bce

This downturn is going a lot further down that I ever expected. I still see it as a financial panic, rather than an indicator of the depth of the recession that now seems to have started. In other words, the market drop reflects a drying up in lending activity and fear of a depression, rather than a drying up in business activity. In the depths of a market downturn, some observers always predict that we are on the verge of another 1930s depression. In the 1930s, however, the U.S. and other governments did all the wrong things. They raised taxes, raised tariffs and did nothing to halt bank failures. The U.S. and other governments are doing all the right things to revive lending and credit, in my view. They are injecting funds into the financial system, arranging takeovers of failing financial companies, and moving to protect depositors. Eventually these efforts will pay off. Lending will then swiftly revive, and the market will go through a sharp recovery. There is no way to tell when that will happen, but you can bet that it will spur widespread disbelief, and warnings that it is just a temporary reprieve and that the downturn will soon resume....

TELUS CORP. (Toronto symbols T $40 and T.A $39; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 335.6 million; Market cap $13.4 billion; SI Rating: Above average) provides local and long distance telephone service to 4.3 million customers in Alberta, British Columbia and Eastern Quebec. This business supplies about 29% of Telus’s revenue. The company also operates a national wireless communication network with 5.8 million subscribers. The wireless business accounts for 47% of its revenue. The remaining 24% of Telus’s revenue comes from providing Internet service to individuals and businesses. It has 1.1 million high-speed Internet subscribers....

Like all phone companies, Telus faces increasing competition in its traditional markets from cable companies and Internet-based phone services. However, it’s offsetting this with robust growth in faster-growing businesses such as wireless and high-speed Internet services. There’s also competition from new entrants in the wireless field. But just 60% of Canadians use a cellphone, so there’s still plenty of room to grow. Telus’s strong brands and reputation should continue to help it win new wireless customers. TELUS CORP. (Toronto symbols T $40 and T.A $39; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 335.6 million; Market cap $13.4 billion; SI Rating: Above average) provides local and long distance telephone service to 4.3 million customers in Alberta, British Columbia and Eastern Quebec. This business supplies about 29% of Telus’s revenue....

Today’s rebound in the market is reassuring, but I expect stocks to remain highly volatile for a month or more. After that, we could see a six-month rebound in prices. The U.S. bailout of major financial institutions raises inflation risk over the next few years, but it heads off panic. Nobody can predict market bottoms, but I suspect we are much closer to the bottom than the top. NORTEL NETWORKS CORP. $3.25, Toronto symbol NT, fell 50% this week after the company cut its revenue and earnings outlook for 2008. Due to slowing demand for telecommunications equipment, unfavourable foreign exchange rates and delays delivering certain products, Nortel now expects revenue for 2008 will be 2% to 4% lower than in 2007. It had earlier predicted that revenue would rise this year. Due to the lower revenues, Nortel will probably lose $0.39 U.S. a share in 2008. That estimate excludes the costs of a new restructuring plan. Nortel earned $0.37 U.S. a share before unusual items in 2007....

TRANSCONTINENTAL INC. $13.85, Toronto symbol TCL.A, earned $30.3 million in its third fiscal quarter ended July 31, 2008, up 6.7% from $28.4 million a year earlier. Per-share earnings rose 11.8%, to $0.38 from $0.34 on fewer shares outstanding. These figures exclude unusual items. Revenue rose 6.1%, to $584.9 million from $551.1 million. If you exclude the negative impact of the higher Canadian dollar on Transcontinental’s U.S. and Mexican operations, revenue in the quarter would have grown 8%. Transcontinental’s recent investments in new printing presses should continue to keep its costs low. The company’s expertise and flexibility is also helping it win new printing contracts. For example, it recently started to print flyers for Shoppers Drug Mart in a deal worth $25 million a year. Transcontinental is a buy....

BCE INC. $40 (Toronto symbol BCE, Conservative Growth Portfolio, Utilities sector; Shares outstanding: 805.8 million; Market cap: $32.2 billion; SI Rating: Above average) plans to cut its workforce by 6% and simplify its management structure. This will cost BCE $250 million, but should save it $300 million a year. In the three months ended June 30, 2008, BCE earned $425 million or $0.53 a share before one-time items. The consortium headed by the Ontario Teachers’ Pension Plan now aims to complete its $42.75-a-share takeover of BCE by December 11, 2008. Even if the deal falls through, the savings from this latest restructuring will help BCE compete with new entrants in the wireless market. BCE is still a buy.

GENNUM CORP. $10 (Toronto symbol GND; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 35.6 million; Market cap: $356.0 million; SI Rating: Above average) has acquired ASIC Architect Inc., a California-based developer of products for highspeed computer networks. The $1.5 million purchase price is equal to 25% of the $5.9 million or $0.17 a share that Gennum earned in its second fiscal quarter ended May 31, 2008 (all amounts except share price and market cap in U.S. dollars). The acquisition should help Gennum take advantage of rising demand for high-speed data communications equipment. Gennum is a buy. PETRO-CANADA $47 (Toronto symbol PCA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 484.4 million; Market cap: $22.8 billion; SI Rating: Average) continues to profit from high energy prices, which offset lower production from its offshore operations in Eastern Canada. In the three months ended June 30, 2008, earnings rose 46.0% to $2.38 a share from $1.63 a year earlier. These figures exclude unusual items. Cash flow per share jumped 49.3%, to $4.09 from $2.74. Revenue grew 38.2%, to $7.6 billion from $5.5 billion....

BCE INC. $39 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 805.3 million; Market cap: $31.4 billion; SI Rating: Above average) now aims to complete its sale to a group of private investors headed by the Ontario Teachers’ Pension Plan by December 11, 2008. The consortium will still pay $42.75 a share, but BCE has agreed to stop paying dividends to its common shareholders. Suspending dividends will save BCE about $900 million, and make it easier for BCE’s buyers to secure the funds from lenders they need to complete the acquisition. The stock continues to trade about 9% below the offer price. That’s because the recent liquidity problems in the credit markets limit demand for new bonds, and could prompt the lenders to break...

One of our recommended Canadian income trusts is BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $28 (Toronto symbol BA.UN; Conservative Growth Portfolio, Utilities sector; Units outstanding: 127 million; Market cap: $3.7 billion; SI Rating: Above average). Bell Aliant is the main provider of telephone services in Atlantic Canada. It also serves rural areas of Ontario and Quebec. BCE Inc. controls about 45% of Bell Aliant. As part of the deal that created the fund in July 2006, Bell Aliant transferred most of its wireless operations to BCE. Without these operations, Bell Aliant has focused on its other growth areas, such as high-speed Internet access. In the first quarter of 2008, a 14.6% rise in high-speed Internet subscribers helped expand Bell Aliant’s overall Internet revenue by 9.8% from a year earlier. Part of that increase was from the recent purchase of the publicly owned telephone system in Kenora, Ontario. Internet services now account for 11% of Bell Aliant’s total revenue....

BCE Inc. recently won a legal ruling against a lawsuit launched by its bondholders to block its $42.75-a-share takeover by a consortium led by the Ontario Teachers’ Pension Plan. BCE has also agreed to alter some of the terms to help speed up the takeover. If the buyout goes through, many of BCE’s investors will want to re-invest their proceeds in other high-yielding telecom stocks. Here are three we see as buys. The influx of former BCE investors should also help push up their stock prices....