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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Edwards Lifesciences, $101.39, symbol EW on New York (Shares outstanding: 106.0 million; Market cap: $10.8 billion; www.edwards.com), develops technologies for treating heart disease and monitoring critically ill patients’ cardiovascular systems. The company operates in three segments:
- Surgical Heart Valve Therapy (42% of revenue): Edwards makes a range of heart valves and other products that are used to replace or repair a patient’s diseased or defective heart valves. These products include pericardial valves from biologically inert animal tissue sewn onto wireform stents.
- Transcatheter Heart Valves (29% of sales): Transcatheter valve technology offers a less invasive means of treating heart valve disease. It’s designed to let physicians deliver replacement valves via a catheter through the body’s cardiovascular system, eliminating the need to open the chest.
- Critical Care (29% of sales): This division’s products focus on hemodynamic monitoring, which aims to assess a critically ill patient’s cardiovascular system and its response to tissue oxygen demands. Hemodynamic monitoring measures the blood pressure inside the veins, heart and arteries. It also measures the blood’s flow and oxygen content.
I can say without reservation that, in investing, spinoffs are the closest thing you can find to a sure thing. It all comes down to the incentives. In spinoffs, the incentives work in your favour. This is easier to understand if you contrast spinoffs to one of the least desirable investments, new stock issues, where the incentives all work against you. New issues (also known as Initial Public Offerings or IPOs) come to market when it’s a good time for the company or its insiders to sell. That’s not necessarily—and often isn’t—a good time for you to buy. In addition, the underwriting brokerage firms try to spark investor interest in the new issue. They hire public relations firms to get the media interested. They also pay extra commission (double or more the regular rates) to spur their salespeople to sell the new issue....
One of the ways a company can try to unlock its own hidden value is by creating a separate company out of a subsidiary. The parent company can either sell stock in the new company to the public, or spin it off—hand the stock out to its own investors. In the past few years, it has become common to do both. The parent company starts by selling a portion of the new company to the public, to establish a market and a following among investors. That way, by the time of the spin-off, stock in the new company may be liquid enough to be sold relatively easily, or retained with some confidence as a worthwhile investment. In our experience, and in most academic studies of the subject, this helps the parent and the spin-off. Both generally do better than comparable companies for at least several years after the spin-off takes place....
The Guggenheim Spin-off ETF, $46.50, symbol CSD on New York (Units outstanding: 13.3 million; Market cap: $618.5 million; www.guggenheiminvestments.com), aims to track the Beacon Spin-off Index. The ETF’s MER is 0.65%. The Beacon Spin-off Index consists of 34 stocks. Companies can be included if they have been spun off in the past 30 months. There are no limitations on market capitalization (or the total value of a company’s outstanding shares), but companies in the index are mainly small- and mid-caps with capitalizations under $10 billion. Beacon defines a spinoff as any firm resulting from either of the following events: a parent company’s distribution of shares in a subsidiary to its own shareholders or “partial initial public offerings,” in which a parent company sells a percentage of a subsidiary’s shares to the general public....
We made Bank of Nova Scotia our #1 safety-conscious buy in 2013 and again in 2014. The bank just reported strong quarterly results and raised its dividend. The shares are already up 18.4% this year, but we think they can still go higher. BANK OF NOVA SCOTIA $72.16 (Toronto symbol BNS; Shares outstanding: 1.2 billion; Market cap: $88.0 billion; TSINetwork Rating: Above Average; Div. yield: 3.7%, www.scotiabank.com) is the third-largest of Canada’s five big banks, with $791.5 billion of assets. In the three months ended July 31, 2014, the bank earned $1.85 a share, up 36.0% from $1.36 a year earlier. The latest quarter included a one-time gain of $0.45 a share from the sale of most of the bank’s stake in mutual fund company CI Financial for $2.3 billion. Without one-time items, earnings per share rose 8.5%, to $1.40 from $1.29....
MANULIFE FINANCIAL $22.36 (Toronto symbol MFC; Shares outstanding: 1.9 billion; Market cap: $41.2 billion; TSINetwork Rating: Above Average; Dividend yield: 2.8%; www.manulife.ca) sells insurance, mutual funds and wealth management services. The company operates globally and has $637 billion of assets under management. The company has just announced strong quarterly results and a 19.2% dividend increase, to $0.155 a share from $0.13. The stock yields 2.8%. This is the first hike since Manulife cut its payout by 50% in 2009 to preserve capital after 2008’s stock market declines....
CRESCENT POINT ENERGY CORP. $43.17 (Toronto symbol CPG; Shares outstanding: 398.1 million; Market cap: $17.7 billion; TSINetwork Rating: Extra Risk; Dividend yield: 6.4%; www.crescentpointenergy.com) produces oil and natural gas in Western Canada, with a focus on its Bakken light oil development in southeastern Saskatchewan. Its output is 91% oil and 9% gas. In the three months ended June 30, 2014, Crescent Point’s cash flow rose 26.2%, to $636.7 million from $504.4 million a year earlier. The company increased its output by 16.7%, to 137,368 barrels of oil equivalent from 117,799. That, plus higher oil and gas prices, was the main reason for the higher cash flow. Cash flow per share rose at a slower rate of 18.3%, to $1.55 from $1.31, because Crescent Point issued shares to pay for acquisitions....
PENGROWTH ENERGY $6.70 (Toronto symbol PGF; Shares outstanding: 527.5 million; Market cap: $3.6 billion; TSINetwork Rating: Average; Divd. yield: 7.2%; www.pengrowth.com) plans to build a 15-kilometre pipeline to pump diluted bitumen from its new Lindbergh oil sands project in Alberta. The new line will connect to a larger one operated by Husky Energy. The company will spend $20 million on this pipeline, which will make it easier for Pengrowth to sell Lindbergh’s oil to customers in Canada and the U.S. when the project starts up next year. Lindbergh will add 12,500 barrels to Pengrowth’s overall daily production, which totalled 73,823 barrels in the latest quarter....
We think conservative investors could hold up to 10% of their portfolios in foreign stocks. One way to do that is to buy carefully chosen exchange traded funds (ETFs) that have an overseas focus. The best ETFs offer very low management fees and well-diversified, tax-efficient portfolios of highquality stocks. Here’s a look at six global ETFs:...
ISHARES CDN REIT SECTOR INDEX FUND $16.64 (Toronto symbol XRE; buy or sell through brokers; ca.ishares.com) holds the 15 Canadian real estate investment trusts in the S&P/TSX Capped REIT Index. iShares CDN REIT’s expenses are 0.60% of its assets. The fund yields 5.0%. The ETF’s largest holding is RioCan REIT at 19.3%, followed by H&R REIT (14.7%), Canadian REIT (7.8%), Dream Office REIT (7.0%), Calloway REIT (6.4%), Boardwalk REIT (6.3%), Canadian Apartment REIT (6.2%), Allied Properties REIT (5.8%), Cominar REIT (5.4%), Artis REIT (5.0%), Chartwell REIT (4.6%), Granite REIT (4.5%), Crombie REIT (2.4%), Northern Property REIT (2.2%) and Dream Global REIT (2.1%)....