“Ironically, if central bank ‘financial repression’ continues to work and increases economic growth, we will likely see markedly higher bond yields by year-end following intervention by the Fed to rein in stimulus as unemployment falls.“

1. F CUS Volume 23, N°4, April 2012
EDITORIAL Ed Sollbach, CFA
Portfolio Strategy and
Quantitative Research Analyst
retail strategy
Message from the
General Manager “ Ironically, if central bank ‘financial repression’ continues to work and increases
economic growth, we will likely see markedly higher bond yields by year-end
Bruno Desmarais
Vice-President and General Manager following intervention by the Fed to rein in stimulus as unemployment falls.“
Full Service Brokerage
The US Federal Reserve (Fed) has cut short- Default is the typical outcome when there is
At Desjardins Securities, maintaining
term rates to zero—and suggested rates too much debt. Rising bad loans hurt banks
an ongoing relationship with our
would stay at zero until 2014—as well as and other creditors, who then pull back
clients is important to us. That is why
used unconventional methods to push US credit, further weakening the economy in
I am pleased that I will now have the
bond yields to their lowest levels since 1940 a vicious circle until there is a widespread
opportunity to communicate regularly
in an attempt to kick-start the moribund US financial crisis. Only the very few with large
with you via our Focus newsletter.
economy. Some have called these tactics cash balances are able to benefit from falling
‘financial repression’, ie a slow transfer of asset prices.
Like me, my team of Investment
wealth from savers to borrowers, as a means
Advisors believes that over and above
to lessen the burden of debt levels that are In 2008–09, the global economy was on
numbers and returns, it is essential,
otherwise unsustainable. In this edition of its way to a prolonged financial crisis, but
as part of the services we offer you,
the Focus, we examine the implications for the central bankers stepped in and started
to have regular exchanges that foster
debtors at both the consumer and corporate printing money to offset the US$14 trillion
quality communication.
level, investors, savers and pensioners. drop in the value of US financial assets. At
one point, the Fed had even committed to
I would therefore like to take this
opportunity to invite you to attend our
60-year debt build-up US$7.7 trillion in financial guarantees.
next conference call on the markets:
to financial crisis
US consumer debt has been building up Given that much of the debt has still
Friday, April 13 at 3:00 p.m. EDT.
since World War II, with household debt not been written off or paid off, the US
Dial 514-861-2255 or 1-866-696-5910
rising to a peak of 135% of disposable economic recovery has been weaker than
and the access code 3300300.
income in 2008 from 37% in the 1950s. The in past recoveries—three years into this
largest chunk of this debt (70%) consisted recovery, unemployment is still high despite
I also invite you to view our Finance
of mortgage debt, which financed the recent improvements. After stabilizing the
Matters clips now available on the
housing bubble. House prices finally peaked financial system in 2009, the Fed has since
homepage of our website: dsia.ca.
in 2006, and then collapsed by 32% to their worked to ease the burden of servicing
lows in 2009. The plunge in prices meant private and public debt by pushing down
Thank you for placing your trust in us.
that many houses were worth less than the yields aggressively, particularly for long-term
mortgage on the house, and homeowners mortgage debt.
simply walked away from their financial
obligations. As a result, 10% of mortgages Record-low borrowing rates are slowly
became delinquent. gaining traction, especially in the US housing
continued on page 2
Please see the last page of this document for company specific disclosures.

2. EDITORIAL (continued) Recommendations
Bombardier Inc.
