Heading into the Christmas break, BMO Financial Group has announced that they are buying Wisconsin based bank Marshall & Ilsley Corp. for 4.1 Billion U.S. Dollars. The deal, expected to close in July 2011, will be financed by BMO stock, with more being issued prior to July.
This deal will double the size of BMO in the United States, to about 700 branches, but will not be accretive to earnings. What does this mean? It means that Marshall & Ilsley does not make any money right now! In fact, the bank has posted a loss of $483.5-million (U.S.) in the first nine months of 2010. That's after losing $858.8-million in 2009. As a shareholder of BMO, this deal concerns me. "Restructuring charges" alone are going to cost BMO over half a billion dollars, and that does not even include the prospect of their U.S. business suffering credit delinquencies from a bloated loan portfolio of American debt. The Canadian market is an excellent place for banking and finance companies to make a profit, but the U.S. mid-west is highly competitive and BMO will not get to enjoy the regulated oligopoly that they enjoy in Canada.
To be sure, BMO is making this buy because they are afraid of being left behind in the United States by TD and RBC. But RBC is suffering in its U.S. business and TD's is growing ever more complicated as it keeps making piecemeal transactions. Personally, I would much rather own a healthy "cash-cow" operating in a monopolistic Canadian marketplace than one fighting to simply make a profit in the U.S.
As a rule, it is important to remember that company's often make acquisitions, or buy other businesses, when they have discovered that the prospects for internal growth are becoming poor. Clearly BMO is beginning to discover that the prospects of organically expanding its U.S. operations are not bright, otherwise it would concentrate its 4.1 billion dollars on internal growth prospects, and not the purchase of an American liability.
Some other banks to begin taking a look at now may be CIBC, or Canadian Western. CIBC has a very profitable and healthy credit card division and a great dividend, but weak growth prospects. Canadian Western Canadian has posted 90 consecutive profitable quarters, the longest current streak among Canadian banks, but it is relatively high in price. I hope to do more research on Canadian Western in the future as it is a great up and coming bank with much potential for success.
For more information on CIBC and Canadian Western:
http://www.cibc.com/ca/investor-relations/contact-inv-rel.html
http://www.cwbankgroup.com/investor_relations/
Sunday, December 19, 2010
Thursday, December 16, 2010
How to Make a Beginner's Stock "Watch List."
Generating new investment ideas in a fairly priced market can often be difficult. Now that the markets have hit a two year high, bargains are becoming harder to find. But for the prudent investor, there is always somewhere, or somehow, for new money to be made. Patience, however, becomes more important.
One key thing for the prudent investor to do is make what I call a "watch list." Your watch list should contain no more than 10 different stocks and should consist of investments that you would love to own, but perhaps not at current prices. If followed properly, at one time or another, there will always be a couple stocks on your list that should be within firing range... or near a price where you can make an entry level purchase.
An excellent way to begin making a beginner's watch list is to consider products and services that you tend to use on a daily basis. By running through your daily purchasing and spending habits, a beginner's watch list can be created fairly quickly. The only caveat with this type of list is to be sure that it contains as few highly discretionary purchases as possible. For example, you may buy jewellery every so often, but it surely is not something that you, or many consumers, need to buy on a regular basis.
For instance, a typical person's spending or daily use habits may look like this:
Product/ Service: Related Investment to Make Money
Shampoo: Johnson & Johnson (JNJ)
Toothpaste: Colgate Palmolive (CL)
Coffee: Tim Hortons (THI)
Lunch: McDonalds (MCD)
Cell Phone Call: Bell (BCE)
Buy Gas: Esso/Imperial Oil (IMO)
Banking: Bank of Montreal (BMO)
Groceries: Loblaws (L)
Pay Car Insurance: Allstate (All)
Medicine/Prescriptions: Shoppers Drug Mart (SC)
Of course, the above list is fairly rudimentary, but lists such as the one above can be made fairly quickly and simply. The next step is to choose a reasonable "entry point," or price at which the stock would be a good investment. This will be discussed more in a future post. Engaging in this quick and simple process can sometimes be surprising and often spurs some exceptional investment ideas.
Disclosure: Matthew Clarke has an ownership interest in BCE, BMO, IMO, and SC.
One key thing for the prudent investor to do is make what I call a "watch list." Your watch list should contain no more than 10 different stocks and should consist of investments that you would love to own, but perhaps not at current prices. If followed properly, at one time or another, there will always be a couple stocks on your list that should be within firing range... or near a price where you can make an entry level purchase.
