transcanada

TransCanada Corp. has considerable growth prospects in its huge $46-billion portfolio of projects now under construction. As well, it could unlock value by transferring assets to partly controlled affiliates. These transactions, called “drop downs,” help the parent free up cash for new projects. Activist investors could also pressure TransCanada to spin off its electrical-power operations as a separate firm. TRANSCANADA CORP. $55.25 (Toronto symbol TRP; Shares outstanding: 708.6 million; Market cap: $39.1 billion; TSINetwork Rating: Above Average; Dividend yield: 3.8%; www.transcanada.com) operates 68,500 kilometres of natural gas pipelines and over 11,800 megawatts of power generation in Canada and the U.S. In the three months ended December 31, 2014, TransCanada’s revenue rose 12.1%, to $2.6 billion from $2.3 billion a year earlier. Excluding one-time items, earnings per share rose 24.1%, to $0.72 from $0.58....

TRANSCANADA CORP. $55.25 (Toronto symbol TRP; Shares outstanding: 708.6 million; Market cap: $39.1 billion; TSINetwork Rating: Above Average; Dividend yield: 3.8%; www.transcanada.com) operates 68,500 kilometres of natural gas pipelines and over 11,800 megawatts of power generation in Canada and the U.S.

In the three months ended December 31, 2014, TransCanada’s revenue rose 12.1%, to $2.6 billion from $2.3 billion a year earlier. Excluding one-time items, earnings per share rose 24.1%, to $0.72 from $0.58.

The company completed $7.0 billion worth of growth projects in 2014. It plans to complete $46 billion of additional projects secured by long-term contracts by 2020 (an amount greater than its current $39.1-billion market cap).

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The iShares S&P/TSX 60 Index ETF, $22.14, symbol XIU on Toronto, has about 21% of its assets in what are classified as “energy stocks.” However, the S&P/TSX 60 Index’s energy component includes a number of companies we would classify as utilities, such as Enbridge, TransCanada Corp. and Pembina Pipeline. The “energy” component also includes uranium miner Cameco. Removing those utility and resource stocks takes the index’s oil and gas component down to 13% or so. That’s a reasonable amount to hold as part of the oil and gas segment in a well-balanced portfolio’s Resources component.

TRANSCANADA CORP. $53 (Toronto symbol TRP; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 708.6 million; Market cap: $37.6 billion; Price-to-sales ratio: 3.8; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.transcanada.com) could get a boost if it receives approval for two major pipelines that would pump crude oil from Alberta’s oil sands to the U.S. Gulf Coast (Keystone XL) and to refineries in Eastern Canada (Energy East).

Even if it has to abandon these projects, TransCanada’s crude volumes should remain steady, despite lower oil prices.

As well, the company could unlock some of its value by transferring assets to partly controlled affiliates. These transactions, called “drop downs,” help the parent company free up cash for new projects. Activist investors could also pressure TransCanada to spin off its electrical-power operations as a separate firm.

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We looked at a wide range of stocks before settling on CAE as our #1 pick for 2015. Here are the top three runners-up. All are highly attractive buys, but we feel CAE offers a better mix of long-term potential and low risk. CANADIAN NATIONAL RAILWAY CO. $78 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 809.3 million; Market cap: $63.1 billion; Price-to-sales ratio: 5.5; Dividend yield: 1.3%; TSINetwork Rating: Above Average; www.cn.ca) has several key advantages that put it in a strong position to profit from an improving North American economy. For example, it’s the only railway that accesses all three coasts: Atlantic, Pacific and the Gulf of Mexico. As well, CN owns an exclusive line that lets it avoid major bottlenecks in the Chicago area....

In next week’s Successful Investor Hotline, we’ll reveal our #1 stock pick for 2015. Don’t miss this unique opportunity to profit. BCE INC., $54.35, Toronto symbol BCE, recently agreed to buy Glentel Inc. (Toronto symbol GLN), which sells mobile phones and subscription plans through 494 Canadian stores, mainly under the Wireless Wave banner. Glentel also has 735 U.S. outlets and 147 in Australia and the Philippines. The company will pay $594 million (50% cash and 50% in BCE common stock) for Glentel’s outstanding shares. If you include Glentel’s debt, the entire deal is worth $670 million. To put that in context, BCE earned $648 million, or $0.83 a share, in the three months ended September 30, 2014....

Exchange traded funds (ETFs) are set up to mirror the performance of a stock market index or sub-index. They hold a more or less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. ETFs trade on stock exchanges, just like stocks. That’s different from mutual funds, which you can only buy at the end of the day at a price that reflects the fund’s value at the close of trading. Prices of ETFs are quoted in newspaper stock tables and online. You pay brokerage commissions to buy and sell them, but their low management fees give them a cost advantage over most mutual funds....

TIM HORTONS INC., $96.97, Toronto symbol THI, shareholders will vote on the friendly takeover offer from BURGER KING WORLDWIDE INC., $34.81, New York symbol BKW, on Tuesday, December 9, 2014. If the deal is approved, Tim Hortons investors will have a number of options: They can sell their shares on the Toronto exchange and receive the current trading price of $96.97 (less brokerage commissions). If they don’t do that, they can opt for one of the three choices below by notifying their brokers no later than 5:00 p.m. ET on Tuesday, December 9, 2014....

TRANSCANADA CORP. $56.86 (Toronto symbol TRP; Shares outstanding: 708.0 million; Market cap: $39.1 billion; TSINetwork Rating: Above Average; Dividend yield: 3.4%; www.transcanada.com) recently completed the purchase of three more Ontario solar power plants from Canadian Solar Inc. (Nasdaq symbol CSIQ).

TransCanada now owns seven of the nine solar farms it agreed to buy from Canadian Solar in 2011. It will probably take possession of the remaining two in 2015. In all, it will pay about $500 million.

The company has 20-year deals to sell the power from these solar farms, which cuts this investment’s risk.

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TRANSCANADA CORP., $56.05, Toronto symbol TRP, rose this week in response to the U.S. mid-term elections, which gave the Republican Party control of the Senate. That makes it more likely that the U.S. government will approve the company’s Keystone XL pipeline, which would pump crude from Alberta’s oil sands to refineries on the U.S. Gulf Coast. Due to various delays, the company now expects Keystone XL to cost $8.0 billion U.S., up 48.1% from its 2008 estimate of $5.4 billion U.S. To date, it has spent $2.4 billion U.S. on this project. TransCanada also plans to spend $2.7 billion to expand its Nova pipeline network in Western Canada to handle rising shale gas production in Alberta and B.C. In addition, it will invest $475 million to upgrade its Ontario gas pipelines. The company expects to complete these projects in 2016 and 2017....