8
market, although it remains depressed. In Gold should continue to benefit over the
February, US home sales increased 9% vs long term, given the value of cash and bonds 6
PRICE ($)
last year and inventories of unsold homes is being slowly eroded away by inflation over 4
fell 19% from last year, while overall US time as central bank policy continues the
2
unemployment dropped to 8.3% from 9.1% slow transfer of wealth from creditors to 150
Volume (M)
in August of last year. debtors. 100
50
0
Ironically, if central bank ‘financial repression’ In view of record-low (fixed income) yields Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
continues to work and increases economic on government bonds, we believe dividend
RATING BUY–ABOVE-AVERAGE RISK
growth, we will likely see markedly streams are an attractive source of income Target $7.00
higher bond yields by year-end following for Canadians since many companies are Symbol BBD.B
Sector Transportation & Aerospace
intervention by the Fed to rein in stimulus as increasing their dividends; note that dividends
Recent price $4.19
unemployment falls. have an approximate 17% tax advantage for Total potential return 67%
high-income earners in non tax-sheltered 52-week range $3.30–7.29
Market cap $7,224m
Creditors accounts. In our Focus 15 portfolio, we have Year-end Dec-31
For pensioners and those on a fixed income, purposely targeted high-yielding stocks in Adjusted EPS 2012E US$0.46
2013E US$0.59
low rates for savers makes it difficult to live diversified sectors to provide a portfolio that
P/E 2012E 9.1x
on the interest on government bonds. The yields 60 basis points more than the TSX. 2013E 7.1x
return on cash is now zero while yields on Dividend yield 2.5%
Sources: Desjardins Securities, company reports, Bloomberg
government bonds of about 2% are less than Hence, we continue to advocate a barbell
inflation of 3%, meaning savers are losing portfolio with a core portfolio of high-yielding
1% to inflation every year as they subsidize REITs, utilities, telecoms and pipelines, and a
debtors with lower interest payments. ‘risk on’ component comprised of growing
companies (preferably with yield protection) Canadian Western Bank
For pension funds and insurance companies in the financial, technology, industrial,
32
that have liabilities stretching 20 to 30 years consumer discretionary, transportation, gold,
30
into the future, low government bond yields oil and oil services sectors. n
PRICE ($)
28
are especially problematic. As a case in point,
26
bond yields averaged only 2% over the last
24
six months vs 6.66% in the 1990s, so income 6
Volume (M)
4
to support pensioners or life insurance 2
beneficiaries has been curtailed by 70%. 0
Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
Debtors RATING BUY–AVERAGE RISK
Consumers and corporate borrowers should Target $36.00
Symbol CWB
move to take advantage of record-low Exchange TSX
long-term borrowing rates. Homeowners in Sector Banks & Diversified Financials
Recent price $29.49
Canada recently had the opportunity to lock
Total potential return 24%
in five-year mortgages at a record-low 3%, 52-week range $24.00–31.45
meaning borrowing costs are the same as the Market cap $2,232m
Year-end Oct-31
loss to inflation every year. With respect to EPS FY12E $2.45
corporate borrowers, this credit environment FY13E $2.75
P/E FY12E 12.0x
greatly benefits companies with a lot of
FY13E 10.7x
debt and good credit ratings, such as REITs, Dividend yield 2.0%
telecoms and utilities. Sources: Desjardins Securities, company reports, Bloomberg

3. Benoit Poirier, CFA, Analyst
n Expected orders for regional and business aircraft and increased flight in late 2012 and entry into service in 2013, whereas we believe
visibility on CSeries development should propel the stock the market is already anticipating a delay of six months. We would not
be surprised to see an order coming from a Chinese airline sometime
n Transportation division provides a support level of ~$4/share over the next year, as the Chinese typically order closer to commence-
ment of production.
n Dividend yield of 2.5%
Transportation operations continue to perform well and provide a sup-
Bombardier (BBD) is an international, diversified manufacturing com- port level of ~$4/share, which significantly reduces downside risk for
pany operating in two segments, Aerospace and Transportation. the shares. Booking remains solid and there is a strong pipeline of
opportunities; management remains committed to delivering an EBIT
In our view, several catalysts should propel the stock higher over the margin of 8.0% in 2013 (we forecast 8.1%).
coming year. Regional aircraft orders from WestJet, Nordic Aviation
Capital, United Airlines, American Airlines and SkyWest (in 2013) Given the aforementioned factors, we maintain a constructive view on
could bring some much needed life into BBD’s aerospace backlog and Bombardier—this is despite the disappointing 2012 guidance which
lead the way to higher deliveries. calls for a lower aerospace margin (~5.0% vs 5.8% in 2011) and soft
free cash flow generation. At current levels, we believe the stock offers
We believe the company is also well positioned to receive a significant attractive value for investors.
order for midsize/super-midsize bizjets from Warren Buffett’s NetJets,
the largest fractional jet provider. Should such an order materialize, it We rate Bombardier Buy–Above-average Risk with a $7/share target,
could prompt Bombardier to increase its bizjet production rate. which is derived from an average of four valuation methods and in-
cludes a value of US$1.20 for the CSeries program.
