Investors looking longingly at stellar earnings results from Amazon and Alphabet Inc. (Google’s new holding company) have a Canadian option to consider: Constellation Software Inc. (TSX:CSU).

The software-business giant’s stock is up 66% year-to-date, with a stunning five-year return of 1,200%. The company gets little media attention, but will be in the news this week when it releases its third-quarter results on October 29. Investors will be hoping for similar results compared with the second quarter, when Constellation grew its revenue by 7% to $444 million and reported adjusted net income of $80 million, up 23% from the prior year’s second quarter.

Analysts are keen on Constellation, even though the triple-digit stock is expensive by Canadian standards. Jason Donville, president and CEO at Donville Kent Asset Management, expects the company to grow by at least 25% in 2015 and to “once again generate superior, risk adjusted returns for its shareholders.”

Other analysts also like Constellation. Morningstar recently listed the company as a favourite of institutional investors, with an annual earnings momentum of 44%.

Constellation is known for its shrewd acquisitions. Although Q3 has been relatively quiet, in September the company closed a deal through its Perseus division to acquire the Market Leader business from Zillow Group. Market Leader is a CRM software system for the real estate industry. The deal cost Constellation US$23 million; it’s not a bad price when you consider that two years ago, the Market Leader group sold for $355 million when Zillow purchased Trulia, the former owner of Market Leader.

Constellation completed eight smaller acquisitions in Q2 worth $112 million.

Constellation pays a quarterly dividend of $1 per share, a number that could be considered low considering the company has a market cap of $12.31 billion and an enterprise value of $12.6 billion. The company has maintained its dividend at this price since it began paying a dividend in April 2012.

Constellation may be a stock for investors with deep pockets, but considering its track record, it’s unlikely to be a company you’ll regret buying.

The post Why Constellation Software Inc. Is Canada’s Tech Giant appeared first on The Motley Fool Canada.

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Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX) has been hit hard by allegations of drug pricing, driving the stock down 40% over the past month. Chief Executive Officer Michael Pearson says the company plans to reduce its reliance on drugs, whose prices have been substantially raised, all the while insisting that his company has not been involved in unfair drug pricing.

“The pharmaceutical industry is being aggressively attacked for past pricing actions–not just Valeant, but all companies,” Pearson said in a conference call following the company’s latest earnings report. “Given the environment, the pricing that pharmaceutical companies will take in will be more modest,” he added, suggesting a maximum 10% increase in the future.

The company said that during the next 12 months it will consider selling or privatizing its neurology and “other” drug categories, in which much of the “mispriced” buying has occurred; it’s a small part of Valeant’s business, according to Pearson.

Evercore ISI analyst Umer Raffat said because the drugs in question represent only about 10% of Valeant’s revenues, his outlook for the company remains unchanged. “If you take out neuro and ‘other’, which they may potentially divest, it actually makes the volume price even lesser to the overall business,” he said in a note to clients. “It’s not a big part of their business, and that’s the most important thing.”

So, why is the stock dropping like a stone? Well, even though the company insists its involvement in the drug-pricing scandal is minimal, the U.S. Attorney’s offices in Massachusetts and New York have issued court orders forcing Valeant to turn over documents tied to the U.S. price hikes of two heart drugs.

In the U.S. prices for Nitropress and Isuprel increased by 212% and 525% after the company acquired the rights to sell them. Despite Pearson’s attempts to soothe the market, investors hate uncertainty, and that’s just what this scandal has produced.

This week CIBC World Markets cut its price target on the U.S. version of the stock to $200 from $275, citing the company’s statement that the price of drugs will moderate.

The scandal overwhelmed Valeant’s mainly positive earnings for the third quarter, which were released on Monday. The company’s net income rose to $2.74 per share in the third quarter, up from $2.11 in the third quarter of 2014. Revenue rose to $2.78 billion, just above estimates of $2.77 billion.

The problem for Valeant is that even if it has cleaned up its act over drug pricing, the story could remain high profile as it wends its way through the U.S. court system. For long-term investors, this could be a buying opportunity. But it comes with risk if the courts ultimately sanction Valeant.

The post Valeant Pharmaceuticals Intl Inc. Tries to Downplay the Drug-Pricing Scandal appeared first on The Motley Fool Canada.

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Linamar Corporation (TSX:LNR) may be lesser known than its larger Canadian auto-parts rival, Magna International Inc., but the Ontario-based company has slowly built its customer and consumer base and appears poised for future growth, as seen with Thursday’s cash purchase of France’s Montupet for $1.16 billion.

