• Introducing the TOP STOCKS team
• February's Top Stock: Building Materials Holding Corp. (BMHC)
• Top Income Stock: CPL Long-Term Care REIT (CPL.UN)
• Top Speculator's Stock: Women First Healthcare (WFHC)
• Updates
• IPO Watch: Hydro One

Dear Investor,

Welcome to the inaugural issue of TOP STOCKS. I hope you find this newsletter to be interesting, informative, and, most important, profitable.

However, let me stress from the outside that there are no guarantees in stock market investing. There is always a degree of risk involved. Our team of experts carefully analyses all our picks, based on the best information available. But surprises are always possible, as we have seen recently in the collapse of Enron, which caught almost everyone off guard.

So I urge you to be prudent in your stock selections. We will define the risk level of all the stocks we recommend as Conservative, Aggressive, and Speculative. Pay close attention to that guidance. If you want to keep risk to a minimum, avoid Aggressive and Speculative stocks. Stick with the Conservative recommendations. They will have less profit potential, but less downside exposure as well.

Also, I strongly suggest that you consult with a financial advisor before making a final decision on any of our picks. Make sure the selection is right for your needs and fits comfortably into your portfolio. A trusted professional advisor can provide the guidance you need.

Now let me introduce our TOP STOCKS team.

Irwin Michael is the founder and president of the ABC Funds, a Toronto-based mutual fund company with an outstanding record. Over the decade to the end of 2001, two of his funds were the top performers in their respective categories. His ABC Fully-Managed Fund generated an average annual compound rate of return of 19% over the 10-year period to lead the Canadian Equity category. His ABC Fully-Managed Fund averaged 14.6% a year, tops in the Canadian Balanced category. A newer fund, ABC American-Value, was the best performer in the U.S. Equity category in 2001, gaining 39.5%. And remember, that was in a year when the markets were losing money! Irwin is a dedicated value investor, in the tradition of Benjamin Graham, Sir John Templeton, and Warren Buffett. He and his team review and analyse dozens of stocks for every one they actually find that meets their stringent criteria. His value style works especially well in falling and sideways stock markets, and most of his recent picks for our parent Internet Wealth Builder newsletter (which is published weekly) have done very well.

Tom Slee is a veteran money manager and stock market analyst who recently retired from a senior position with the Canada Customs and Revenue Agency. He managed pension money in the insurance industry for several years, and writes under the pseudonym Exchequer in Investors Digest. Tom brings some unique qualifications to his role with TOP STOCKS. He is both a Certified Financial Analyst (CFA) and a Certified General Accountant (CGA), a rare combination of skills. He's basically a fundamentalist when it comes to stock selection and his picks are usually well-suited for conservative investors.

Glenn Rogers was a senior executive in the publishing industry in Canada and the U.S. for many years, most recently in a top position with Variety, the bible of the entertainment industry. A year ago, he decided to step out of the rat race for a year, buy a catamaran, and spend time on the sea with his young family. Their odyssey began in France last summer and in November-December he and two friends sailed the boat across the Atlantic to Martinque, where the family rejoined him. You can follow his adventures at http://www.searaven1.com Glenn has been a stock market watcher for years and uses a combination of technical and fundamental analysis to make his selections. He tends to be somewhat more aggressive than our other contributing editors.

I make up the fourth member of the team. Most of you probably already know my background, since it's unlikely you would have subscribed to this newsletter otherwise. I have written many books on personal finance and investing over the years, and was the personal finance commentator for CBC Radio for 16 years until my son Kendrew took over for me last fall. My approach to stock selection is to look for good value and/or unusual situations, using a fundamental analysis approach.

So that's the team. Now let's get to the meat of this month's issue.

FEBRUARY'S TOP STOCK: BUILDING MATERIALS HOLDING CORP. (NAS: BMHC)

Quick facts

What it does: Building Materials Holding Corp. (BMHC), headquartered in San Francisco, is a leading distributor and retailer in the building materials and construction services industry. BMHC operates through two subsidiaries, BMC West and BMC Framing, which are comprised of 137 facilities, predominantly in western United States. The company primarily targets its quality building materials and value-added products and services towards professional contractors and builders. Approximately 80% of the company's sales are to new home contractors, 15% to the repair and remodel segment and 5% to commercial contractors.

Why we like it: BMHC trades at a low price to earnings multiple of 8.4. This P/E multiple is significantly lower than the industry average of approximately 13 times. Not only is the company trading at comparatively low valuations, we also feel that the macro environment in the U.S. remains stable for the housing industry. The core fundamentals of the housing and building materials sector, with the assistance of government intervention, have been sustained. Housing starts are solid. Extremely low mortgage rates have provided support for housing activity and consumer confidence has not deteriorated as much as expected and, in fact, may show signs of improvement in the second half of the year. The warm weather has also fuelled continuously strong residential construction, a sector where 80% of BMHC's sales are generated. Another interesting factor is that officers and directors only own 2.7% of the company. Control of the company is in the marketplace and as a result BMHC could be a viable takeover candidate.

