How To Invest
In addition, Pat thinks then beginner investors should cultivate two important qualities: a healthy sense of skepticism and patience.
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Investors should approach all investments with a healthy sense of skepticism. This can help keep you out of fraudulent stocks that masquerade as high-quality stocks. It will also keep you out of legally operated, but poorly managed, companies that promise more than they can possibly deliver.
If you are a new investor, you should also realize that losing patience can cause you to sell your best choices right before a big rise. All too often, investors buy a promising stock just as it enters a period of price stagnation. Even the best-performing stocks run into these unpredictable phases from time to time. They move mainly sideways in a wide range for months or years before their next big rise begins. (Stock brokers often refer to these stocks as “dead money.”)
If you lack patience, you run a big risk of selling your best choices in the midst of one of these phases, prior to the next big move upward. If you lose patience and sell, you are particularly likely to do so in the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.
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The Bank of Canada cut its key interest rate to 0.75% from 1.0% in January 2015. The move came after the country’s inflation rate dropped to 1.5%—below the bank’s 2.0% target—reflecting falling oil prices and slowing growth. Inflation has since dropped even further, to 1.2%. Even so, the long-term outlook is for higher interest rates. That’s because heavy deficit spending and the expansion of the money supply in the past few years make higher inflation more likely. We continue to advise against investing in bonds right now. That’s because today’s low interest rates make bonds unattractive, and rising rates would push down their future value....
ENCANA $17.05 (Toronto symbol ECA; Shares outstanding: 741.2 million; Market cap: $14.0 billion; TSINetwork Rating: Average; Dividend yield: 2.1%; www.encana.com) has sold its natural gas pipelines and compression facilities in B.C.’s Montney region. The buyer is a partnership between Veresen (Toronto symbol VSN and a buy recommendation of Canadian Wealth Advisor) and investment firm KKR & Co. (New York symbol KKR). The company received $461 million (Canadian) for these assets. The cash, along with the $1.4 billion (Canadian) it recently raised by selling new shares, will let Encana pay down its long-term debt of $7.3 billion U.S., which is a high 63% of its market cap. Encana is still a buy....
H&R REIT $23.32 (Toronto symbol HR.UN; Units outstanding: 275.3 million; Market cap: $6.5 billion; TSINetwork Rating: Extra Risk; Dividend yield: 5.8%; www.hr-reit.com) owns stakes in 45 office buildings, 114 industrial properties and 340 shopping malls in Canada and the U.S. In December 2014, the REIT sold part ownership of 101 industrial properties in Canada and the U.S. for $731 million. In all, these buildings comprise 19.5 million square feet. The buyers include the Canadian Public Sector Pension Investment Board. H&R will keep a 50% interest in the Canadian properties and a 49.5% stake in the U.S. portfolio. It will also keep managing these assets and will receive fees for doing so. H&R will retain full ownership of 14 other industrial properties....
RIOCAN REIT $30.05 (Toronto symbol REI.UN; Units outstanding: 315.8 million; Market cap: $9.5 billion; TSINetwork Rating: Average; Dividend yield: 4.7%; www.riocan.com) continues to hit new all-time highs, even with the closure of the Future Shop chain. Electronics retailer Best Buy (New York symbol BBY) recently closed 66 of its 131 Future Shop outlets in Canada and will convert the remaining 65 to Best Buy stores. There are only 10 Future Shops in RioCan’s malls, so these closures and conversions should have little impact on its results. Combined, 32 Best Buy and Future Shop stores rent space from RioCan, accounting for just 1.5% of its 2014 rental revenue....
TRANSCANADA CORP. $56.04 (Toronto symbol TRP; Shares outstanding: 708.9 million; Market cap: $40.4 billion; TSINetwork Rating: Above Average; Dividend yield: 3.7%; www.transcanada.com) has announced a new deal with Magellan Midstream Partners (New York symbol MMP). The two firms have formed a 50/50 partnership to build a pipeline connecting their oil-storage facilities in Houston, Texas. This will give TransCanada’s oil-shipping clients access to more refineries in the Houston area. The company’s share of the $50-million cost is $25 million. To put that in context, TransCanada earned $511 million, or $0.72 a share, in the three months ended December 31, 2014. The partners expect to complete this project in mid-2016....