“Montupet is a technical leader in the market, well known and respected for its engineering and processing expertise in the cylinder head segment in particular where we intend to grow and leverage our respective strengths,” said Linamar CEO Linda Hasenfratz in a statement.

“Our businesses are very complementary, with our finished machining strength and Montupet’s casting expertise, and we are remarkably aligned in our business philosophies, manufacturing discipline and employee dedication with strong values and culture given our family business approach.”

Montupet chairman and CEO Stephane Magnan added, “We strongly believe Linamar, with its global footprint, strong values, diverse process capabilities, and automotive manufacturer relationships is a good choice to lead Montupet’s growth and success in the long term.”

The aluminum component maker’s clients include Ford, Renault-Nissan, PSA Peugot Citron, Audi, Volvo, and Daimler, giving Linamar a bigger presence in Europe and India.

Hasenfratz was particularly pleased with the addition of Renault-Nissan, which has not been a large customer for Linamar in the past. “This is very positive given their large global footprint,” she said.

Although Linamar is a fast-growing company, its stock has been relatively flat in 2015, compared to a 35% leap from this time last year. Some investors have also been disappointed by Linamar’s dividend, which is currently just $0.10 per share, with a yield of 0.57%.

But that could all change should Linamar continue its current track of strong financial results (the next earnings report is due on November 4), positive acquisitions, and growing recognition in the highly competitive auto-parts space. Moreover, Hasenfratz says she’s targeting double-digit annual growth for the company. And with more than $165 million in earnings in the last quarter, the company certainly has the funds to boost its dividend should it choose to do so.

The stock dipped a further 2.5% in the hours following the Montupet acquisition announcement. Investors should keep a close eye on Linamar for any significant dips in the stock price, which could represent a buy signal.

The post Is Linamar Corporation’s $1 Billion Acquisition of France’s Montupet a Buy Signal? appeared first on The Motley Fool Canada.

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A plethora of asset sales by Canada’s struggling energy companies has experts pondering whether or not the extra cash will help those firms ride out weak oil prices, which may not recover until 2016.

So far this week, Encana Corporation (TSX:ECA)(NYSE:ECA) has earned $900 million by selling its oil and gas properties in Colorado to a partnership led by the Canada Pension Plan Investment Board.

Just a few years ago, Encana CEO Doug Suttles said the Denver Julesburg Basin was one of five assets that were key to the company’s future. In August, Encana sold another natural gas property, the Haynesville property in Louisiana, for $850 million. Encana is now concentrating on the oil-rich Eagle Ford and Permian regions in Texas.

“Those two plays are delivering even higher returns than the DJ, so from a portfolio-management perspective, particularly in the context of where oil prices are sitting currently and expected to be for the next little while, it was unlikely that the DJ was going to attract much capital,” said Chris Feltin, an analyst at Macquarie Securities, to the Globe & Mail.

In another energy deal this week, Superior Plus Corp. (TSX:SPB) said it was buying Canexus Corp (TSX:CUS) in all-stock deal valued at more than $320 million.

But the biggest potential deal of the week was Suncor Energy Inc.’s (TSX:SU)(NYSE:SU) hostile $4.3 billion bid for Canadian Oil Sands Ltd (TSX:COS). In response, Canadian Oil Sands adopted a poison pill defence to fend off the offer. The new shareholder rights plan will be triggered if anyone buys 20% or more of COS outstanding shares. At that point, other shareholders in the target company can buy stock at a discount, making the acquisition less attractive to a hostile bidder.

Other firms have reduced costs by laying off workers: 36,000 positions have been cut since oil prices began tumbling at the start of the year, according to the Canadian Association of Petroleum Producers.

All of these deals may appear like the industry is in trouble, but they could end up being a boon for shareholders as stock prices rise. The expectation of more merger-and-acquisition activity has lifted the TSX’s oil and gas group 14% since the start of October.

For investors still waiting for oil prices to fall further and pull energy stocks down with them, it might be too late. Many analysts believe oil prices have already bottomed out around $40 and are currently climbing close to the $50 mark. Legendary oil investor T. Boone Pickens predicted oil would reach $70 a barrel by the end of the year, but now admits the chances of that are pretty slim. Still, if you haven’t bought into the oil rally yet, now may be the right time.

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Bank of Montreal (TSX:BMO)(NYSE:BMO) appears set to introduce a robo-advisor service, the first of Canada’s big banks to enter this burgeoning space aimed at investors looking for a worry-free investment portfolio.

BMO has a large collection of exchange-traded funds, the main product recommended by most robo-advisors. Robo-advisors choose investments based on a variety of inputs, including age, risk tolerance, investment objectives and knowledge. The main advantages for investors is lower fees and less concern about your portfolio.

