Snap-On’s revenue rose 11.1% in 2011, to $3.0 billion from $2.7 billion in 2010. Earnings rose 42.2%, to $265.2 million, or $4.52 a share, from $186.5 million, or $3.19 a share.

The company will spend $60 million to $70 million to expand and upgrade its operations in 2012. It’s particularly interested in growing in developing countries. Right now, it gets 59% of its revenue from North America.

Snap-On’s earnings should rise to $4.99 a share in 2012. The stock trades at a low 12.2 times that estimate.

Snap-On is a buy.

The company now wants to take advantage of rising oil sands production by building the Northern Gateway pipeline, which would pump crude oil from Edmonton to a proposed storage terminal in Kitimat, B.C. From there, the oil would be shipped by tanker to refineries in Asia.

At $5.5 billion, Northern Gateway is the single biggest pipeline project in Enbridge’s 63-year history. If regulators approve, the line could start up in 2017.

The outlook for Northern Gateway is bright, particularly as the U.S. government has delayed rival TransCanada Corp.’s (Toronto symbol TRP) Keystone XL pipeline, which would pump oil from Alberta to Texas. Even if the U.S. approves Keystone XL, there is plenty of oil for both lines.

ENBRIDGE INC. $39 (Toronto symbol ENB; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 779.2 million; Market cap: $30.4 billion; Price-to-sales ratio: 1.6; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.enbridge.com) gets 85% of its revenue by operating pipelines that pump crude oil and natural gas from western Canada to eastern Canada and the U.S. The company’s pipelines handle 65% of all western Canadian crude oil exports.

The remaining 15% of revenue mainly comes from distributing natural gas to 2 million consumers in Ontario, Quebec, New Brunswick and New York State.

Enbridge’s revenue rose 51.5%, from $10.6 billion in 2006 to $16.1 billion in 2008. Revenue fell 22.7% in 2009, to $12.5 billion, as the recession cut gas sales and prices. New pipelines pushed up revenue by 21.3%, to $15.1 billion, in 2010.

Earnings rose 59.2%, from $622.3 million in 2006 to $991.0 million in 2010. Earnings per share rose 47.8%, from $0.90 in 2006 to $1.33 in 2010, on more shares outstanding (adjusted for a 2-for-1 split in May 2011). Cash flow per share rose 46.2%, from $1.71 in 2006 to $2.50 in 2010.

Including the Northern Gateway pipeline, Enbridge plans to spend over $11 billion on new projects over the next three to five years.

That investment also includes the company’s recent purchase of 50% of the Seaway pipeline for $1.15 billion U.S. Seaway pumps crude oil from Houston, Texas, to Cushing, Oklahoma; Enterprise Product Partners LP (New York symbol EPD) owns the other half and operates the pipeline.

Tapping into oil, gas and green power

Due to rising inventories at Cushing, Enbridge and Enterprise plan to reverse the Seaway pipeline’s flow and pump oil to refineries on the U.S. Gulf Coast. The partners aim to complete this project in mid-2012. They also plan to increase Seaway’s capacity in 2013.

Enbridge is also spending $1.2 billion to build a new pipeline that will pump oil from northern Alberta’s Athabasca oil sands to a storage facility in Hardisty, Alberta. This new pipeline will run alongside Enbridge’s existing Athabasca pipeline, and should begin operating in early 2015.

At the same time, the company is tapping into huge new shale gas discoveries. It recently agreed to pay $1.1 billion for a 71.0% stake in the Cabin gas plant project, which will process gas in the Horn River Basin of northeastern B.C. starting in the third quarter of 2012.

Enbridge is also diversifying into renewable energy projects. In October 2011, it bought Tonbridge Power Inc., which specializes in building transmission lines from remote wind power projects to existing grids. Tonbridge’s main project is a line that will connect wind farms in Montana to power grids in the U.S. and Alberta.

Enbridge paid $20 million for Tonbridge; it also repaid $50 million of the company’s debt and agreed to spend $300 million to complete the Montana-to-Alberta power line. However, the U.S. Department of Energy will give Enbridge a $150 million, 30-year, low-interest loan.