IBM $174.40 (New York symbol IBM; Shares outstanding: 988.4 million; Market cap: $171.3 billion; TSINetwork Rating: Above Average; Dividend yield: 3.0%; www.ibm.com) continues to transition from selling mainframes and consulting services into high-growth areas such as cloud computing and analytics software that can process huge amounts of data. IBM has successfully shifted from unprofitable businesses to fast-growing ones in the past, but investors remain scared of the latest shift in a time of rapidly evolving technology and customer demands. That’s why the shares trade at just 10.8 times its forecast 2015 earnings. The company’s revenue fell 11.9% in the three months ended March 31, 2015, to $19.6 billion from $22.2 billion. However, if you adjust for foreign exchange rates and the sale of the company’s server business, revenue was flat....
The most exciting news I heard this past week was Google’s announcement of the launch of its Google Fi project. Google Fi will offer cellphone/smartphone service that uses Wi-Fi networks whenever possible, chosen from a huge list of Wi-Fi hotspots around the U.S. When Wi-Fi is unavailable, it will switch users to one of two existing cell networks (T-Mobile or Sprint—whichever is stronger at the customer’s location). The company plans to add additional cell network alternatives as they become available. The service will initially cost $20 a month, plus $10 for each GB of data. That’s much cheaper than most cellphone plans. Moreover, the service will refund the pro-rata cost of unused data each month, which is unheard of in the cell industry. To top it off, Google Fi will offer service in more than 120 countries, at a far lower cost than you can get by using a U.S.-based cellphone. More important, it will be vastly more convenient for travelers than any current alternative....
Gilead Sciences Inc., $102.94, symbol GILD on Nasdaq (Shares outstanding: 1.5 billion; Market cap: $153.8 billion; www.gilead.com), discovers, develops and markets treatments for viruses. The company’s two newest hepatitis C drugs, Sovaldi and Harvoni, continue to perform well. In 2014, Gilead sold $10.3 billion worth of Sovaldi, which it started selling in December 2013, and $2.1 billion of Harvoni, introduced in October 2014. Hepatitis refers to both the inflammation of the liver and a group of viral infections that affect the liver. The most common types are hepatitis A, hepatitis B and hepatitis C. Viral hepatitis is the leading cause of liver cancer and the most common reason why patients need liver transplants....
Parkland Fuel Corp., $26.35, symbol PKI on Toronto (Shares outstanding: 82.6 million; Market cap: $2.2 billion, www.parkland.ca), operates gas stations, convenience stores and a fuel-distribution business, mostly in Western Canada and Ontario. It was called Parkland Income Fund before it converted to a dividend-paying corporation on December 31, 2010. The company owns 143 rural gas stations and convenience stores. Its brands include Fas Gas Plus, Race Trac Gas and Short Stop. Many of Parkland’s stations sell propane in addition to gasoline and diesel fuel. Parkland also operates Esso stations in Western Canada and Ontario under a licensing deal with Imperial Oil (symbol IMO on Toronto). In addition, it has an agreement to use the Chevron brand in B.C....
GlaxoSmithKline plc (ADR), $46.85, symbol GSK on New York (ADRs outstanding: 2.4 billion; Market cap: $113.2 billion; www.gsk.com), is a U.K.-based global health care company that develops, makes and sells products in three main markets: pharmaceuticals, vaccines and consumer. It has about 98,000 employees. In the three months ended December 31, 2014, Glaxo’s sales fell 10.4%, to 6.19 billion pounds ($9.39 billion U.S.) from 6.91 billion pounds. Earnings per share declined 5.9%, to 27.3 pence ($0.41 U.S.) from 29.0 pence. The drop mainly resulted from drugs losing their patent protection and facing generic competition. Examples include Valtrex (herpes), Imitrex (migraines), Requip (Parkinson’s disease), Combivir (HIV) and Epivir (antiviral)....