GE

I recently initiated a position in GE for the following reasons.

"General Electric is one of the largest and most diversified industrial corporations in the world. GE is engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity. Some of GE's products include major appliances; lighting products; industrial automation products; medical diagnostic imaging equipment; motors; electrical distribution and control equipment; locomotives; power generation and delivery products. Their operations are divided into six different segments; Infrastructure, Industrials, Healthcare, Commercial Finance, GE Money and NBC Universal."

-2008 Estimated PE – 13.8X
-2009 Estimated PE – 12.5X
-2010 Estimated PE – 11.25X
-Current Yield – 4.05%
-5 Year Average Yield – 2.6%
-Current Payout Ratio – 53%
-5 Year Historical Payout Ratio – 52%
-3 year dividend growth rate – 10.56%
-5 year dividend growth rate – 9.16%
-Argus rating of "Buy" and a 1 year price target of $40
-S&P rating of "4 Stars", "Buy" and a 1 year price target of $38
-increased their dividend every year for the past 31 years.
-their dividend has been paid quarterly since 1899

I like the fact that GE has clearly defined goals (8% organic growth) and I believe they are definitely moving in the right direction with their “ecomagination” concept. I don’t think it will be long until green technologies will start to really sell, and GE is taking an aggressive stance on their green (and profitable) technologies. They also have a dominant global position in one of my favourite areas, infrastructure. Shares of this world class comglomerate have recently been under pressure due to an earnings miss caused by weakness in their financial services, healthcare and domestic consumer segments. However, their global and infrastructure segments remained strong and I believe they'll continue to due so. Although, GE may experience further short term declines I iniated this position for the long term and just couldn't resist picking up some of this world class company at valuations not seen for over a decade.

[As always please do your own research and consult your own financial advisor before making any decisions.]

Citigroup – C

I'm currently travelling so this post will be short.

Last Friday I added about a quarter position to my Citigroup holding. I continue to like Citi for the same reasons as I did when I originally initiated a position in November. Tomorrow I’ll provide a full analysis of C as well as the new fair price that I’ve calculated.

ING Canada – IIC

I recently purchased a small amount of ING Canada (IIC - TSX). I am going to continue to follow it and possibly double down in the future. I plan on holding this name for approximately 2 to 5 years (due to the cyclicality of the P&C industry). However, I don’t expect much movement in the stock for the next 6-12 months.

ABOUT
“ING Canada Inc. is the largest provider of property and casualty (P&C) insurance in Canada, operating through ING Insurance, ING Novex, Nordic, belairdirect and Trafalgar. Our principal products are automobile, property and liability insurance, which we provide to individuals and small to medium-sized businesses across Canada. Consumers can purchase insurance products from ING Insurance through a network of 2800 brokers across the country, from belairdirect through its web site and call centres as well as from Trafalgar Insurance through Grey Power brokers and call centres”

Current P/E – 8.5X
-2008 Estimated PE – 9.1X
-2009 Estimated PE – 8.1X
-ROE – 20% (over the last 10 years they have outperformed their industry peers by 820bps)
-Current Yield – 3.1%
-Current Payout Ratio – 19 %
-trading at 1.4X book
-Debt to Equity Ratio – 0%

Other Facts:
-have captured 11% of the P&C market share in Canada.
-trading on the TSX since 2004 when their parent company, The ING Group, spun out 30% of their Canadian operations.
-largest and best in class of the Canadian P&C insurers.
-potential for the parent company to repurchase the shares (however do not buy this company on the potential of a takeover)
-they are the major industry consolidator in Canada.
-$1.5 billion available for acquisitions.
-no U.S subprime exposure.
-hedge all U.S foreign currency risk.

(Disclaimer: I’m am not a financial advisor. Please do your own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

CIBC A History of Screw Ups and a Time to Buy?

CIBC certainly seems to be unique among the big 5 Canadian banks. They have made themselves unique by the fact that they can’t seem to be able to avoid screwing up. They seem to have an innate ability to identify and then participate in risky market shenanigans. Let’s briefly take a look at some of the more recent debacles.

Dec 22, 2003
Canadian Imperial Bank of Commerce agreed to pay 80 million dollars to settle US charges that it aided Enron's financial fraud and pledged to assist a federal criminal investigation

August 2005
They took a $2.5 billion after-tax charge against its profit in the third quarter ended July 31, 2007 to cover the payment and other Enron issues.

After taking this huge write down in 2005 CIBC was adamant about avoiding “risky investments”. Just 2 short years later they announced that they would incur approximately $1 billion in charges due to their exposure to the U.S sub-prime mortgage market. However, many analysts now believe that CIBC will need to write down a further $2 billion. As a potential investor a $3 billion dollar write down while at the same time having a mandate of “avoiding risky investments” is unacceptable. The market seems to agree with me and the stock has been hammered down to about $67/share from it’s 52 week high of $107. In response to their latest disaster there has been some major changes in senior management at CIBC including a new Risk Officer, Chief Financial Officer and Chief Executive Officer.