An excellent way to begin making a beginner's watch list is to consider products and services that you tend to use on a daily basis. By running through your daily purchasing and spending habits, a beginner's watch list can be created fairly quickly. The only caveat with this type of list is to be sure that it contains as few highly discretionary purchases as possible. For example, you may buy jewellery every so often, but it surely is not something that you, or many consumers, need to buy on a regular basis.
For instance, a typical person's spending or daily use habits may look like this:
Product/ Service: Related Investment to Make Money
Shampoo: Johnson & Johnson (JNJ)
Toothpaste: Colgate Palmolive (CL)
Coffee: Tim Hortons (THI)
Lunch: McDonalds (MCD)
Cell Phone Call: Bell (BCE)
Buy Gas: Esso/Imperial Oil (IMO)
Banking: Bank of Montreal (BMO)
Groceries: Loblaws (L)
Pay Car Insurance: Allstate (All)
Medicine/Prescriptions: Shoppers Drug Mart (SC)
Of course, the above list is fairly rudimentary, but lists such as the one above can be made fairly quickly and simply. The next step is to choose a reasonable "entry point," or price at which the stock would be a good investment. This will be discussed more in a future post. Engaging in this quick and simple process can sometimes be surprising and often spurs some exceptional investment ideas.
Disclosure: Matthew Clarke has an ownership interest in BCE, BMO, IMO, and SC.
Wednesday, November 24, 2010
Ontario Government to Heavily Invest in Green Energy... at What Cost?
The Ontario government has announced Billions of dollars for green energy projects over the next 20 years or so. In an era of chronic budget deficits and skyrocketing taxes in Ontario, I am not sure if the Liberals have planned for where the money for these projects will come from, but undoubtedly, given their track record, it will be in the form of borrowing and higher taxes on Ontario's working class.
They have earmarked large amounts of money for various segments of the green energy economy. There will be $4 billion going towards energy generated from bio-mass. This includes composted organics, or methane from garbage dumps or agricultural facilities. This will increase the share of power generated by bio-mass from 1 per cent to 1.3 per cent by 2030. Hardly a blip for 4 billion dollars.
Solar spending will ring in at $9 billion, which will increase solar power’s share to 1.5 per cent from 0 currently.
Investments in wind power will be $14 billion, which will take its share to 10 per cent from only 2.
According to energy minister Brad Duguid;
“Together we’re building cleaner air, together we’re building an economy with thousands of clean energy jobs, and together we’re building a healthier future for our kids and grandkids. That’s something worth fighting for.”
Another viable option not really tabled by the Ontario Liberals is buying excess renewable energy from Hydro Quebec. Currently, Hydro Quebec is selling vast amounts of excess renewable energy to the North-East United States, and Ontario could benefit significantly from importing power from Quebec as well. On a cost basis, buying power from Quebec is significantly cheaper than developing any form of renewable resources at home. But the argument of the Liberal government is that the development of green energy here will create jobs and other economic spin-offs that will benefit the province as a whole. Whether this will come to fruition, however, is highly questionable. Especially considering the economic drawbacks of higher taxes and large budget deficits.
With respect to Ontario, there are few opportunities for investment in this area. So the contracts for the construction of such development projects will probably go to foreign firms. General Electric, Seimans, and Vestas are the best international ways to play the boom in wind energy, and solar energy stocks have been a disaster on the earnings front. The technology is simply not there yet for conservative investors. To gain exposure to a basket of green energy stocks one could look to the PowerShares WindHill Clean Energy exchange traded fund. It's mandate is to "deliver capital appreciation through the selection of companies that focus on greener and generally renewable sources of energy and technologies that facilitate cleaner energy." It trades in New York under the symbol PBW.
For more information on the above mentioned stocks or investments look to the following:
General Electric: http://www.ge.com/investors/index.html
Seimans: http://www.usa.siemens.com/en/investor_relations.htm
Vestas: http://www.vestas.com/en/investor.aspx
WindHill Clean Energy: http://www.invescopowershares.com/products/overview.aspx?ticker=PBW
They have earmarked large amounts of money for various segments of the green energy economy. There will be $4 billion going towards energy generated from bio-mass. This includes composted organics, or methane from garbage dumps or agricultural facilities. This will increase the share of power generated by bio-mass from 1 per cent to 1.3 per cent by 2030. Hardly a blip for 4 billion dollars.