There are approximately 10 robo-advisors in the Canadian market, mostly independent, including Wealthsimple, NestWealth, and Portfolio IQ. New companies are expected to join soon, and it’s possible that other big banks might also get involved, especially if the product’s popularity takes off.

Surveys show that older investors still prefer the personal approach, and that means dealing face to face with an investment advisor. But as more and more investors choose to pick their own stocks through online brokerages, robo-advisors might be a logical extension to that channel.

However, the recent trend of volatile markets could negatively affect the popularity of robo-advisors. After all, a computer can’t offer the same personal attention as an advisor on the phone or in a personal meeting.

A recent survey of advisors conducted by Boston-based Natixis Global Asset Management found that 78% of advisors believed clients would abandon robo-advice in a turbulent market.” You can ask lots of questions up front on risk and risk appetite but no one will call you if the market is down 10% and you’re wondering what to do,” Natixis executive vice president Matthew Colden told the Financial Post.

In my opinion, this all comes down to demographics. Younger investors who are already comfortable with exchange-traded funds and the low fees they offer are more likely to consider robo-advice. But established investors, especially those with a substantial portfolio, will probably stick with their human financial advisor.

Those advisors who believe robo-advice is a threat to their business might consider beefing up their personal service, a common complaint among investors. Ultimately, the robo-advice battle may be fought among investors in the mushy middle, those with a healthy account size that are unafraid of computer-based advice.

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An Alberta-based bank may not seem the obvious choice for long-term investors seeking a solid value proposition. However, Canadian Western Bank (TSX:CWB) is “overcoming the oil overhang,” according to respected Barclays analyst John Aiken.

“While the economic impact from low oil prices to the Alberta region is undeniable, with CWB’s valuation trading at a discount to historical averages, and below its large cap peers (on both forward P/E and price-to-book basis), in our view, Western continues to offer interesting value proposition for longer-term investors,” Aiken said in a note to clients. “Further, we believe the depressed valuations reflect a very dire outlook for CWB’s loan growth and credit quality, which ultimately, may not fully materialize.”

CWB remains on track to hit double-digit loan growth in 2015, Aiken says, and could do the same in 2016, despite a weak crude oil environment that most industry watchers believe is unlikely to turn around anytime soon.

So, what’s CWB’s secret? Firstly, the loan portfolio actually contains very little exposure to the energy sector, and the bank has brought in stronger credit practices since the financial crisis.

“CWB’s direct exposure to the energy industry is small relative to its overall portfolio at approximately 6% of total loans outstanding,” the company said in its latest quarterly report. “This includes direct loans to energy producers of approximately 2%, and direct lending to service-related companies within the sector representing an additional 4% of total loans.”

Also, Barclays anticipates loss ratios will remain within manageable levels and below the peak levels experienced in 2010. “A refresh of our earnings sensitivity and correlation analysis suggests that the relationships are still not as significant as the markets may believe,” Barclays said.

Still, it’s not going to be an easy year for any of Alberta’s financial institutions. ATB Financial, Alberta’s provincially owned financial institution, released its economic forecast for the province this week. It predicts that the economy will be in recession this year before recovering to growth of 1.4% in 2016. ATB says weak oil prices are the “single reason” for the province’s current economic challenges.

CWB’s share price correlation to crude oil continues to be the strongest driver of near-term valuation, Aiken noted, despite the bank’s relatively low commitment to the energy sector. “That said, with a worst case scenario almost fully priced in, for longer-term investors, we believe CWB represents a true value proposition.”

Even though CWB’s shares are down nearly 30% year-to-date, the bank experienced a modest stock increase when it released its quarterly earnings last month, producing a profit of $51 million, down slightly from $52 million in the same period last year.

“Results look worse than they really are, given the hit from an unusually large securities gains number,” Meny Grauman, a Cormark Securities analyst, said. “Although one would be hard-pressed to see signs of Western Canadian economic stress in these results, management clearly acknowledges that there are tougher times likely ahead.”

Still, CWB is well-positioned to handle continuing weak oil prices, and may actually perform better than its larger banking counterparts in the years ahead.

The post Canadian Western Bank Remains on Track for Double-Digit Loan Growth appeared first on The Motley Fool Canada.

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It’s no surprise to see energy producers struggling through an extended period of weak oil prices. Smaller companies that provide support services to the oil and gas industry, such as Trican Well Service Ltd. (TSX:TCW) and Calfrac Well Services Ltd. (TSX:CFW), are also suffering as oil prices remain stubbornly low, a situation that may continue well into 2016.