This stock has been punished and deserved it. However, I think there is some real hidden value here and in my next post I’ll talk a little bit about why I’ll most likely be initiating a position in CM in the near future.

Purchased BCE

Shortly after Friday’s post I decided to take a full position in BCE. I am fully aware that there is some risk in this play. However, I believe that the risk reward favours investing in BCE. The worst case scenario as an investor is that the buyout does not occur and I’m left holding a position in Canada ’s largest telecommunications company.

Although the possibility exists that the deal will not go through here are the reasons I believe it will:

1. The Teachers Pension plan is not dumb and they are aware that there has always been regulatory risk and rumours regarding the opening of telecommunications markets in Canada.

2. The bond holders trying to block the deal are Bell bondholders not BCE bondholders.

3. Credit markets are in disarray due to the sub prime mess, which could cause problems raising the necessary capital. However, if financing cannot be obtained they have other options such as: increasing the amount of capital invested and refinancing later.

4. The consortium could simply walk away from the deal. However, I think that is highly unlikely as there is a $1 billion dollar break free in addition to the teachers losing hundreds of million of dollars on their existing shares of BCE.

If you want more information on the deal here is a link to the privatization page at BCE.

I would just like to reiterate that I am making an educated gamble and that buying BCE at this juncture is NOT RISK FREE so please do your own research and make your own decisions.

PFIZER (PFE)

For those of you that track my portfolio and keep me honest during my monthly nest egg updates (thank you)...and...I forgot to mention that I topped up my position in PFE last week bringing it back to approximately 5% of my portfolio.

Citi Group – C

I initiated a half position in C on Monday and plan on holding this name indefinitely.

“Citigroup is organized into four major business groups: Global Consumer; Markets and Banking (M&B); GlobalWealth Management; and Alternative Investments. The Citigroup Global Consumer business includes banking services, credit cards, loans and insurance. The M&B business is in about 100 countries and advises companies, governments, and institutional investors on the best way to realize their strategic objectives. The GlobalWealth Management division at Citigroup is comprised of The Citigroup Private Bank, Smith Barney (private wealth management), and Citigroup Investment Research,and serves both private and institutional clients.”

Here are my reasons for buying:
-As a general rule I’ve found that the best time to buy large multinational blue chips is when everyone else hates them.
-S&P credit rating = AA (second highest rating)
-Moodys credit rating = Aa1 (second highest rating – very little credit risk)
-Currently 45% of their revenue is generated outside of the United States and their current focus is to increase this number to 60%.
-They have the world’s largest credit card operation.
-In my opinion they are extremely well positioned to expand their international operations.

PE – 8.7X
Estimated 2007 PE – 9.7X
Estimated 2008 PE – 7.7X
Current dividend yield – 6%
5 year avg. dividend yield – 2.9%
5 year avg. dividend growth – 24.1%
3 year avg. dividend growth – 9.26%
Payout ratio – 47%
ROE – 17.9
Price/Book – 1.4X

Other Facts:
-S&P recently downgraded them from 5 stars (strong buy ) to 3 stars (hold). However, they have a 12 month $45 price target and rate them a low risk investment. From my purchase price this represents a total one year return of 26% (20% capital gains + 6% dividend). If I was an analyst I would find it hard to rate a company that I believed would return 26% in 12months with limited risk a hold…
-Argus recently reduced their 1 year target price to $55 from $60 but are maintaining a buy rating.

As I mentioned above I’ve initiated a half position in C and am going to take a wait and see approach from here. However, if the stock declines significantly from here I will be doubling down.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Chartwell Seniors Housing - CSH.UN

I’ll continue on the natural gas theme next week…in the meantime. I increased my position in Chartwells Senior Housing yesterday bringing CSH.UN up to just over 5% of my portfolio.

“Chartwell is a growth-oriented investment trust owning and managing a complete spectrum of seniors housing communities. It is the largest participant in the Canadian seniors housing business and the third largest in North America. Chartwell will capitalize on the strong demographic trends present in its markets to grow internally and through accretive acquisitions. Chartwell also has an exclusive option to purchase stabilized communities from Spectrum, Canada's largest and fastest growing seniors housing development company.”

-The company is well positioned to capitalize on the aging North American demographic
-They have a significant presence in the higher margin category of retirement homes (ie-retired wealthy people)
-I’ve recently talked to a few people who have just placed their parents in a Chartwells nursing home and they were blown away at the quality of the accommodations and services provided in the home.