Solar spending will ring in at $9 billion, which will increase solar power’s share to 1.5 per cent from 0 currently.
Investments in wind power will be $14 billion, which will take its share to 10 per cent from only 2.
According to energy minister Brad Duguid;
“Together we’re building cleaner air, together we’re building an economy with thousands of clean energy jobs, and together we’re building a healthier future for our kids and grandkids. That’s something worth fighting for.”
Another viable option not really tabled by the Ontario Liberals is buying excess renewable energy from Hydro Quebec. Currently, Hydro Quebec is selling vast amounts of excess renewable energy to the North-East United States, and Ontario could benefit significantly from importing power from Quebec as well. On a cost basis, buying power from Quebec is significantly cheaper than developing any form of renewable resources at home. But the argument of the Liberal government is that the development of green energy here will create jobs and other economic spin-offs that will benefit the province as a whole. Whether this will come to fruition, however, is highly questionable. Especially considering the economic drawbacks of higher taxes and large budget deficits.
With respect to Ontario, there are few opportunities for investment in this area. So the contracts for the construction of such development projects will probably go to foreign firms. General Electric, Seimans, and Vestas are the best international ways to play the boom in wind energy, and solar energy stocks have been a disaster on the earnings front. The technology is simply not there yet for conservative investors. To gain exposure to a basket of green energy stocks one could look to the PowerShares WindHill Clean Energy exchange traded fund. It's mandate is to "deliver capital appreciation through the selection of companies that focus on greener and generally renewable sources of energy and technologies that facilitate cleaner energy." It trades in New York under the symbol PBW.
For more information on the above mentioned stocks or investments look to the following:
General Electric: http://www.ge.com/investors/index.html
Seimans: http://www.usa.siemens.com/en/investor_relations.htm
Vestas: http://www.vestas.com/en/investor.aspx
WindHill Clean Energy: http://www.invescopowershares.com/products/overview.aspx?ticker=PBW
Tuesday, November 23, 2010
Tim Hortons to Accept Debit Cards! Promises no Change in Wait Times.
After years of griping by many of its customers, and months of testing in the province of Manitoba, Tim Hortons will finally begin accepting debit card payments. Of course, it was not that long ago when Tim Hortons began accepting MasterCard, which was a highly successful introduction by the chain.
Tim Hortons, (THI in Toronto), had long resisted the introduction of both debit and credit card transactions. They argued that the extra percent or two that they would have to pay for the use of the network to credit card providers and the banks would hurt their bottom line. They also argued that they would have to raise prices to compensate for extra expenses and that service might be slower as people process electronic transactions instead of cash. Customers, however, have increased the size of their orders and have begun to go to the stores more frequently with the introduction of multiple means of payment, such as the MasterCard.
Also, since 2003, the chain had been accepting debit and credit transactions out west with little or no problems, and even line-ups and customer service has not been affected according to the Oakville based company. Citing this experience, and recent experiences in Manitoba, the chain has changed their opinion on this matter and now states that service will remain the same even if most people in the line use debit.
According to most analysts, Tim Hortons, which has 3,082 locations in Canada and 567 in the U.S., will not gain much extra revenue from this move, but surely it will result in a few extra customers going to their stores who previously may not have had the cash or credit cards in hand.
For more information on this change go to:
For previous information on Tim Hortons go to:
Monday, November 22, 2010
New U.S. Regulations Mean That Ethanol Could Make Investors Some Money.
Ethanol has been heavily touted as a substitute for gasoline fuel ever since the oil crises of the 1970's and 1980's. In Brazil, they have had a significant degree of success utilizing ethanol fuel to power their transportation industry. Brazil uses local sugar stocks to feed its ethanol refineries, which has proved to be fairly efficient and cost-effective. In North America, however, corn is the primary source of our ethanol fuel. This is great for farmers, but not really for consumers as corn based ethanol is quite expensive and detrimental to the environment.
The industry, languishing in the doldrums recently, may be poised to make a significant recovery as the U.S. takes steps to increase the ethanol that is blended into gasoline by as much as 50 percent! On Wednesday, the U.S. Environmental Protection Agency announced that it will now allow 15 percent ethanol based gasoline. The significance of this is that it allows the U.S. ggovernment to enact legislation requiring all gasoline to have a minimum blend of 15 percent ethanol. A move such as this would be highly favoured by the U.S. agricultural industry at a time when Obama is in need of some extra support.