Financial highlights: Earlier this month, the company announced net sales of $275.1 million (all figures in U.S. dollars) for the fourth quarter of 2001, up 15.3% from $238.6 million in the same period of 2000. Profit came in at $4.3 million, or $0.33 per diluted share, up 22.9% over the previous year. For the full year, net income was $20.8 million. Earnings per diluted share were $1.60. That compared with net income of $19.7 million and earnings per diluted share of $1.54 in 2000.

Who it's for: BMHC is best suited to aggressive investors seeking medium to long-term capital gains.

Summing up: We are confident in management's ability to run BMHC as an operationally efficient company. Its fundamentals are strong and will support the company throughout economic cyclicality. We view this holding as an opportunistic purchase with significant long-term potential. Action now: Buy under $14.

TOP INCOME STOCK: CPL LONG-TERM CARE REIT (CPL.UN)

This regular feature of TOP STOCKS will be of special interest to income-oriented investors.

Quick facts

What it does: This real estate investment trust (REIT) invests in long-term care facilities in Canada and the USA. It is the largest owner and operator of such facilities in Canada, with 69 operations and a resident capacity of 9,373. It also operates 20 facilities in the USA with a total resident capacity of 2,230.

Why we like it: There are a number of advantages to CPL, but the one that especially appeals to me right now is that of stability. The units trade in a very narrow range; the 52-week low was $12.70 and the high was $15.40.

In a way, this is almost like buying a corporate bond. Based on recent history, you are not likely to see a large capital appreciation but you are not likely to lose a lot either which, given the volatility of the past year, may be a comfort to many. In terms of growth potential, the REIT has entered into development agreements with the Ontario Ministry of Health to build 18 new facilities in the province. In addition, CPL is developing another facility in Alberta. Keep in mind that CPL's income stream, particularly in Canada, is somewhat controlled by its agreements with provincial governments so they don't have unlimited ability to raise prices in some of their facilities. On the other hand, revenue is steady and as the population continues to age the need for long-term care facilities will continue to grow. CPL's exposure to the U.S. market provides greater growth potential and hopefully they will continue to expand there. The profitable U.S. dollars they're generating provide a nice currency hedge against our faltering loonie.

Financial highlights: Year-end financials are not yet available. Third quarter results for 2001 (to Sept. 30), reported a record distributable income of over $10 million for the quarter. This compares to distributable income of $8.6 million during the same period in 2000. The company attributed this growth to continued improvement of the U.S. operations and lower interest costs. Revenue increased 8.6%, growing to a total of $4.9 million for the nine months, compared to a total of $3.7 million for the first nine months of 2000. These are good results considering that everything else has been going to hell in a hand-basket in the past year.

Who it's for: This REIT is best suited for conservative investors looking for steady income.

Summing up: REITs are a good way to generate above-average cash flow during times of low interest rates. Note that if the units are held outside a registered retirement plan, some of the income will be received on a tax-deferred basis thanks to the tax-sheltering effect of depreciation.

Action now: Buy at the current market price.

TOP SPECULATOR'S STOCK: WOMEN FIRST HEALTHCARE (WFHC)

Some investors prefer active trading in more speculative stocks. TOP STOCKS will have such recommendations on a regular basis. But remember, there is a lot more risk here. If you can't deal with volatility, this isn't a stock for you.

Quick facts

What it does: Women First HealthCare is based in San Diego and is focussed on providing pharmaceutical and healthcare products for women, age 40 plus, and their doctors. The company was formed in 1996 and went public in 1999. The company's main products include Ortho-Est, which is an estrogen replenishment product in tablet form, and Eslim, which is an estradiol transdermal system(patches), that deals with the symptoms associated with menopause. The company also has a headache management product called Midrin, a cholesterol-lowering drug known as Pravacho, and Ortho Tri-Cyclen, a leading oral contraceptive. In addition to their pharmaceutical products, the company works with the Tufts University School of Nutrition Science and Policy to develop and market a line of self-care products, which are available through www.aswechange.com and their national mail-order catalogue. These include nutritional, herbal, exercise, fitness, beauty, and other related products.

Why we like it: This stock meets most of the criteria I look for in an investment, especially right now. The company has endured hard times, but struggled through to survive, sales have increased dramatically, margins are improving, management has a large stake, and they are in a business segment that looks promising and is recession-resistant. The target market is our aging female population and that group's appetite will be for more drugs and health-related products going forward.

