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A Six-Pack Of Canadian Value Stocks

 January 20, 2012 01:45 PM

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

We believe many outstanding buying opportunities exist among Canadian stocks. As such, we screened our Benjamin Graham database to ?nd Canadian companies with rapidly growing earnings and strong balance sheets.

We believe the six companies recommended below offer excellent appreciation potential during the next six to 12 months.

Goldcorp (GG), based in Vancouver, British Columbia, is one of the largest gold producers in North and South America with mines in Canada, the U.S., Mexico, Guatemala and Argentina.

Goldcorp does not hedge future production; earnings tend to rise and fall in step with the rise and fall of gold and silver prices. We believe gold and silver prices will rise in 2012.

Output in 2012 will get a boost from a new mine in Guatemala, again in 2013 from a large mine in the Dominican Republic, and then in 2014 from three more mines in Central America. Future prospects are far better than for Goldcorp's competitors.

Revenues increased 40% and EPS soared 61% in 2011. Our forecast for 2012 includes sales and earnings growth of 19% and 25% respectively. In addition, we see EPS increasing at an impressive annual rate of 26% during the next ?ve years.

At 16.4 times our 2012 EPS estimate, GG is selling at a big discount to its 10-year average P/E of 23.1 times. The dividend, paid monthly, provides a yield of 1.2%.

We recommend buying GG now. Our maximum buy price is 50.76; our minimum selling price is 76.23

Open Text (OTEX) is headquartered in Waterloo, Ontario. The company has become a leader of Internet-based technologies. Its software solutions allow individuals, corporations and global trading communities to collaborate on projects, share ideas and accelerate innovation.

The rapid development of mobile and social networking ventures will provide many new software opportunities for Open Text.

Sales increased 15% and EPS rose 12% during the past 12 months. Sales will likely increase 10%, and EPS should rise 16% during the next 12-month period.

Additional acquisitions and further expansion into Asia and Latin America could drive stronger than expected growth in 2012. OTEX shares sell at 17.9 times our forward EPS estimate of 2.77.

Sales and earnings are slightly erratic, so we advise buying OTEX when the stock price declines to our maximum buying price of 46.10.

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