Though ethanol may be one way for the United States to reduce their dependence on foreign oil, the industry is heavily subsidized by the taxpayers and it is not clear whether there is even enough refining or agricultural capacity for ethanol to ever truly make a dent in our oil and gasoline consumption. Even in Canada, with a thriving oil and gas industry of its own, the government has been supporting ethanol producers with taxpayer dollars. It provided $119 million — 70 per cent of the cost — for a 225-million-litre-per-year plant at Johnstown, Ont., 70 kilometres south of Ottawa, in late 2008. Not a wise move considering how desperate the government and its people are for cash.
Greenfield Ethanol, the largest producer in Canada, claims that ethanol produces at least 2.3 times more energy than it uses in production and that, compared to gasoline, its use reduces greenhouse gases by approximately 70 per cent. But this claim seems highly dubious, especially considering all of the energy that goes into the highly intensive growth and harvesting of corn in North America. Nonetheless, there is money to be made as an investor in the industry because the Canadian and U.S. governments have proven to be intent on pushing the consumption of ethanol on consumers.
With over 60 billion dollars in revenue, a healthy balance sheet, and a long string of profits, Archer Daniels Midland (ADM in New York) is a great way to conservatively invest in the growth and profitability of the ethanol industry. Its operations include the processing of oil seeds, corn, wheat, cocoa, and other agricultural commodities, and it is a manufacturer of vegetable oil and protein meal, corn sweeteners, flour, bio diesel, ethanol, and other food and feed ingredients. With a current earnings yield of over 9 percent, and a dividend yield of over 2, ADM is a solid choice for many investors at its current price.
For more information on ADM, go to their website at: http://origin.adm.com/en-US/Pages/default.aspx
The industry, languishing in the doldrums recently, may be poised to make a significant recovery as the U.S. takes steps to increase the ethanol that is blended into gasoline by as much as 50 percent! On Wednesday, the U.S. Environmental Protection Agency announced that it will now allow 15 percent ethanol based gasoline. The significance of this is that it allows the U.S. ggovernment to enact legislation requiring all gasoline to have a minimum blend of 15 percent ethanol. A move such as this would be highly favoured by the U.S. agricultural industry at a time when Obama is in need of some extra support.
Though ethanol may be one way for the United States to reduce their dependence on foreign oil, the industry is heavily subsidized by the taxpayers and it is not clear whether there is even enough refining or agricultural capacity for ethanol to ever truly make a dent in our oil and gasoline consumption. Even in Canada, with a thriving oil and gas industry of its own, the government has been supporting ethanol producers with taxpayer dollars. It provided $119 million — 70 per cent of the cost — for a 225-million-litre-per-year plant at Johnstown, Ont., 70 kilometres south of Ottawa, in late 2008. Not a wise move considering how desperate the government and its people are for cash.
Greenfield Ethanol, the largest producer in Canada, claims that ethanol produces at least 2.3 times more energy than it uses in production and that, compared to gasoline, its use reduces greenhouse gases by approximately 70 per cent. But this claim seems highly dubious, especially considering all of the energy that goes into the highly intensive growth and harvesting of corn in North America. Nonetheless, there is money to be made as an investor in the industry because the Canadian and U.S. governments have proven to be intent on pushing the consumption of ethanol on consumers.
With over 60 billion dollars in revenue, a healthy balance sheet, and a long string of profits, Archer Daniels Midland (ADM in New York) is a great way to conservatively invest in the growth and profitability of the ethanol industry. Its operations include the processing of oil seeds, corn, wheat, cocoa, and other agricultural commodities, and it is a manufacturer of vegetable oil and protein meal, corn sweeteners, flour, bio diesel, ethanol, and other food and feed ingredients. With a current earnings yield of over 9 percent, and a dividend yield of over 2, ADM is a solid choice for many investors at its current price.
For more information on ADM, go to their website at: http://origin.adm.com/en-US/Pages/default.aspx
Sunday, November 21, 2010
Irish Forced to Accept Bailout as Banks get Worse and a New Irish Diaspora Begins.
Stocks around the world should begin on a healthy note tomorrow morning as the Irish government announced that it is willing to bite the bullet and accept a 100 billion Euro aid package.
Once again it will be primarily the German taxpayer and some other members of the IMF and the European Union that will have to fund the propping up of Ireland's decaying financial system. Once referred to as the "Celtic Tiger" because of its soaring domestic economy and thriving housing markets, Ireland is returning to a have-not position within the European community. To be sure, studies indicate that a new Irish diaspora is beginning to develop as young inhabitants of the Emerald Isle leave to seek employment elsewhere.