Financial highlights: The company had good news for investors last week when it released its fourth quarter and year-end results. As projected, WFHC turned a profit in the last three months of 2001, albeit a small one. Management reported net income of $52,000 (figures in U.S. dollars). That's less than $0.01 per fully-diluted share, but it looks good when compared to a net loss of $1.4 million, or $0.08 per share, in the prior year period. The company also reported a dramatic improvement in full year results, reducing the net loss for the fiscal year ended Dec. 31 to $3.4 million, or $0.17 per share, compared with a net loss of $22.6 million, or $1.29 per share, in 2000. WFHC president Edward F. Calesa said that profitability for the full year of 2002 and beyond is now the target, and is achievable. The company issued guidance in which it said it expects revenue to be in the range of $43 million to $47 million in 2002 with gross margins in the 75% to 77% range. The expense run rate is expected to be in the $28 million to $30 million range and earnings are estimated to be between $0.20 and $0.23 per fully diluted share.

Who it's for: This stock is best suited to speculative investors.

Summing up: This company has gone through a difficult period but now appears to be on the road to financial health, with a healthy profit projected for 2002. This is a high risk/high return stock for those who are prepared to take a chance on a company that is still in a turnaround mode with the hope of attaining significant capital gains over time.

Action now: Buy below US$11.

UPDATES

Since this is the first edition of TOP STOCKS, we have nothing to update. In subsequent issues, we will publish updates on some of our previous recommendations in this space.

Each issue of TOP STOCKS will normally contain three new stock selections. Since we have no updates this month, we are providing a bonus stock pick.

IPO WATCH: HYDRO ONE

Periodically, we will give readers advance warning of new stock issues to watch for. They're known as IPOs - Initial Public Offerings. This one has been in the news recently.

Quick facts

What it does: Hydro One is a spin-off from Ontario Hydro, which was a Crown corporation. Hydro One operates the transmission lines that move power across the province to municipal distributors and major power-consuming companies. As well, it handles inter-provincial and international power distribution.

Why we like it: Utilities historically offer revenue and profit stability and a relatively high dividend yield. The shares are often held in low-risk, income-oriented accounts and are favoured by pension plans and other institutional investors.

Financial highlights: The company is financially strong. On Feb 15, it was announced that Hydro One's revenue increased 16% in 2001, to $3.47 billion. However, profit was down by 1% over fiscal 2000, to $374 million. As part of a move to improve profitability and to streamline the company in advance of the IPO, Hydro One announced it is cutting 900 jobs and outsourcing some back-office operations.

Who it's for: The shares will be best suited for conservative investors.

Summing up: When Hydro One goes public in a few months, the shares will likely offer a good dividend yield and relative safety, but capital gains potential will be limited because this is a regulated company.

Action now: The IPO is expected in late spring, probably June. Your best bet to acquire shares will be if you have an account with RBC Dominion Securities, BMO Nesbitt Burns, or Goldman Sachs. These companies were chosen earlier this month to lead the underwriting, which is expected to be worth more than $5 billion. As such, they will likely get the lion's share of the allocation. If you do have an account with one of these companies and are interested in participating, contact your broker immediately and ask that your name be put on his/her list of potential buyers. That doesn't guarantee you'll get the stock, but it will give you a foot in the door. If you have an account with another full-service broker, do the same thing. However, any allocation they receive may be quite small.

CHOOSE YOUR STYLE

We are offering TOP STOCKS in three versions. For this first issue, we are sending both the .html and text versions (with word wrap off) to you. We also offer a text version with word wrap on.

If you prefer the .html version or a text wrap version, please send an e-mail to kimpape2@rogers.com indicating your preference.

That wraps up our first issue of TOP STOCKS. Remember, your subscription gets you access to the TOP STOCKS Member Section of the buildingwealth.ca web site at:

http://www.buildingwealth.ca

You'll find an updated list of all recommendations, access to back issues (none right now, of course), special offers for other products, a member Q&A page, and more. Be sure to check it out.

Best regards,
Gordon Pape, Editor-in-chief
gpape@ca.inter.net

Circulation inquiries: kimpape@istar.ca

All material in TOP STOCKS is copyright Gordon Pape Enterprises Ltd. and may not be reproduced in whole or in part in any form without written consent. All recommendations are based on information that is believed to be reliable. However, results are not guaranteed and the publishers and distributers of TOP STOCKS assume no liability whatsoever for any material losses that may occur. Readers are advised to consult a professional financial advisor before making any investment decisions. Contributors to TOP STOCKS and/or their companies or members of their families may hold and trade positions in securities mentioned in this newsletter. No compensation for recommending particular securities or financial advisors is solicited or accepted.