Dividend Yield: 8.9%
Current P/E– 0
Projected 2007 P/E – 16.5X
Projected 2008 P/E – 12.3
Price/Sales – 1.9
Price/Book – 1.3

-Were recently for sale but did not receive any offers that management thought were acceptable.
-Have primarily been a growth by acquisition story but are now concentrating on bringing in all operations.
-BMO rates them as “outperform”
-National Bank has a $15 price target
-Canaccord has a $12.5 price target
-First Call consensus is a hold

For more information on CHS.UN please visit their website at:
www.chartwellreit.ca

New Position - WAG

I initiated a position in WAG yesterday. As many of you know I really like the company but just haven’t been able to pull the trigger based on valuation. However, that all changed 10 days ago when WAG missed earnings by $0.07 and the stock was hammered 15%. Despite the earnings miss I don’t think that anything has fundamentally changed with WAG and as far as I can tell the pricing environment is the same as it was before the miss. The recent correction has simply made a great company cheaper and I plan on being a very long term shareholder of the company.

For further fundamental information on WAG please refer to the below posts:

From My Blog
Investing Based on Demographics WAG-CVS

From the Money Gardeners Blog:
Who said Drugstore Stocks Were Boring

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Major Purchase and Depressed Markets

Although the markets have fallen a lot recently I haven’t made any purchases. The main reason I haven’t pulled the trigger yet is simple...I have very little available cash. I recently purchased a cottage and as such will need all of my available funds for the down payment. However, I have a small amount of money available to invest in my RRSP and I’m currently looking to add one of the following companies IPL.UN, BMO, BNS. Longer term I believe all of the above three names are a good buy and I currently have an order in for IPL.UN at $8.50 (I’m doubtful that it will reach that level but if it does I’ll be an owner). I may have more available cash after the financing for the cottage is worked out. However, until the details of the cottage financing are worked out I only have enough money for one position.

The timing of the cottage purchase was certainly not perfect however, we have been looking in the area that we bought in for about 4 years and this was the first opportunity to buy in that time period so we jumped on it. We don't view the cottage as an investment and plan on never selling.

Alimentation Couche-Tard

I initiated a position in ATD.B on Friday. I revisited this name shortly after my last Wednesday’s posting “Where is the Value?”. I’ve provided a brief description of ATD.B as well as my reasons for buying:

“Couche-Tard is the largest convenience store operator in Canada with a network of over 2,000 stores in Canada as well as a considerable presence in the U.S., with more than 3,000 additional stores. Over 3,600 of the total number are Company-operated stores and nearly 1,400 stores are operated under our affiliate program. The Company sells fuel in 65% of its Company-operated stores. The Canadian stores are located in Quebec, Ontario, Alberta, British Columbia, Manitoba, Saskatchewan and the Northwest Territories. The U.S. stores are located in 28 states. The stores are primarily operated under the Couche-Tard® and Mac’s® trademarks in Canada and the Circle K® trademark in the U.S."

"In addition to the North American Couche-Tard network, there are approximately 3,500 Circle K licensed stores located in seven other regions worldwide (Japan, Hong Kong, China, Indonesia, Guam, Macao and Mexico).”

-Trailing P/E 20
-2008 estimated P/E 16
-2009 estimated P/E 14.5
-ROA 10.46
-ROE 23.46
-Recession proof industry
-Recognizable and strong brand (I personally like the layout of the Mac stores)
-Stock has been under pressure recently due to declining US fuel margins (at the pump) as well as the integration of the 236 convenience stores purchased from Shell in Dec 2006.
-In my opinion the last couple of quarters were decent despite the unfavourable fuel margins. I believe that when margins turn around these guys will surprise the street.
-TDWaterhouse has a 12 month target price of $28 (up about 30% from current levels)
-Successful history of growing by acquisition (in both Canada and the US)

Inter Pipeline Fund - IPL.UN

I’ve put in a limit buy for IPL.UN at $9 per unit. For those of you unfamiliar with the company here is a little blurb about them:

“Created in 1997, Inter Pipeline Fund is a major petroleum transportation, storage and natural gas liquids extraction business based in Calgary, Alberta, Canada. Inter Pipeline is a publicly traded limited partnership that owns and operates a diversified combination of energy infrastructure assets in western Canada, the United Kingdom, Germany and Ireland. This asset portfolio generates long-term and predictable cash flows, thereby providing unitholders with a growing and stable source of monthly cash distributions.”

I’ve decided to put a limit price in for IPL.UN for many of the same reasons outlined by Moneygardener in his May 18th post. If my order is filled I will be buying these units with a portion of the proceeds from a bond that matured in June. I am not expecting a large increase in either the share price or distributions from IPL.UN however, what I am expecting is a steady and consistent distribution. I am treating this purchase as a replacement to the small fixed income portion that I used to have in my portfolio. I am aware that there is more risk involved and of the argument that trusts can never be considered a replacement for fixed income. However, I am comfortable with the additional risk and with bond yields barely over 5% I am willing to bet that IPL.UN will maintain their distribution (or not reduce it significantly) and be either at or above it’s current value in 5 or 10 years. If my thesis holds true I’ll handily beat any bond that I could purchase with a 5 or 10 year maturity date.