Trican shares plunged 27% last Friday after the company reached an agreement in principle with its bank lenders and senior note holders that will ease some of the conditions the company must meet. However, the deal reduces Trican’s available credit by $165 million, and there are concerns the agreement may contain more conditions that will negatively impact the company.

In May, Trican cancelled its dividend program and cut 2,000 jobs from its workforce in North America, citing difficult conditions in the oil and gas sector.

The company has also cut back its international operations, selling its Russian pumping business for $197 million in August and suspending operations in Colombia, Saudi Arabia, and Australia.

On a positive note, Trican said on Friday that its third quarter has been substantially better than the first half of the year, crediting its severe cost-cutting measures.

Calfrac said on Friday that it is cutting its dividend by 75%, the second reduction this year, as the oilfield services company deals with low oil and natural gas prices.

Calfrac’s next payout to shareholders will be about 1.5 cents per share, payable October 15, down from 6.25 cents per share paid on July 15. The dividend had been 12.5 cents per share from April 2014 to April 2015.

Calfrac also said on Thursday that its dividend reinvestment plan will be suspended and all shareholders of record will receive dividends in cash on Oct. 15.

On a run-rate basis, the reduction will save Calfrac $18 million a year in annual cash outlay and will put the company’s annual dividend liability at about $6 million, according to Jon Morrison, an analyst at CIBC World Markets. Other analysts say Calfrac may be positioning itself for another difficult year in 2016.

Looking ahead, Industrial Alliance analyst Elias Foscolos has reduced his 2016 forecast for North American drilling activity, listing a number of reasons for the negative prediction, including rig count data from Baker Hughes and the Canadian Association of Oilwell Drilling Contractors, which both project no rebound in drilling next year.

“While we remain optimistic with respect to a rebound in the price of oil and gas due to steep projected declines in non-OPEC production (particularly in the U.S.), we are less optimistic about the prospects for a rebound in rig counts as we believe deleveraging balance sheets will take priority over drilling,” Foscolos said in a note to clients.

While the drilling services industry has been the last area hit by the downturn, it also may be the last to rebound, suggesting stocks in this sector should be avoided in the near term.

The post Drilling Services Firms Are Feeling the Pain of Weak Oil Prices appeared first on The Motley Fool Canada.

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It’s not easy for Canadian investors to choose a bank stock. Though all of the Big Six banks have performed relatively well over the long term, there have been some short-term difficulties recently, and each of the big banks has its own set of advantages and disadvantages, making choosing a bank stock challenging.

Exchange-traded funds

One option is to purchase an exchange-traded fund (ETF), which includes a basket of Canadian bank stocks, such as the BMO SP TSX Equal Weight Banks Index ETF (TSX:ZEB) or the iShares S&P TSX Capped Fncls Indx Fnd (TSX:XFN), which also includes insurance stocks for additional diversification.

BMO’s offering has been designed to replicate, as closely as possible, the performance of the S&P/TSX Equal Weight Diversified Banks Index. The fund invests in and holds the constituent securities of the TSX Index in the same proportion as they are reflected in the index. The BMO fund includes the Big Six banks, with percentage holdings ranging from 16.1% to 17.1%. The fund has lost 5% over the past year, a better performance than the Big Six banks individually.

The iShares ETF contains a slightly different mix than BMO’s fund, with investments in the Big Six banks plus insurance companies, including Manulife Financial Corp. and Sun Life Financial Inc. Royal Bank of Canada is the fund’s top holding, with nearly 20%. Year-to-date, the iShares fund is down 6.5%.

Royal Bank of Canada

If you’re more interested in a single stock purchase, why not start at the top with the country’s largest bank, Royal Bank of Canada (TSX:RY)(NYSE:RY)?

RBC has more than one trillion in assets, providing a wide array of diversified financial services, including personal and commercial banking, wealth management services, insurance, corporate and investment banking, and transaction processing services, serving 15 million clients.

RBC derives more than 70% of its net income from two of its five operating business segments, Canadian banking and capital markets, with wealth management adding another 12%, according to Morningstar data. “Despite the historical attractiveness of its home banking market, we think slower growth on the home front will continue to be a challenge,” said Morningstar analyst Dan Werner in a recent report.

Still, while weak oil prices are starting to affect asset quality at the big banks, the overall impact remains very small with little to indicate that there is significant credit or economic stress.

RBC’s earnings performance for its third quarter was solid, with personal and commercial banking leading the way. The bank earns substantial excess capital that it returns as dividends to shareholders, which have been raised seven times for a total increase of 50% since 2010. RBC’s current dividend is $0.79 a share, with a strong dividend yield of 4.4%.

