia, Telus Corp. and Talisman Energy. The fund’s breakdown by economic sector is: 31.2% in Financials, 21.5% in Energy, 14.7% in Materials, 8.2% in Industrials, 7.2% in Telecom, 6.5% in Information technology and 4.3% in Consumer discretionary....