To be sure, there are going to be a lot of strings attached to the bailout of Ireland's economy, and the Irish people are going to have some tough years ahead of them, especially as their tax base begins to leave to seek employment abroad, taking their skills and money with them. But it was a smart move by the Irish government, as they had to get help before things got worse. People were quickly pulling money out of Irish banks and in order to restore confidence in them the country had to send a message that it had enough money to keep the banks afloat should the need arise.
The winners from this bailout are undoubtedly going to be the European financial stocks who hold a lot of Irish and other European debt, such as the debt held by Portuguese and Spanish banks as well (two other nations in big trouble). Allied Irish Bank (AIB in New York), the Bank of Ireland (IRE in New York), and even a large Spanish name like Banco Santander (STD) should be winners for the week ahead.
Thursday, November 18, 2010
The Government Releases GM shares, and the Public Continues to be Swindled.
Today the American, Canadian, and Ontario governments released a big piece of General Motors (GM), trading in both Toronto and New York, to the public. At $33 per share, institutions and individual investors scooped up the shares quickly driving the price up 3.6% in regular hours trading.
Initial investors now have a small profit on their shares after the first day, but the taxpayers have locked in a loss of about $4.5 billion so far because to save the company taxpayers had to pay closer to $50 per share. The U.S. Treasury, however, still owns about 25 percent of the company, so it could make back some more money if the shares rise in price and they sell at a later date.
Having unloaded a large share of its stake, the Obama administration is now hoping to distance itself from the highly unpopular auto bailout. The big winners in this deal, however, are clearly the investment banks, like Morgan Stanley and J.P. Morgan, that put this share issue together. They will reap massive fees for bringing this issue to the market, and their retail brokerage houses will make a fortune by selling the shares to investors.
Essentially, the taxpayer paid over $50 per share for a company that was issued largely to the banks and institutional investors for $33. Those banks and institutions will now hype the stock for sale to smaller investors at a higher price and reap a healthy little profit on the backs of John and Jane taxpayer. Is General Motors a good investment? At $33 and with little to no debt left on its balance sheet, it is a much better company than it was before. But undoubtedly, this stock is going to be a short-term success, long-term disaster. Eventually legacy costs (such as pensions) and the reality of operating a North American auto manufacturer will creep back into its existence.
A couple quarters of consecutive profits does not make a good company. They have to make money in good times and bad. General Motors has proven time and again that it is incapable of contending with competition from leaner and fitter foreign competition. To be sure, the company has gotten smaller, and it has improved its business model a little bit, but it has been under the smoke and mirrors of receiving massive financial assistance from Joe public. The public has now basically turned over a huge share of his hard-earned dollars to Wall Street's investment banking houses.....which, remember, started the whole financial mess in the first place. Oh how well the banking industry took advantage of the public on this one, and on the bailout that they received.
The fees being charged by the investment banks to the taxpayer for bringing GM public is going to be $248 million. So if you are looking for the profits from this trade, J.P. Morgan might be your answer. Under the symbol JPM in New York and trading at a 9 percent earnings yield, it is nice and cheap, especially considering all of the government support they seem to have : )
Initial investors now have a small profit on their shares after the first day, but the taxpayers have locked in a loss of about $4.5 billion so far because to save the company taxpayers had to pay closer to $50 per share. The U.S. Treasury, however, still owns about 25 percent of the company, so it could make back some more money if the shares rise in price and they sell at a later date.
Having unloaded a large share of its stake, the Obama administration is now hoping to distance itself from the highly unpopular auto bailout. The big winners in this deal, however, are clearly the investment banks, like Morgan Stanley and J.P. Morgan, that put this share issue together. They will reap massive fees for bringing this issue to the market, and their retail brokerage houses will make a fortune by selling the shares to investors.
Essentially, the taxpayer paid over $50 per share for a company that was issued largely to the banks and institutional investors for $33. Those banks and institutions will now hype the stock for sale to smaller investors at a higher price and reap a healthy little profit on the backs of John and Jane taxpayer. Is General Motors a good investment? At $33 and with little to no debt left on its balance sheet, it is a much better company than it was before. But undoubtedly, this stock is going to be a short-term success, long-term disaster. Eventually legacy costs (such as pensions) and the reality of operating a North American auto manufacturer will creep back into its existence.
