boeing

MANITOBA TELECOM SERVICES INC., $29.00, Toronto symbol MBT, recently agreed to sell its Allstream subsidiary to a private company controlled by an Egyptian billionaire. Allstream provides integrated telephone, Internet and other communication services to over 50,000 businesses across Canada, as well as government agencies. Manitoba Telecom planned to contribute $130 million of the $405 million it would have received from the sale to its underfunded employees’ pension fund. However, Ottawa blocked the deal on national security grounds....

Here’s another item in the series we started last week, about the way investors value individual stocks. Q: Pat: Bombardier has annual sales of $18 billion, earnings of $600 million and cash of $3 billion. CP Rail has sales of $6 billion, earnings of $1 billion, and cash of $442 million. Why then is Bombardier’s market cap of $9.3 billion so much lower than CP’s market cap of $26.0 billion? CP is just a random comparison, but I don’t understand why an international giant like Bombardier has such a low value....

Bombardier, $4.97, symbol BBD.A on Toronto; $5.25, symbol BBD.B on Toronto (Shares outstanding: 1.8 billion; Market cap: $9.3 billion; www.bombardier.com), is the world’s third-largest commercial aircraft maker, behind Boeing and Airbus. It is also the world’s leading passenger railcar manufacturer. Bombardier’s shares have moved up from $3 a share late last year, but are still trading below the high of over $7 they recovered to after the stock hit a low of just over $2 in early 2009 (along with stock markets in general) in the wake of the financial crisis. The company’s backlog now stands at a record $65.5 billion on June 30, 2013. The backlog is split evenly between aerospace at $33.4 billion, and transportation at $32.1 billion. The new CSeries is pushing the aerospace backlog higher, while transportation is virtually unchanged from a year earlier....

United Technologies operates in two highly cyclical markets: building construction and aerospace. It gets around 20% of its revenue from military clients, so recent government cuts to defence spending also add to its risk.

However, the company is in a strong position to profit from several long-term trends.

For example, sales of its jet engines should rise as airlines replace their aging fleets....

UNITED TECHNOLOGIES CORP. $106 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 917.5 million; Market cap: $97.3 billion; Price-to-sales ratio: 1.6; Dividend yield: 2.2%; TSINetwork Rating: Above Average; www.utc.com) has four main divisions: Building & Industrial Systems (formed in September 2013) makes heating and air-conditioning equipment under the Carrier brand, as well as burglar alarms, fire-safety products and Otis elevators (50% of 2012 revenue, 61% of earnings); Pratt & Whitney manufactures aircraft engines (24%, 19%); Aerospace Systems makes aircraft controls (14%, 11%); and Sikorsky makes helicopters (12%, 9%).

The recession cut United Technologies’revenue by 11.1%, from $56.8 billion in 2008 to $50.5 billion in 2009. Revenue quickly turned around and rose to $57.7 billion in 2012. The U.S. government is the company’s biggest customer and accounts for roughly 18% of its yearly revenue.

Earnings fell 17.0%, from $4.9 billion in 2008 to $4.1 billion in 2009. The company is an aggressive buyer of its own shares. As a result, its earnings per share fell at a slower pace of 15.6%, from $4.74 to $4.00. Thanks to the higher revenue, earnings improved to $5.2 billion, or $5.35 a share, in 2012.
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BOMBARDIER INC. (Toronto symbols BBD.A $5.08 and BBD.B $5.06; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $8.6 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.0%; TSINetwork Rating: Average; www.bombardier.com) is the world’s third-largest commercial aircraft maker, behind Boeing and Airbus. It is also the world’s leading passenger railcar manufacturer.

The company has postponed the first test flight of its new CSeries passenger jet. It had planned to begin flight tests in June, but it needs extra time to upgrade the plane’s software.

Bombardier has firm orders for 177 CSeries jets, plus options for 211 more. If the buyers exercise all these options, the resulting 388 orders would be worth $26 billion (all amounts except share prices and market cap in U.S. dollars).
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BOMBARDIER INC. (Toronto symbols BBD.A and BBD.B; www.bombardier.com) is the world’s third-largest commercial aircraft maker, behind Boeing and Airbus. It is also the world’s leading passenger railcar manufacturer. The company has just completed the first test flight of its new CSeries passenger jet. The test flight was a success. It had planned to begin flight tests in June, but needed extra time to upgrade the plane’s software....

We include these three manufacturing companies in our Aggressive Growth Portfolio, mainly because they operate in industries that are particularly vulnerable to swings in the overall economy. Even so, all three are market leaders with strong growth prospects. They also trade at attractive multiples to earnings.

BOMBARDIER INC....

VERIZON COMMUNICATIONS INC., $46.34, New York symbol VZ, has agreed to buy the 45% of Verizon Wireless that it doesn’t already own from U.K.-based Vodafone Group plc (Nasdaq symbol VOD). Verizon Wireless is a joint venture that sells wireless services to 100.1 million subscribers in the U.S. In the second quarter of 2013, it supplied 67% of Verizon’s revenue and 80% of its earnings. The company will pay $130 billion for Vodafone’s stake. That’s almost as much as Verizon’s $132.6-billion market cap (or the total value of all its outstanding shares)....

SPDR DOW JONES INDUSTRIAL AVERAGE ETF $154.54 (New York symbol DIA; buy or sell through brokers; www.spdrs.com) holds the 30 stocks that make up the Dow Jones Industrial Average.

The fund’s top holdings are IBM, ExxonMobil, Chevron, 3M, Travelers Companies, McDonald’s, Johnson & Johnson, Caterpillar, United Technologies and Boeing. The fund’s expenses are about 0.17% of its assets.

SPDR Dow Jones ETF is a buy.
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