Wind farm less risky than it seems

Enbridge also paid $300 million for 50% of the Lac Alfred wind power project 400 kilometres northeast of Quebec City. Hydro Quebec will construct a 30-kilometre line to connect this wind farm to the transmission grid, and will buy the power from this project for the next 20 years.

Enbridge’s long-term debt of $13.6 billion is 45% of its market cap. However, high debt levels are normal for pipeline companies, which must spend heavily to expand their operations, but get steady cash flows from their regulated businesses.

Enbridge has paid dividends since it became a public company in 1953, and has raised its payout each year for the past 17 years. The current annual rate of $1.13 a share yields 2.9%. The company aims to pay out 60% to 70% of its earnings before unusual items as dividends.

Big gain just the beginning

Enbridge has risen 26% since we first recommended in our July 2011 issue. Even so, we feel it still has plenty of growth ahead.

The stock now trades at 26.0 times Enbridge’s likely 2011 earnings of $1.50 a share, and at 23.5 times the $1.66 a share that it should earn in 2012. These are high multiples, but they are still acceptable in light of Enbridge’s high-quality assets.

Enbridge trades at a more reasonable 15.0 times its 2011 estimated cash flow of $2.60 a share. It also trades at 14.2 times its projected 2012 cash flow of $2.75 a share.

Enbridge is a buy.

We’ve lowered Bell Aliant’s TSINetwork Rating to Average from Above Average. It’s still prominent in its industry, with a record of steady profits and dividends, and its balance sheet remains strong. However, it faces rising competition across all of its businesses. In addition, many of its phone customers are giving up their land lines and switching to wireless devices.

Bell Aliant is still a buy.

In the three months ended September 30, 2011, Telus added 114,000 new wireless subscribers, down 25.5% from 153,000 a year earlier.

However, 70% of these new long-term customers use smartphones. That pushed up demand for data services, such as web browsing. As a result, Telus’s revenue rose 6.5% in the quarter, to $2.6 billion. Earnings per share rose 28.2%, to $1.00 from $0.78.

Telus has raised its quarterly dividend by 5.5%, to $0.58 a share from $0.55. The shares yield 4.3%.

Telus Corp. is still a buy.

BANK OF NOVA SCOTIA $51.84 (Toronto symbol BNS: Shares outstanding: 1.1 billion; Market cap: $57.0 billion; TSINetwork Rating: Above Average; Dividend yield: 4.0%, www.scotiabank.com) is thinking about selling Scotia Plaza, its 68-storey office building in downtown Toronto.

New international regulations require banks to maintain more capital to cover potential loan losses. By selling real estate and other non-core assets, banks can raise cash without issuing new shares, which would dilute the holdings of existing shareholders.

The bank could get up to $1 billion for Scotia Plaza. That’s equal to 1.8% of its $57.0-billion market cap.

Bank of Nova Scotia is a buy.

MANITOBA TELECOM SERVICES INC. $32.38 (Toronto symbol MBT; Shares outstanding: 65.7 million; Market cap: $2.1 billion; TSINetwork Rating: Average; Dividend yield: 5.3%; www.mts.ca) reports that its Allstream division has connected 299 buildings with fibre optic technology since the start of 2011, including 75 in the fourth quarter. That brings Allstream’s total number of fibre optic-fed buildings to 2,388 as of December 31, 2011.

This expansion is key to boosting Allstream’s sales of integrated telephone, Internet and other communication services to businesses across Canada.

Manitoba Tel is still a buy.

As part of this plan, IFF will increase its focus on emerging markets. As a result, it will cut 70 employees worldwide. It will pay severance and other costs of $10 million, or $0.08 a share; IFF earned $81.8 million, or $1.00 a share, in the third quarter of 2011. The plan should save it $9 million a year, starting in 2012.

International Flavors & Fragrances is a buy.

Revenue fell 5.0%, to $80.9 billion from $85.2 billion. Demand for mortgages and credit cards is rising. However, the bank is getting less interest income from borrowers due to today’s low interest rates.