A couple quarters of consecutive profits does not make a good company. They have to make money in good times and bad. General Motors has proven time and again that it is incapable of contending with competition from leaner and fitter foreign competition. To be sure, the company has gotten smaller, and it has improved its business model a little bit, but it has been under the smoke and mirrors of receiving massive financial assistance from Joe public. The public has now basically turned over a huge share of his hard-earned dollars to Wall Street's investment banking houses.....which, remember, started the whole financial mess in the first place. Oh how well the banking industry took advantage of the public on this one, and on the bailout that they received.
The fees being charged by the investment banks to the taxpayer for bringing GM public is going to be $248 million. So if you are looking for the profits from this trade, J.P. Morgan might be your answer. Under the symbol JPM in New York and trading at a 9 percent earnings yield, it is nice and cheap, especially considering all of the government support they seem to have : )
Wednesday, November 17, 2010
Try These Stocks for Some Growth Internationally!
With fairly anemic growth rates in Canada, the United States, and Western Europe, many investors are looking abroad for higher rates of return. Sure, Canada has a fantastic banking and financial system to take advantage of, and arguably the world's best climate for some energy and materials investors, but where does one go for the other staples of an investment portfolio, or for some extra growth over the next 10-20 years?
Take Coca-Cola for instance. The company currently generates 80% of it's revenue internationally... and there is really no company like this to invest in at home. Sure, we have a company called Cott beverages, but they make the low-margin house brands like True-Value and No-Name Cola. Now, Coca-Cola, which trades under the symbol KO in New York, is not cheap ($62 per share), but give it some time and this stock should fall back down to an entry level around $55. Continually, year-after-year, consumers pay an ever-increasing price for this company's sugar water. And for investors, the great story is that Asians are developing a strong habit of consuming it in large quantities.
Another company with a huge international presence is Colgate-Palmolive (CL). The company, which manufactures the familiar toothpaste as well as a vast number of other consumer staples, has done a great job of expanding its business in key growth markets like India and South America. Currently, at $77 per share, almost 18 times earnings, this company is also a bit high in price, but the world needs its products, and the markets for its products are increasing rapidly as consumers from developing countries can cheaply buy things like toothpaste and detergents as they begin to adopt a more middle-class lifestyle. A great entry point for this stock would be closer to $70 per share.
Closer to home, there are a few names worth mentioning. Bombardier, SNC-Lavalin, and Scotiabank have all recently been finding a great deal of success beyond our shores. Bombardier has been gaining a large number of contracts in Europe and Asia, and even Africa on sales of its rail and aircraft products. It takes time for Bombardier to reap these benefits as the projects may take years and they are worth billions, but when they do come, it will mean good money for shareholders.
SNC-Lavalin is essentially a large-scale contractor with its hands in a number of infrastructure deals in developing countries throughout the world. This will bode very well for investors as money pours into projects overseas. Especially as wealthy resource rich nations attempt to build the infrastructure necessary for other forms of industrial or commercial development.
Lastly, Scotiabank has been beefing up its presence in Latin America for years, and is quickly becoming one of the major players in the Spanish speaking market. They can utilize their deep pockets from home, and use profits from domestic Canadian operations to help them grow their business abroad. So far, it has been working and shareholders of Scotiabank have been served very well.
Take Coca-Cola for instance. The company currently generates 80% of it's revenue internationally... and there is really no company like this to invest in at home. Sure, we have a company called Cott beverages, but they make the low-margin house brands like True-Value and No-Name Cola. Now, Coca-Cola, which trades under the symbol KO in New York, is not cheap ($62 per share), but give it some time and this stock should fall back down to an entry level around $55. Continually, year-after-year, consumers pay an ever-increasing price for this company's sugar water. And for investors, the great story is that Asians are developing a strong habit of consuming it in large quantities.
Another company with a huge international presence is Colgate-Palmolive (CL). The company, which manufactures the familiar toothpaste as well as a vast number of other consumer staples, has done a great job of expanding its business in key growth markets like India and South America. Currently, at $77 per share, almost 18 times earnings, this company is also a bit high in price, but the world needs its products, and the markets for its products are increasing rapidly as consumers from developing countries can cheaply buy things like toothpaste and detergents as they begin to adopt a more middle-class lifestyle. A great entry point for this stock would be closer to $70 per share.
Closer to home, there are a few names worth mentioning. Bombardier, SNC-Lavalin, and Scotiabank have all recently been finding a great deal of success beyond our shores. Bombardier has been gaining a large number of contracts in Europe and Asia, and even Africa on sales of its rail and aircraft products. It takes time for Bombardier to reap these benefits as the projects may take years and they are worth billions, but when they do come, it will mean good money for shareholders.