Although ETFs provide a good option for investors seeking wider exposure to the banking sector, I believe that an individual bank stock offers better potential in the long term. Note that RBC’s Canadian banking business, which constitutes more than 50% of the bank’s profit, continues to provide returns on equity exceeding 30%. In addition, asset quality at RBC remains strong, with gross impaired loans as a percentage of total loans reaching just 0.5%.

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With crude oil prices continuing to hover below $50 a barrel, it’s not easy to be bullish on the sector. But not all oil companies are suffering. Suncor Energy Inc. (TSX:SU)(NYSE:SU) has raised its dividend, kept its workforce intact, and is considering acquisitions, even as its stock has declined nearly 20% over the past year. Here are three reasons to consider adding Suncor to your diversified portfolio.

Cash in pocket

In a recent speech, Suncor CEO Steve Williams noted the company has $5 billion in excess cash and that the oil price collapse has caused some companies to become distressed, which could lead to “fire sale” prices that didn’t exist six months ago.

“We have too much cash on our balance sheet,” Williams said. “We’ve been generating more cash than we anticipated when we put that $5 billion in the bank.”

Although the company has no immediate acquisition plans, Williams said the spread between what buyers are willing to pay and what sellers are willing to accept has “narrowed significantly.”

“Clearly prices are coming down,” Williams said. “Time is on our side in terms of waiting.”

Returns to shareholders

Suncor increased its quarterly dividend by one cent per share to $0.29 when it announced its second-quarter results earlier this summer. That means its dividend yield is a healthy 3.34% at a time when many energy companies are reducing their dividends, or even eliminating them entirely.

The company also said it intends to buy back $500 million worth of its own shares.

Low oil prices don’t matter (much)

Suncor’s focus on cost reduction initiatives has resulted in a decrease in cash operating costs per barrel at its oil sands operations to just $28 a barrel, down from $34 per barrel in the same period last year. “As a result of our continued focus on operational excellence, production at oil sands operations increased by 45,000 barrels per day,” Williams added.

It’s heartening for investors to know that even if oil prices drop below $30 per barrel, which seems unlikely, Suncor will remain profitable.

Suncor’s 2015 capital expenditures have been reduced by $400 million to a range of $5.8-6.4 billion as a result of the energy company’s focus on capital discipline and cost reduction. Quality energy stocks are hard to find during the current oil price downturn. Don’t let this one get away.

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Oil stocks may be a tough sell in this environment, but at least one analyst believes it’s time to buy before someone else beats you to it. Desjardins Securities analyst Justin Bouchard was speaking specifically about Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE), but he could be talking about a number of undervalued oil stocks, all of which have been hit hard by this year’s crude-price decline.

“We believe Cenovus presents a compelling investment opportunity from a risk-reward standpoint, and suggest that at its current valuation there is no option more attractive to Cenovus than buying back its own shares,” Bouchard said in a note to clients. “In addition, the unjustifiably low valuation brands it as a prime acquisition target given the quality and size of its oil sands portfolio. As we see it, the bottom line is that if the company is not willing to buy back its own shares or investors do not buy in, then someone else will.”

Bouchard adds that Cenovus is a high-quality investment with a substantial margin of safety from a liquidity and leverage perspective. And he believes the oil sector in general is not in a terminal decline, but rather in a cyclical downturn that will eventually reverse.

The analyst views Cenovus as a premier oil sands company focused on in situ SAGD (steam assisted gravity drainage) exploration. “Most notably, we believe that Christina Lake and Foster Creek are the best SAGD assets in the business and that anyone with oil sands aspirations would covet those projects.”

Looking beyond U.S. borders

Even before the recent oil price shock, Canadian oil and gas companies were seeking out new international markets in order to reduce their dependence on U.S. refineries as American shale oil production continues to grow.

Earlier this year, in a complex transaction, Cenovus secured an export licence from the U.S. and has completed some transactions to export from the Gulf Coast. Cenovus will begin exporting in the fourth quarter.

Cenovus also wants to build on its Asian exports through Kinder Morgan’s Trans Mountain pipeline in British Columbia.

“Some of the independents refiners in China are now able to access sales directly and do not have to go through major refiners in China. And we have already executed one of those sales as well,” Bob Pease, executive vice president of corporate strategy and president of the company’s downstream division, recently told The Financial Post.

In Q2 2014, Canadian producers exported an average of nearly 188,000 barrels per day to markets outside of North America—more than quadruple the volume of the previous quarter.

So, even if oil stocks look shaky, there are some positive signs for foolish investors willing to take on a little risk. It may be worth it in the long run.

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