Wells Fargo is still a hold.

CHEVRON CORP. $108 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.0 billion; Market cap: $216.0 billion; Price-to-sales ratio: 0.9; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.chevron.com) recently announced that it had discovered promising new gas wells off the northwest coast of Australia. This was its 13th discovery in the area since 2009.

These discoveries enhance the prospects of Chevron’s Gorgon liquefied natural gas (LNG) project in Australia. Gorgon will convert gas from these offshore fields into a liquid. The company will then ship the LNG on tankers to customers in Asia.

Chevron owns 47% of Gorgon, and will operate it. The company’s share of the $37-billion development cost is $17.4 billion. Gorgon should start producing in 2014. Chevron expects the Australian wells to last 40 years.

Chevron is a buy.

PEPSICO INC. $67 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $107.2 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.pepsico.com) will make and distribute Ocean Spray cranberry drinks in Latin America under a new 20-year deal with Ocean Spray Cranberries, Inc.

The two companies already have a similar deal in the U.S., where Ocean Spray’s volumes have risen 20% since 2006. PepsiCo feels its marketing expertise and distribution networks will help it repeat this success in Latin America.

PepsiCo is a buy.

The company’s sales rose 1.7%, from $7.9 billion in 2007 to $8.0 billion in 2008 (fiscal years end July 31). Sales fell to $7.6 billion in 2009, but rose to $7.7 billion in 2011.

Erratic earnings set to stabilize

Earnings fell from $1.99 a share (or a total of $792 million) in 2007 to $1.75 a share (or $671 million) in 2008. Earnings rebounded to $2.42 a share (or $844 million) in 2010. In 2011, overall earnings fell to $802 million, but earnings per share remained unchanged at $2.42 due to fewer shares outstanding. Without unusual costs, including a 2010 charge related to the U.S. health-care law, which eliminates a subsidy that companies get for contributions to retired employees’ prescription-drug plans, earnings per share would have risen 2.8% in 2011, to $2.54 from $2.47.

Campbell gets 35% of its sales from its U.S. Simple Meals division, which sells soups and other canned foods. This division’s sales fell 6.4% in 2011, mainly because it had to increase its prices to offset rising ingredient costs. That cut its sales volumes by 5%.

Sales declined 0.4% at the U.S. beverage division (10% of overall sales) as higher advertising spending offset strong sales of new V8 drinks.

However, sales of snack foods (30% of overall sales) rose 9.2% in 2011 because of higher prices and strong demand for Goldfish brand crackers. Sales at the International Simple Meals division (20% of sales) rose 2.8%, mainly due to favourable foreign exchange rates. The North American Foodservice division (10% of sales) reported a 2.1% sales increase, as restaurants ordered more refrigerated soup.

Big plans for 2012

Spending on new product development rose 4.9% in 2011, to $129 million (or 1.7% of sales) from $123 million (or 1.6% of sales) in 2010.

This higher spending will help Campbell launch 35 new products in fiscal 2012, including new regionally inspired soups, such as Creole-style chicken, and more V8 drinks. In addition, the company is building a $30-million facility in Connecticut that will focus on new snacks and baked goods. Campbell also plans to spend $100 million to promote its new products in 2012.

The company can easily afford these investments. Its long-term debt of $2.4 billion is just 24% of its market cap. It also holds cash of $285 million, or $0.90 a share.

Low p/e for a global stalwart

Campbell’s higher development and advertising spending will limit its 2012 earnings to $2.30 a share. The stock trades at a 13.9 times that estimate. However, earnings should rebound to $2.50 a share in 2013. That gives the stock a p/e ratio of 12.8, which is low in light of Campbell’s well-known brands and strong global prospects. The $1.16 dividend yields 3.6%.

Campbell Soup is a buy.

