BCE Inc.

BCE INC. $37 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 805.3 million; Market cap: $29.8 billion; SI Rating: Above average) moved a step closer to a takeover after gaining regulatory approval. As well, a court recently dismissed a class-action lawsuit by bondholders. These rulings improve the chances that the $42.75-a-share acquisition by a group led by the Ontario Teachers’ Pension Plan will succeed. The stock still trades below the bid price, mainly due to the problems in the credit markets. That could make it harder for the consortium to issue the bonds it needs to complete the takeover. If the deal falls through, BCE’s stock would probably suffer, at least in the short term. However, we feel its long-term prospects outweigh this risk....

CGI GROUP INC. $12 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 323.6 million; Market cap: $3.9 billion; SI Rating: Speculative) is one of the largest independent information technology and business process services firms in North America. CGI provides day-to-day maintenance and improvement for clients’ business applications, and integrates and customizes technologies and software applications. The company also manages back-office business processes and transactions. North America accounts for over 90% of its revenue. CGI is a former subsidiary of BCE Inc., and BCE is its largest client at roughly 14% of total revenue....

Technology companies operate in a highly competitive and cyclical industry, so they must continue to invest heavily in research and marketing. We aim to cut tech stock risk by focusing on companies with distinct competitive advantages, such as proprietary technology, broad geographic reach and a wide client base. These advantages should help these three techs weather the inevitable downturns, and thrive when conditions improve. GENNUM CORP. $9.05 (Toronto symbol GND; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 35.6 million; Market cap: $322.2 million; SI Rating: Above average) makes equipment that lets broadcasters store, manipulate and transport video signals without losing picture quality. This business accounts for 75% of Gennum’s total revenue. The company also makes chips for computer networks. Gennum recently completed a major realignment of its operations. It sold its slow-growing hearing aid and headset businesses, as well as part of its video chip operations....

FORDING CANADIAN COAL TRUST $62.31, Toronto symbol FDG.UN, rose 10% this week after South Korean steelmaker Posco agreed to pay $308 U.S. a tonne for coal from BHP Billiton in the coal year that began on April 1, 2008. That’s 210% more than the industry benchmark price of $98 U.S. in the prior year. Fording is still negotiating new prices with its customers. Higher coal prices will help it offset rising labour, transportation and other costs. It should also let Fording increase its current quarterly distribution of $0.50 a unit, which implies an annual yield of 3.2%. Fording is still a buy for aggressive investors....

BCE INC. $34.83 (Toronto symbol BCE; SI Rating: Above-Average) is now closer to a takeover after a Quebec court dismissed a class-action lawsuit launched by the company’s bondholders. The ruling improves the chances that the $42.75-a-share acquisition of the company by a group led by the Ontario Teachers’ Pension Plan will succeed. The stock is now trading at roughly 18% below the offer, partly because the deal still requires regulatory approval. In addition, the problems in the credit markets could make it harder for the consortium to issue the bonds it needs to finance the takeover. BCE’s share price would suffer at least in the short term if the deal falls through. But at its current price, BCE remains attractive for its income and growth prospects. The shares now trade at just 12.6 times earnings, and have a dividend yield of 4.2%....

MANITOBA TELECOM SERVICES $39.63 (Toronto symbol MBT; SI Rating: Average) has announced it will participate in the upcoming auction of wireless frequencies (called ‘spectrum’ in the industry). If successful, that would let it offer wireless services outside of Manitoba. The company has formed a consortium with the Canada Pension Plan Investment Board and The Blackstone Group L.P. Each will own a third of this partnership. The wireless industry is highly competitive, but growing fast. This partnership will cut Manitoba Tel’s share of the start-up costs, and help it keep paying its $2.60 dividend, which yields 6.6%. Manitoba Tel is a buy....

BCE INC. $38 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 805.1 million; Market cap: $30.6 billion; SI Rating: Above average) moved up after a Quebec judge ruled against a lawsuit launched by BCE bondholders who objected to the $42.75 takeover bid it has accepted. The stock is still about 10% below the takeover price, mainly due to the current lack of liquidity in the debt market. Investors fear that the buyers will find it hard to finance the takeover. In addition, the deal still requires regulatory approval. If the takeover fails to go through, BCE’s stock would fall. But we feel BCE is attractive at current prices, for short-term takeover-fueled capital gains, or as a long-term buy for growth and income....

TELUS CORP. (Toronto symbols T $57 and T.A $56; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 337.9 million; Market cap: $19.3 billion; SI Rating: Above average) is the second-largest provider of telecommunication services in Canada, after BCE Inc. It has over 4.5 million regular telephone customers and 1.1 million Internet subscribers in British Columbia, Alberta and parts of Quebec. These operations account for about 55% of Telus’s revenue and 50% of its earnings. The rest comes from Telus’s wireless business, which has 5.1 million customers nationwide. Telus’s revenue grew from $7.0 billion in 2002 to $8.7 billion in 2006, or 5.6% compounded annually. The company lost $0.72 a share (total $227.1 million) in 2002, due to restructuring costs following the Clearnet acquisition. But thanks to strong demand for wireless service, Telus’s profits grew from $0.93 a share ($329.8 million) in 2003 to $3.23 a share ($1.1 billion) in 2006. Cash flow per share more than doubled, from $3.88 in 2002 to $8.78 in 2006....

BCE INC. $37.24, Toronto symbol BCE, gained 7% this week after a Quebec court dismissed a class-action lawsuit launched by the company’s bondholders. The ruling improves the chances that the $42.75-a-share takeover by a group led by the Ontario Teachers’ Pension Plan will succeed. The stock is now trading at roughly 13% below the offer, partly because the deal still requires regulatory approval. In addition, the problems in the credit markets could also make it harder for the consortium to issue the bonds it needs to finance the takeover. If the deal falls through, BCE’s stock could fall to its pre-takeover level of around $30. However, the company’s operations still generate plenty of cash flow, and it could unlock value by spinning off some of its operations....

ISHARES DIVIDEND INDEX FUND $20.28 (Toronto symbol XDV; buy or sell through a broker) began trading in December, 2005. The fund currently holds the 30 highest yielding Canadian stocks. These stocks are included in the index based on their dividend growth, yield and average payout ratio. The weight of any one stock in the fund is limited to 10% of the fund’s assets. Its MER is 0.50%. iShares Dividend Index Fund now yields 3.2%. The fund’s top holdings are: CIBC at 7.6%; Manitoba Telecom at 5.7%; Bank of Montreal, 5.7%; National Bank, 5.2%; TD Bank, 5.0%; Royal Bank, 4.5%; Russel Metals, 4.4%; Telus Corp., 4.1%; Bank of Nova Scotia, 3.9%; IGM Financial, 3.7%; Rothmans, 3.5%; TransCanada Corporation, 3.3%; BCE Inc., 3.3%; Laurentian Bank, 3.2%; and Enbridge, 3.1%....