SNC-Lavalin is essentially a large-scale contractor with its hands in a number of infrastructure deals in developing countries throughout the world. This will bode very well for investors as money pours into projects overseas. Especially as wealthy resource rich nations attempt to build the infrastructure necessary for other forms of industrial or commercial development.
Lastly, Scotiabank has been beefing up its presence in Latin America for years, and is quickly becoming one of the major players in the Spanish speaking market. They can utilize their deep pockets from home, and use profits from domestic Canadian operations to help them grow their business abroad. So far, it has been working and shareholders of Scotiabank have been served very well.
Tuesday, November 16, 2010
Big Opportunities in the Oil Patch on Chinese and Irish Concerns.
Stock markets around the world had a fairly steady pullback today on concerns about European government debt, in particular Irish, and on an anticipated attempt by the Chinese to cool their economy down. But some bargains may be in store.
To cool their economy, the Chinese might raise interest rates and curb spending on houses and big-ticket items like automobiles. With this, investors worry that there might be a decline in the prices of commodities purchased heavily by China, like oil and base metals. On these concerns, we saw the shares in some Canadian oil stocks reach their lowest prices in a year. Of particular interest to Canadian investors might be Imperial Oil (IMO on the TSX).
Imperial Oil is down over 8 percent on the year and recently hit a low of $37.36 per share. The company, which operates the ESSO brand in Canada, has been having troubles picking up production in recent years, and currently is producing around 300,000 barrels of oil equivalent per day. In the next five years, however, this number is expected to soar 25 percent to 400,000 barrels per day. If oil stays anywhere around 80 dollars per barrel, the likelihood of this being a boon for investors is high. They also manage the proposed Mackenzie Gas Pipeline development, which would ship fuel from Canada's arctic down to Alberta... and potentially unleash massive potential for future profits.
The company has NO meaningful debt whatsoever, which means the shareholders own all of the profits, not the banks, and they have an intimate relationship with Exxon Mobil, their parent company, which provides them with significant leverage for large projects. This company easily has the potential of raking in $4 per share in earnings, and has significant cash-flow, which they generally use to buy back shares, and increase your stake in the company.
Whenever there is trouble, investors generally upgrade to higher quality names. With no debt, and a long history of delivering solid returns, Imperial Oil is a high quality company. Look to make gradual entries into this name at levels near the 52 week low. It is a core holding.
For more info, check out the corporate website:
http://www.imperialoil.ca/Canada-English/default.aspx
Disclosure: Matthew Clarke has an ownership stake in Imperial Oil.
To cool their economy, the Chinese might raise interest rates and curb spending on houses and big-ticket items like automobiles. With this, investors worry that there might be a decline in the prices of commodities purchased heavily by China, like oil and base metals. On these concerns, we saw the shares in some Canadian oil stocks reach their lowest prices in a year. Of particular interest to Canadian investors might be Imperial Oil (IMO on the TSX).
Imperial Oil is down over 8 percent on the year and recently hit a low of $37.36 per share. The company, which operates the ESSO brand in Canada, has been having troubles picking up production in recent years, and currently is producing around 300,000 barrels of oil equivalent per day. In the next five years, however, this number is expected to soar 25 percent to 400,000 barrels per day. If oil stays anywhere around 80 dollars per barrel, the likelihood of this being a boon for investors is high. They also manage the proposed Mackenzie Gas Pipeline development, which would ship fuel from Canada's arctic down to Alberta... and potentially unleash massive potential for future profits.
The company has NO meaningful debt whatsoever, which means the shareholders own all of the profits, not the banks, and they have an intimate relationship with Exxon Mobil, their parent company, which provides them with significant leverage for large projects. This company easily has the potential of raking in $4 per share in earnings, and has significant cash-flow, which they generally use to buy back shares, and increase your stake in the company.
Whenever there is trouble, investors generally upgrade to higher quality names. With no debt, and a long history of delivering solid returns, Imperial Oil is a high quality company. Look to make gradual entries into this name at levels near the 52 week low. It is a core holding.
For more info, check out the corporate website:
http://www.imperialoil.ca/Canada-English/default.aspx
Disclosure: Matthew Clarke has an ownership stake in Imperial Oil.
Thursday, November 11, 2010
Tim Hortons Stumbles South of the Border.