Positive news on the development of the CSeries aircraft is another
element that could lift the stock. Bombardier continues to aim for first
Michael Goldberg, CFA, Analyst
n Growth-oriented bank stock driven by very strong, CWB is in strategic investment mode, with plans to enhance its market
well-secured lending activity in the robust economic presence by increasing its branch count to 50 by 2015 from the cur-
environment in western Canada rent level of 39, and to pursue opportunities for tuck-in acquisitions
that fit with its National Leasing subsidiary and wealth management
n CWB already exceeds the minimum Basel III capital division.
requirements and is very well capitalized and well positioned
to return capital to shareholders with regular dividend The headwinds that CWB faces—flat yield curves, competitive
increases Canadian banking pressures and potential spillover effects from global
economic uncertainty, are the same as those faced by other Canadian
n CWB’s positive earnings and dividend growth prospects justify banks. In our view, however, CWB is better sheltered from such head-
a premium valuation relative to its Canadian banking peers winds due to its western orientation and minimal capital markets ex-
posure.
We recommend Canadian Western Bank (CWB) for investors looking
for a growth-oriented alternative to the six major Canadian banks. Our FY12 and FY13 EPS estimates of $2.45 and $2.75, respectively,
CWB offers a unique play on the strong economic growth and re- represent a 12% annual EPS growth. We also expect double-digit an-
source development in western Canada, mainly Alberta and British nual dividend growth for the next two years. Our $36 target price is
Columbia. It has the infrastructure, relationships and capital to support based on a relative yield projection (CWB’s dividend yield over long
its growth. Canadian corporate yields) of 52.5% vs 72.6% currently. This equates
to a P/E of 13.1x on projected FY13 EPS—up from the current 12.0x
In our view, the economic environment in western Canada should P/E on projected FY12 EPS.
sustain CWB’s key organic business drivers, namely deposit and loan
growth (particularly in higher margin products), increased cross-sell-
ing, credit quality and favourable insurance underwriting.
Sources: Desjardins Securities, company reports, Bloomberg
Volume 23, N°4, april 2012 2-3 3

4. Desjardins Securities Top 25
COMPANY TICKER RATING & RISK TARGET PRICE ($) MARKET CAP (M$)
Toronto-Dominion Bank (The) TD Top Pick–Average 95.00 76,149
Bank of Nova Scotia (The) BNS Top Pick–Average 65.00 63,362
Brookfield Asset Management Inc. BAM Top Pick–Average US$40.00 US$19,623
TransForce Inc. TFI Top Pick–Average 22.00 1,615
Algonquin Power & Utilities Corp. AQN Top Pick–Average 7.75 804
Whitecap Resources Inc. WCP Top Pick–Average 15.00 799
Potash Corporation of Saskatchewan Inc. POT Buy–Average 60.20 38,951
Canadian National Railway Company CNR Buy–Average 85.00 34,422
BCE Inc. BCE Buy–Average 43.20 31,047
TransCanada Corporation TRP Buy–Average 46.00 30,781
Enbridge Inc. ENB Buy–Average 42.00 29,675
Manulife Financial Corporation MFC Buy–Average 18.00 24,423
Teck Resources Limited TCK.B Buy–Average 64.40 20,470
Agrium Inc. AGU Buy–Average 106.30 13,690
Eldorado Gold Corporation EGO Buy–Above-average US$23.25 US$9,126
First Quantum Minerals Ltd. FM Buy–Above-average 30.55 9,059
Tim Hortons Inc. THI Buy–Average 58.00 8,309
Bombardier Inc. BBD.B Buy–Above-average 7.00 7,224
Baytex Energy Corp. BTE Buy–Average 68.00 6,091
Metro Inc. MRU Buy–Average 58.50 5,184
Finning International Inc. FTT Buy–Average 34.00 4,853
Dollarama Inc. DOL Buy–Average 46.50 3,343
PetroBakken Energy Ltd. PBN Buy–Average 21.00 3,164
Dundee Real Estate Investment Trust D.UN Buy–Average 39.00 2,912
Precision Drilling Corporation PD Buy–Average 14.75 2,841
Source: Desjardins Securities Portfolio Advisory Group in collaboration with Research analysts.
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