Railways are highly cyclical. CP’s stock got as low as $30 in mid-2004, then shot up to briefly peak at $90 in mid-2007. It then fell to a low of $33 by March 2009, as the recession cut deeply into freight volumes. The stock more than doubled to $68 by February 2011 as the economy recovered. However, avalanches in B.C. and spring floods in the Prairies hurt CP’s volumes and earnings in 2011. The stock fell as low as $46 in September. It then began to rise in October, as the economic outlook and the stock market both improved.

The company now has a new plan for dealing with bad weather and raising its efficiency. The recent involvement of a prominent American hedge fund may speed up CP’s earnings growth, and spur further gains in its stock price.

CANADIAN PACIFIC RAILWAY LTD. $69 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 169.7 million; Market cap: $11.7 billion; Price-to-sales ratio: 2.3; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.cpr.ca) transports freight between Montreal and Vancouver, and connects with hubs in the U.S. Midwest and Northeast. It gets 25% of its revenue from the U.S.

CP’s revenue rose 16.7%, from $4.6 billion in 2006 to $5.3 billion in 2008, as rising Asian trade pushed up freight volumes. CP’s $1.5-billion purchase of Dakota, Minnesota & Eastern Railroad (DM&E) October 2008 brought in more revenue. DM&E operates a 4,000-kilometre rail network in eight midwestern states.

The recession cut CP’s revenue by 17.7% in 2009 to $4.4 billion. However, revenue rose 13.2%, to $5.0 billion, in 2010. Even with its weather-related problems in the first half of 2011, revenue for the full year probably rose to $5.2 billion.

Earnings rose 21.1%, from $5.02 a share (or a total of $796.3 million) in 2006 to $6.08 a share (or $946.2 million) in 2007.

The recession pushed down CP’s earnings to $3.30 a share (or $550.0 million) in 2009. However, earnings rose 16.7%, to $3.85 a share (or $650.7 million), in 2010. Excluding unusual items, earnings per share rose 54.2%, from $2.51 in 2009 to $3.87 in 2010.

Focus on efficiency will benefit CP

Due to the bad weather, CP’s operating ratio worsened to 75.8% in the third quarter of 2011 from 73.7% a year earlier. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.)

CP is now working on better ways to deal with bad weather and improve its efficiency. It has purchased snow-clearing equipment and snow fences. It is buying new locomotives, upgrading its tracks and using new software that optimizes trainloads and speeds. These improvements will lower CP’s fuel consumption.

As well, CP will consolidate its eight repair shops into four facilities by 2013. Each shop will work on several different types of locomotives instead of specializing in a single model. CP feels this will cut repair times by 30%.

These moves will add to CP’s costs for the next year or two. But they’ll cut its operating ratio to around 70% by 2015.

CP is also in a good position to gain from rising grain prices, which will prompt farmers to plant more crops and ship more grain on CP’s trains. Higher grain prices will also push up fertilizer demand. Together, grain and fertilizers account for a third of CP’s overall revenue.

CP is also in a strong position to profit from rising shale oil production in the Bakken formation, which covers parts of Montana, North Dakota and Saskatchewan. There are few pipelines in this region, so producers use railcars to ship their oil to refineries. These producers are also using rail to bring in drilling equipment and other materials.

Shale oil and gas have big potential

Carloads from Bakken rose to 13,000 in 2011 from just 500 two years earlier. CP feels its Bakken traffic could rise to 70,000 carloads over the next few years. CP’s operations in the northeastern U.S. should also benefit from rising production in the Marcellus shale gas field in Pennsylvania and Ohio.

The company is also taking advantage of low interest rates to strengthen its employees’ pension plan, which had a deficit of $673 million (Canadian) at the end of 2010.

It recently sold $500 million U.S. of new long-term term notes and will apply the cash to this deficit. This contribution will make CP’s future pension payments more predictable. CP’s long-term debt was $4.0 billion on September 30, 2011. That’s equal to 34% of its $11.7-billion market cap, so it can afford the extra debt.

The company’s 2011 earnings probably fell to $3.20 a share. The stock trades at 21.6 times that estimate. Earnings should rebound to $4.55 a share in 2012, which gives CP a more reasonable p/e ratio of 15.2. The $1.20 dividend yields 1.7%.

