transcontinental

TRANSCONTINENTAL INC. $18 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 78.1 million; Market cap: $1.4 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.8%; TSINetwork Rating: Average; www.tctranscontinental.com) is Canada’s leading printer of flyers, magazines, newspapers and books. It also publishes magazines and newspapers.

In its 2015 first quarter, which ended January 31, 2015, the company earned $36.1 million, up 36.7% from $26.4 million a year earlier. Earnings per share gained 35.3%, to $0.46 from $0.34, on more shares outstanding.

The gains mainly came from two recent acquisitions: in May 2014, Transcontinental bought U.S.- based Capri Packaging, a maker of plastic bags and pouches for cheese and other dairy products, for $146.1 million. And in June 2014, it paid Sun Media $78.8 million for 74 weekly newspapers in Quebec.

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These three information providers face a challenge from free online news and other data. However, all three are well-established leaders, which helps them hang on to their clients. They’re also keeping their costs under control, which gives them more room to maintain or raise their dividends. THOMSON REUTERS CORP. $52 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 791.8 million; Market cap: $41.2 billion; Price-to-sales ratio: 3.3; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.thomsonreuters.com) sells specialized information products in four main areas: financial (53% of 2014 revenue, 39% of earnings); legal (28%, 39%); tax (11%, 12%); and intellectual property and science (8%, 10%). (All amounts except share price and market cap in U.S. dollars.) The Americas supplied 60% of Thomson’s 2014 revenue, followed by Europe (30%) and Asia (10%)....

POTASH CORP. OF SASKATCHEWAN, $40.70, Toronto symbol POT, fell 2% this week after the Saskatchewan government said it would change the timing of certain tax breaks for new potash mines and expansion projects. The province is also reviewing how it taxes potash producers. Potash Corp. expects the new rules to cut its pre-tax earnings by $75 million to $100 million (Canadian) in 2015. To put that in context, Potash Corp. (which reports its results in U.S. dollars) earned $1.5 billion, or $1.82 a share, in 2014. The company expects to complete its current $6-billion U.S. expansion plan in 2016, so the new rules will have little impact on next year’s earnings....

Transcontinental’s ability to keep the right assets in the fast-changing publishing industry makes it one of our top stocks to buy.

Every Monday we feature “A Stock to Sell” as our daily post. With every stock or investment we recommend as a sell, we give you a full explanation of why we advise against investing in it at this time.

Linn Energy (symbol LINE on Nasdaq; www.linnenergy.com) acquires and develops oil and gas properties in the Mid-Continent region in the southern U.S., the Permian Basin (Texas and New Mexico) and the Hugoton Basin (Texas and Kansas), as well as in California, Michigan and Illinois.

In December 2013, Linn bought Berry Petroleum for $4.3 billion in stock. The move added long-lasting, mature properties and boosted Linn’s growth prospects. Berry’s reserves were roughly 75% oil.

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TRANSCONTINENTAL INC. $16 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 78.0 million; Market cap: $1.2 billion; Price-to-sales ratio: 0.6; Dividend yield: 4.0%; TSINetwork Rating: Average; www. tctranscontinental.com) is Canada’s leading printer of flyers, magazines, newspapers and books. It also publishes magazines and newspapers.

The company recently agreed to sell its consumer magazine division to TVA Group (Toronto symbol TVA.B). This business publishes 15 English- and French-language magazines, including Elle Canada, Canadian Living and The Hockey News. As part of the deal, Transcontinental will keep printing these magazines, as well as other TVA publications, to the end of June 2022.

Selling these magazines will let the company focus on its smaller newspapers and related websites, which serve local advertisers instead of relying on less profitable national ads.

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Advertisers continue to shift to online ads and away from printed flyers and newspapers. That’s hurting revenue at Transcontinental (below) and Torstar (see box). But both are industry leaders and are doing a good job of controlling costs. That will let them maintain their current dividend rates. TRANSCONTINENTAL INC. $16 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 78.0 million; Market cap: $1.2 billion; Price-to-sales ratio: 0.6; Dividend yield: 4.0%; TSINetwork Rating: Average; www. tctranscontinental.com) is Canada’s leading printer of flyers, magazines, newspapers and books. It also publishes magazines and newspapers. The company recently agreed to sell its consumer magazine division to TVA Group (Toronto symbol TVA.B). This business publishes 15 English- and French-language magazines, including Elle Canada, Canadian Living and The Hockey News. As part of the deal, Transcontinental will keep printing these magazines, as well as other TVA publications, to the end of June 2022....

Pat McKeough responds to many requests from Members of his Inner Circle for advice on specific investments as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle Members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “U.S. Stock Picks” on Thursday. This week an Inner Circle member asked us about several real estate investment trusts (REITs) that focus on industrial properties. Dream Industrial REIT, formerly Dundee Industrial REIT, owns buildings spread fairly evenly across Canada. Pure Industrial REIT also owns buildings across the country, but with almost half of them in Ontario. Both host a number of well-established tenants. Pat looks at the revenues and cash flow generated by these two REITs and their ability to sustain their distributions and high dividend yields. Q: Hi, Pat. I have a significant weighting in real estate investment trusts, including these two industrial REITs: Dream Industrial REIT and Pure Industrial REIT. Can you please comment on industrial REITs in general and these specifically? Thanks....

We haven’t found any industrial REITs we recommend as buys, but some are okay to hold as part of a well-balanced portfolio. Here’s a look at the three you asked about:

• WPT Industrial REIT, $10.80, symbol WIR.U on Toronto (Units outstanding: 29.4 million; Market cap: $317.5 million; www.wptreit.com), is a Canadian REIT that owns and manages industrial properties in the U.S. Right now, WPT has 42 properties in 12 states. In all, they include 12.8 million square feet of leasable area....

TIM HORTONS INC., $99.00, Toronto symbol THI, has completed its merger with U.S.-based BURGER KING WORLDWIDE INC., $35.50, New York symbol BKW.

On Monday, December 15, 2014, the combined company, called Restaurant Brands International Inc., will begin trading on the Toronto and New York exchanges under the QSR symbol.

Restaurant Brands is the world’s third-largest fast-food restaurant operator, after McDonald’s and Yum Brands, with 14,000 Burger King restaurants and 4,590 Tim Hortons outlets in 100 countries. In all, these locations have annual sales of over $23 billion U.S.

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