Here are some of the reason that I’ve put a limit buy in:
•Currently transport 18% of total western Canadian conventional volumes and 50% of oil sands volumes.
•Inter Pipeline's NGL business currently processes approximately 40% of the natural gas exported from the province of Alberta.
•At 9$ a unit it will yield 9.33%
•Trailing P/E 14.9
•Estimated 2007 P/E 17.6 (at 9$ a unit)
•Estimated 2008 P/E 15.5 (at 9$ a unit)

JNJ (again)

With the CDN pushing against 30 year highs I decided to increase my position in JNJ. I’ve posted these reasons before but here they are again:

-44 years of consistent dividend growth.
-Dividends issued to shareowners every quarter since 1944.
-Dividend raised each year for 44 consecutive years.
-Sales have increased each year for 73 consecutive years.
-Double digit Earnings increases for 21 consecutive years.
-Current yield of 2.50%
-44% of sales outside of North America
-ROE levels of above 21% for the past 10 years
-Current P/E – 16.18
-Projected 2007 P/E – 15.3
-Projected 2008 P/E – 13.44
-4 Star rating from S&P - $74 one year target
-Argus rates it a buy with a $76 one year target

I like their diversified holdings within the healthcare sector particularly their consumer products.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)

GO.A – Galleon Energy

I purchased Galleon Energy (GO.A - TSX) yesterday and here are the reasons why:

-It is primarily a play on natural gas and as a result has dropped dramatically along with the price of gas.
-Have a very large land base 8 million acres.
-Assuming 7.32 Alberta spot prices
-Have a history of exploration success.
-Have the potential for good production growth
-They had some production delays in the past however (according my favorite energy analyst Joseph Schachter) they are expecting increased production by the end of the year.
-Current P/E 63.2
-Projected 2007 P/E 26.19
-Projected 2008 P/E 11
-Located in politically stable environment

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

ZED

I tried out my Questrade account yesterday and bought a very small initial position (less than 1% of my port) in a small company (ZED) that trades on the Venture Exchange. For those of you unfamiliar with the company here is an excerpt from the “about us” section of their website:

"Zedi (TSX Venture: ZED) specializes in production operations management, delivering systems and services that help oil and gas producers to better manage people, assets and information. We help our clients to increase earnings from production, decrease operating costs, best utilize human, physical and fiscal assets and mitigate compliance risk."

Here are my reasons for buying:
-over 90% of their revenues are reoccurring
-their main market (small to intermediate oil/gas trusts) has been under pressure recently.
-projected 2007 P/E of 12
-projected 2008 P/E of 7.7
-top line growth of 35%-40% a year.
-very little debt – current ratio of around 5
-trading at 2X book (I think this is cheap considering they are primarily a software company)
-I like their core business.
-I like their technology.
-37.1 million in revenue and a market cap of only 91 million.
-For two years in a row, Zedi has ranked in Deloitte's Technology Fast 500: a ranking of the fastest growing technology, media, telecommunications and life sciences companies in North America, based on revenue growth.

I just want to point out that this is a very small company (91 million market cap) that trades on the venture exchange and as such is much higher risk than companies I usually invest in, so anyone considering buying it should first of all do their own research but also be aware that it is going to be quite volatile. If you would like to know more about the company here is a link to their website.

This was the first time I have used my Questrade account so I'll give you an update tomorrow on what I like/don't like about the account.

EIT.UN

I purchased a small amount of EIT.UN on Wednesday. As you can tell from my portfolio I’m not a firm believer in the income trust model (and never have been). However, I felt that the valuation on EIT.UN was quite compelling and the risk/reward was in favour of purchasing a small amount for my portfolio. For those of you who are unfamiliar with EIT.UN here is a short excerpt from their site.

“EnerVest Diversified Income Trust invests in a diversified portfolio of income, royalty, real estate investment trusts and limited partnerships listed on the Toronto Stock Exchange. The key components of the Trust’s investment objectives are to maximize monthly distribution relative to risk, provide a tax-deferred diversified portfolio and provide the potential for capital appreciation. The investment manager utilizes a disciplined, conservative approach to investment selection, focusing on quality of management, financial strength and reasonable valuations.”

Here are my reasons for buying:
-trading at approximately 15% under its net asset value.
-current yield of 13.7%
-MER of approx 1.3%
-their current trust declaration allows them to hold common stock.
-diversified holding with only 20% weighting in oil/gas.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)