Hedge fund also likes CP’s prospects

CP’s recent setbacks have attracted U.S.-based activist investment firm Pershing Square Capital, which now owns 14.2% of the company. Pershing Square wants to install Hunter Harrison, the retired CEO of Canadian National Railway Co. (Toronto symbol CNR), as chief executive officer of CP. Harrison made CN more efficient, and Pershing feels he can do the same at CP.

Even if Pershing fails to add Harrison as CEO, its involvement should continue to draw attention to CP’s strong prospects, and the long-term security of its key role in Canada’s economy.

CP Rail is our #1 buy for 2012.

However, Finning expects its 2012 sales to rise by just 5%, as slower growth in China and India could dampen resource prices. However, based on its strong order backlog, the company expects its sales to rise by 10% in both 2013 and 2014. As well, Finning expects its earnings to rise faster than its sales as it continues to expand its repair and service businesses. In the third quarter of 2011, Finning got 39% of its revenue from selling product-support services.

Finning is a buy.

CANADIAN TIRE CORP. $65 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.4 million; Market cap: $5.3 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.canadiantire.ca) faces strong competition from U.S.-based department store operator Target, which plans to open around 135 stores in Canada in 2013.

The company’s experience competing with big U.S. retailers, like Wal-Mart and Home Depot, will help it prepare for Target. As well, Canadian Tire has recently added to its automotive products and services. That will give it an edge over Target, which will focus more on clothing and household goods.

Canadian Tire is a buy.

THOMSON REUTERS CORP. $28 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 827.5 million; Market cap: $23.2 billion; Price-to-sales ratio: 1.7; Dividend yield: 4.5%; TSINetwork Rating: Above Average; www.thomsonreuters.com) has suspended its plan to sell its health-care business, which sells data and software that helps hospitals, clinics and medical professionals lower their costs and cut fraud. This division supplies 3% of Thomson Reuters’ total revenue.

The company put the health-care division up for sale in June 2011, but there was limited interest due to uncertainty over the global economy. Holding onto it until conditions improve makes sense.

Thomson Reuters is a buy.

Revenue rose 11.5%, to a record $17.3 billion from $15.5 billion. Strong gains at its international and wealth-management operations offset slower growth at its Canadian banking and securities-trading divisions.

The bank’s 2012 earnings should rise to $4.82 a share. The stock trades at just 10.8 times that figure. The $2.08 dividend yields 4.0%. The bank paid out 44% of its earnings as dividends in fiscal 2011, which was within its target of 40% to 50%. That gives it room to raise its dividend in fiscal 2012.

Bank of Nova Scotia is a buy.

ENBRIDGE INC. $37.30 (Toronto symbol ENB; Shares outstanding: 761.0 million; Market cap: $28.4 billion; TSINetwork Rating: Above Average; Dividend yield: 3.0%; www.enbridge.com) is buying 50% of a 300-megawatt wind power project northeast of Quebec City.

This investment will cost Enbridge $330 million, or 25% of the $1.3 billion, or $1.75 a share, of cash flow that the company reported for the first half of 2011.

This project has a 20-year deal to sell its power to Hydro-Quebec. That cuts the risk of this investment.

Enbridge is a buy.

CRESCENT POINT ENERGY CORP. $46.13 (Toronto symbol CPG; Shares outstanding: 277.9 million; Market cap: $12.8 billion; TSINetwork Rating: Extra Risk; Dividend yield: 6.0%; www.crescentpointenergy.com) has announced its initial capital budget for 2012. The company plans to spend at least $1.1 billion on exploration and development during the year, with a focus on its Bakken light-oil development in southeastern Saskatchewan. The 2012 figure is down from the $1.2 billion the company spent in 2011. However, its exploration success in 2011 prompted it to add to its spending a number of times during the year.

Crescent Point ended 2011 with average daily production of 80,000 barrels of oil equivalent per day. It aims to increase that to at least 85,000 barrels per day in 2012.

Crescent Point Energy is still a buy.