Broadridge Financial Solutions

APPLE INC., $235.97, Nasdaq symbol AAPL, rose 2% this week on media reports that the company will soon launch a new version of its hugely popular iPhone. Aside from being thinner than the current iPhone, the new model will likely have more memory and a number of new features. Apple may also be developing an iPhone that runs on code division multiple access (CDMA) cellphone networks. Right now, the iPhone uses global system for mobile communications (GSM) technology. More cellphone providers use GSM than CDMA. However, some large U.S. carriers, including Verizon (see below) and T-Mobile, use CDMA networks. A CDMA iPhone would let Apple expand its market share by making the iPhone available to these carriers....

BROADRIDGE FINANCIAL SOLUTIONS INC. $22 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 134.8 million; Market cap: $3.0 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.6%; WSSF Rating: Average) serves the investment industry in three main areas: investor communications; securities processing; and transaction clearing. The company mails and processes 70% of all proxy votes. Broadridge stands to gain as more investors buy shares during the stock-market rebound. It should also benefit as securities regulations become more complex. As well, lower prices for computer hardware and software are driving down its operating costs. In its second quarter, which ended December 31, 2009, Broadridge’s earnings before one-time items jumped 76.2%, to $0.37 a share from $0.21 a year earlier. Revenue rose 21.1%, to $529.7 million from $437.5 million....

Non-bank financial companies, such as mutual-fund and insurance firms, are good ways to diversify your Finance-sector holdings. The six we analyze below are leaders in their niche markets. That cuts their risk. As well, their well-known brands will help them grow as the global economy continues to recover. We have a high opinion of all six companies, but only two are buys right now. AMERICAN EXPRESS CO. $41 (New York symbol AXP; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $49.2 billion; Price-to-sales ratio: 1.9; Dividend yield: 1.8%; WSSF Rating: Average) gets most of its revenue from the the fees it charges merchants when consumers use its credit and charge cards. It also provides travel-agency services. American Express set aside $5.3 billion to cover bad loans in 2009. That’s down 8.4% from $5.8 billion in 2008. However, the 2009 figure is still up more than 100% from four years ago....

CEDAR FAIR L.P., $11.14, New York symbol FUN, is the target of a friendly, $11.50-a-unit takeover offer from Apollo Global Management, a private-investment firm. Cedar Fair owns 11 amusement parks, six outdoor water parks, one indoor water park and five hotels, mostly in the midwest and northeastern U.S. Apollo needs two-thirds of Cedar Fair’s investors to agree to its takeover. Another private-equity firm, Q Funding III LP, holds 10% of Cedar Fair and opposes Apollo’s offer. However, the units are trading at about 3% below the offer, which indicates that investors don’t expect a higher bid....

ALIMENTATION COUCHE-TARD INC., $18.41, symbol ATD.B on Toronto, has more than 3,500 convenience stores in the U.S., and is the largest convenience-store operator in Canada, with over 2,000 outlets. The Canadian stores operate under the Couche-Tard and Mac’s banners, while the U.S. stores mainly use the Circle K brand. Couche-Tard sells fuel at 70% of its stores. The stock fell 8% this week after the company reported lower-than-expected earnings. In its third quarter, which ended January 31, 2010, Couche-Tard’s earnings fell 22.9%, to $54.8 million, or $0.29 a share. A year earlier, it earned $71.1 million, or $0.36 a share. (All figures except share price in U.S. dollars.) The latest quarter’s earnings fell well short of the consensus earnings estimate of $0.38 a share. Earnings mainly fell due to lower profit margins on gasoline sales at the company’s U.S. outlets....

FAIRFAX FINANCIAL HOLDINGS $367.70 (Toronto symbol FFH: SI Rating: Average) (416-367-2612; www.fairfax.ca; Shares outstanding: 19.4 million; Market cap: $7.1 billion; Dividend yield: 2.7%) is a financial-services holding company with $29.8 billion of assets. Aside from managing investments, Fairfax sells insurance and reinsurance. Prem Watsa is the company’s chairman and founder. Fairfax trades at a high price, but you can buy an odd lot of as few as 10 shares through any broker. Reinsurers sell insurance to insurers. Fairfax does this through two subsidiaries: OdysseyRe and Group Re. Crum & Forster is Fairfax’s main U.S. insurance subsidiary, and Northbridge Financial is its principal subsidiary in Canada. The company also sells insurance in Asia. In the three months ended September 30, 2009, earnings rose 20.3%, to $562.4 million, or $31.04 a share, from $467.6 million, or $25.40. (All figures except share price and market cap in U.S. dollars.)...

AEROPOSTALE INC., $33.73, symbol ARO on New York, plans to split its shares on a 3-for-2 basis. Shareholders of record on February 24 will get one additional Aeropostale share for every two shares they hold. The company will have 94 million outstanding shares after the split. It now has 62.7 million outstanding shares. When a stock splits, the percentage of the company that you own is unchanged. You simply hold more shares, which are each worth proportionally less. Some studies have shown that companies that split their shares are better investments than those that do not carry out splits, but that confuses cause and effect. When a company’s stock goes up a great deal, it has an incentive to split the stock and stop it from going to higher prices where it might be less liquid....

THE STANLEY WORKS, $49.19, New York symbol SWK, has agreed to buy rival toolmaker Black & Decker Corp. (New York symbol BDK) for $4.5 billion in stock. That’s 12.5% more than Stanley’s $4-billion market cap. Assuming both companies’ shareholders approve, the deal should close in the first half of 2010. Stanley shareholders will own 50.5% of the combined company (to be called “Stanley Black & Decker”). Black & Decker investors will own the remaining 49.5%. This looks like a good move for Stanley. Black & Decker specializes in power tools, so there’s little overlap with Stanley’s hand tools. Moreover, Black & Decker’s security products, which include door locks and keyless-entry systems, are a nice fit with Stanley’s building-security business....

DOREL INDUSTRIES, $33.04, symbol DII.B on Toronto, reports that its revenue fell 6.1 % in the three months ended September 30, 2009, to $518.5 million from $552.2 million a year earlier. (All figures except share price in U.S. dollars.). The slower economy was the main reason for the revenue drop. As well, a stronger U.S. dollar hurt the value of Dorel’s foreign sales. Despite the lower revenue, earnings rose 11.0%, to $0.91 a share from $0.82 a year earlier on falling raw-material costs. Dorel has also been cutting its expenses....

BROADRIDGE FINANCIAL SOLUTIONS INC. $20 (New York symbol BR; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 139.3 million; Market cap: $2.8 billion; Price-to-sales ratio: 1.3; WSSF Rating: Extra Risk) provides communication, processing and other back-office services to the investment industry. By outsourcing these activities to Broadridge, its clients can focus on their main businesses. Its clients include 250 banks, 500 mutual-fund families and over 5,000 publicly listed companies. The stock began trading on April 2, 2007, after former parent Automatic Data Processing Inc. (Nasdaq symbol ADP) distributed Broadridge shares to its own shareholders as a special dividend. Since it became a public company, Broadridge’s annual revenue has hovered around $2.15 billion. Earnings fell from $1.42 a share (or a total of $197.1 million) in 2007 to $1.36 a share (or $192.2 million) in 2008. Broadridge’s fiscal year ends on June 30. In 2009, its earnings rose to $1.58 a share (or $223.3 million). If you disregard unusual items, including a gain on the early retirement of debt and a tax credit that lowered its effective income-tax rate, Broadridge’s earnings per share rose 6.3%, to $1.51 from $1.42. The improved earnings came despite difficult conditions in the financial sector....