Canadian buys: Value expert's trio

by J. Royden Ward, editor Cabot Benjamin Graham Value Letter

I screened my Benjamin Graham Database to find Canadian companies with rapidly growing earnings and strong balance sheets.

I believe many outstanding buying opportunities exist. Here a look at three of our picks -- in agriculture, energy and information services. Each offers excellent appreciation potential during the next six to 12 months.

The Canadian economy has performed much better than the U.S. economy during the past three years and better than many foreign economies.

Canada banks were not allowed to sell risky loans or buy unsafe investments. And the nation’s housing market remains solid, its economic growth continues to climb, and its debt remains low.

Based in Calgary, Agrium (AGU) is a leading producer, wholesaler and retailer of agricultural nutrients and industrial products in North and South America. Products include nitrogen, phosphate and potash fertilizers; herbicides, insecticides and fungicides; and seeds.

Nitrogen fertilizers account for 37% of Agrium’s wholesale business and are enjoying increased profits because of low natural gas prices. Demand is rising for crop protection products in North America, and potash exports to Brazil and China are increasing.

The semi-annual dividend was recently increased to $0.50 from $0.055 a year ago, and now provides a yield of 1.1%. After a slow year ahead, future earnings growth will be erratic but should average 12 to 15% per year. Buy below $100.51 or below. Our minimum sell price target is is $155.38

Based in Calgary, Suncor (SU) is focused on Alberta’s vast Athabasca oil sands, with complementary operations in re ning and marketing.

Suncor is spending heavily to ramp up its lucrative oil sands production in Canada. Proceeds from seven sales of various assets are being used to expand production and to pay down debt incurred in the 2010 purchase of Petro-Canada.

In addition to oil sands development, Suncor’s diversification includes drilling operations in the North Sea, Libya and Syria; refineries in Canada and the U.S.; and 1,500 gas stations throughout Canada.

At just 9.3 times my forward EPS estimate of $3.17, SU shares are clearly undervalued. The recently increased dividend provides a yield of 1.8%. SU is medium risk. Buy below $38 for a minimum sell price target of $58.63.

Domiciled in Toronto, Thomson Reuters (TRI) is a leading provider of information and technology to professionals and users in the fields of financial services, law, higher education and scientific research. About 90% of 2011 revenues were derived from electronically delivered products over the Internet.

Management’s restructuring plan is going well. More efficient operations, cost cuts and new accounting software will bring about accelerating earnings during the next couple of years.

Also, the company has divested its healthcare information segment, while three recent acquisitions have bolstered its offerings in the rapidly growing governance, risk and compliance fields.

At 13.4 times my forward 12-month EPS estimate of $2.18, Thomson Reuters shares are undervalued. The dividend yields a handsome 4.4% yield. TRI is low risk. Buy below $28.29. Our minimum sell price target is $37.02.

Learn more about this financial newsletter at  J. Royden Ward's Cabot Benjamin Graham Value Letter.

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