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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On occasion, an Inner Circle member asks a question that is likely to interest many other members. Here’s the latest example: Q: Hello, Pat: I am a relatively new member, and this is my first time writing to ask a question. I have heard about a movement to divest from the fossil fuel industry in which some major institutional funds have begun to participate (Stanford’s endowment being one). Now I know that you recommend a number of oil stocks, and I am not writing to delve further into that matter. Rather, I would like to know: is it possible to have a strong resource segment in one’s portfolio while divesting away from companies directly related to the fossil fuel industry? What companies would you suggest investing in?...
Marathon Petroleum Corp., $99.90, symbol MPC on New York (Shares outstanding: 280.2 million; Market cap: $28.1 billion; www.marathonpetroleum.com), was formed in July 2011, when Marathon Oil (symbol MRO on New York) spun it off as a separate company. Marathon Petroleum is the fourth-largest oil refiner in the U.S., with seven refineries that can process up to 1.7 million barrels a day. This business supplies 85% of the company’s revenue and earnings. Most of the remaining 15% comes from its retail division, which runs 2,740 gas stations/convenience stores in 23 states under the Speedway banner, in addition to supplying gasoline to over 5,400 independent stations in 19 states....
Home Depot, $109.37, symbol HD on New York (Shares outstanding: 1.3 billion; Market cap: $142.8 billion; www.homedepot.com), operates warehouse-style home-improvement stores that average 104,000 square feet, plus an additional 24,000-square-foot garden centre. Each outlet typically carries 30,000 to 40,000 items. The company has 2,269 locations in the U.S., Canada, Mexico, Puerto Rico and Guam. Home Depot’s sales rose 5.4% in the quarter ended November 2, 2014, to $20.5 billion from $19.5 billion a year earlier. Sales gained even though the company disclosed in September 2014 that online attackers stole 53 million customer emails and gained access to 56 million credit cards....
Akita Drilling, $10.76, symbol AKT.A on Toronto (Shares outstanding: 18.0 million; Market cap: $194.9 million; www.akita-drilling.com), is an oil and gas drilling contractor with 36 rigs operating throughout Western Canada and the northern territories. The company operates 10 of its rigs through joint ventures it co-owns with its 22 aboriginal partners. In the three months ended September 30, 2014, Akita’s revenue rose 5.3%, to $36.6 million from $33.1 million a year earlier. Earnings per share gained 5.0%, to $0.21 from $0.20. Akita has no debt....
Extendicare Inc., $6.75, symbol EXE on Toronto (Shares outstanding: 88.2 million; Market cap: $598.0 million; www.extendicare.com), is one of North America’s largest retirement- and nursing-home operators. Its 259 long- and short-term senior-care facilities can house 28,401 residents. The stock fell sharply in November 2014, from over $8, when Extendicare announced an agreement to sell most of its U.S. business for $870 million U.S. in a deal with two investment firms, Formation Capital and an affiliate of Safanad Inc. These operations generated $868.9 million U.S. of revenue in the first nine months of 2014—more than half of Extendicare’s $1.6-billion U.S. total in that period....
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.
Keppel Corp., $8.60 SGD (1 Singapore dollar = $0.93 Canadian), symbol BN4 on the Singapore Exchange (Shares outstanding: 1.8 billion; Market cap: $16.3 billion; www.kepcorp.com), is the world’s largest builder of offshore oil rigs. It also has interests in power generation and real estate. You can buy shares of Singapore-listed stocks from major brokers such as TD Waterhouse. Keppel Land (formerly Straits Steamship Land) is a real estate subsidiary of Keppel Corp....
Telus continues to upgrade its wireless and Internet services, spending $2.2 billion on these improvements in 2014. That’s helping it attract more subscribers in a highly competitive market. As well, last year the company bought $1.1 billion worth of wireless frequencies, or spectrum, that should let it cover more of Canada, particularly smaller cities and rural areas. TELUS $43.63 (Toronto symbol T; Shares outstanding: 611.0 million; Market cap: $26.4 billion; TSINetwork Rating: Above Average; Dividend yield: 3.7%; www.telus.com) gets 55% of its revenue from its 8.0 million wireless subscribers across Canada. It also has 3.2 million phone customers, 1.5 million high-speed Internet users and 888,000 TV subscribers. In the three months ended September 30, 2014, Telus’s earnings per share rose 10.3%, to $0.64 from $0.58 a year earlier. Revenue increased 5.4%, to $3.03 billion from $2.87 billion....
CANADIAN PACIFIC RAILWAY LTD. $231.77 (Toronto symbol CP; Shares outstanding: 171.0 million; Market cap: $39.4 billion; TSINetwork Rating: Average; Dividend yield: 0.6%; www.cpr.ca) has agreed to form a 50/50 joint venture with DREAM Unlimited Corp., Toronto symbol DRM. This new business—called DREAM Van Horne Properties—will redevelop several of CP’s real estate holdings, helping the company unlock some of their hidden value. These assets include 75-acre Schiller Park in Chicago; Obico, a 74-acre site near Toronto; the 92-acre South Edmonton Yard, close to downtown Edmonton; and Lucien L’allier, a three-acre site in Montreal....
ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $39.54 (Toronto symbol AP.UN; Units outstanding: 74.7 million; Market cap: $3.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 3.7%; www.alliedreit.com) owns 138 office buildings, mostly in major Canadian cities. These mainly Class I properties contain over 9.9 million square feet of leasable area. Class I refers to 19th- and early-20th-century light industrial buildings that have been converted to retail space. They usually feature exposed beams, interior brick and hardwood floors. Allied bought $400 million of properties in 2012 and $182.4 million in 2013. In the first three quarters of 2014, it added seven more for $210.0 million....