Tim Horton's is not having all the success it envisioned south of the border. Over the last 20 years, Tim's has opened up 600 stores in the United States. It's primary locations are in Buffalo, Detroit, and Columbus... places where the chain feels that the market is similar to at home here in Canada. But today it is going to start closing 54 locations – 36 restaurants and 18 full-service kiosks. The closures will take place in Connecticut, Rhode Island, and Massachusetts.
The CEO admitted today that the chain "will not work everywhere," something that is clearly not the case in Canada. But in the beginning, the company even struggled to gain traction in Quebec and Western Canada, so investors should not fret.
On the bright side, the company plans to open 300 new U.S. stores over the next three years, and have them profitable in a 3-5 year span. Tim Hortons has grappled with crushing competition in New England, where Dunkin' Donuts is an entrenched brand. Elsewhere, it takes on U.S. fast-food titans McDonald's and Burger King and their frequent coffee giveaways and other promotions. This puts into question how Tims can expand in the U.S. beyond its core base.
The key to expanding in the United States will be sticking to it's core base in Michigan, Ohio, and New York, where the population is high, and the people are quite familiar with Tim Hortons already, and the population largely share a similar culture with us as well. Therefore, 70 per cent of Tim Hortons' U.S. capital investment will focus in existing markets, while the rest will be poured into nearby areas.
Profitability, however, takes time. Especially in the highly competitive U.S. marketplace. In Buffalo, it took 10 to 11 years for the chain's outlets to turn a profit. In Canada, it takes only a little over a year for the addicted Canadian consumers to give the chain enough money to turn a profit.
In its third quarter, the company recorded a $20.9-million accounting charge to reflect the impaired value of its assets. That will be followed by an additional charge of up to $30-million in the fourth quarter. In its third quarter, the company's U.S. segment had an operating loss of $17.5-million. Excluding the charge tied to the store closings, however, it would have reported a $3.4-million operating profit. A far cry from what it makes in Canada, but a profit nonetheless. And with the crowded market that they have created at home, it is essential for the chain to succeed in making it's U.S. stores work.
The question of whether or not this is a stock to own will be told by how the stores perform in the U.S. Currently, the stock is a buy at a lower price, perhaps close to $35, but nearing $40 per share, it is a tad expensive. It is priced as a growth stock, as it is trading at over 20 times earnings, but if the U.S. stores do not succeed, it is not a growth story at all. So watch for a pullback, and then wade into this one. It is a great company, but only at a reasonable price.
The CEO admitted today that the chain "will not work everywhere," something that is clearly not the case in Canada. But in the beginning, the company even struggled to gain traction in Quebec and Western Canada, so investors should not fret.
On the bright side, the company plans to open 300 new U.S. stores over the next three years, and have them profitable in a 3-5 year span. Tim Hortons has grappled with crushing competition in New England, where Dunkin' Donuts is an entrenched brand. Elsewhere, it takes on U.S. fast-food titans McDonald's and Burger King and their frequent coffee giveaways and other promotions. This puts into question how Tims can expand in the U.S. beyond its core base.
The key to expanding in the United States will be sticking to it's core base in Michigan, Ohio, and New York, where the population is high, and the people are quite familiar with Tim Hortons already, and the population largely share a similar culture with us as well. Therefore, 70 per cent of Tim Hortons' U.S. capital investment will focus in existing markets, while the rest will be poured into nearby areas.
Profitability, however, takes time. Especially in the highly competitive U.S. marketplace. In Buffalo, it took 10 to 11 years for the chain's outlets to turn a profit. In Canada, it takes only a little over a year for the addicted Canadian consumers to give the chain enough money to turn a profit.
In its third quarter, the company recorded a $20.9-million accounting charge to reflect the impaired value of its assets. That will be followed by an additional charge of up to $30-million in the fourth quarter. In its third quarter, the company's U.S. segment had an operating loss of $17.5-million. Excluding the charge tied to the store closings, however, it would have reported a $3.4-million operating profit. A far cry from what it makes in Canada, but a profit nonetheless. And with the crowded market that they have created at home, it is essential for the chain to succeed in making it's U.S. stores work.
The question of whether or not this is a stock to own will be told by how the stores perform in the U.S. Currently, the stock is a buy at a lower price, perhaps close to $35, but nearing $40 per share, it is a tad expensive. It is priced as a growth stock, as it is trading at over 20 times earnings, but if the U.S. stores do not succeed, it is not a growth story at all. So watch for a pullback, and then wade into this one. It is a great company, but only at a reasonable price.
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