commodity

We avoid most new stock issues for a very simple reason: Human nature dictates that new issues will generally come to market when it’s a good time for insiders or the company to sell. That needn’t be, and often isn’t, a good time for you to be buying. If, while you were investing in the stock market, you bought every new issue that came out, you’d wind up with mediocre long-term results, at best. However, you won’t be able to buy all new issues. That’s because some new issues are underpriced when they come to the market, so they attract a lot of buyers and shoot up as soon as trading begins. When investing in the stock market, brokers can spot these “hot” new issues ahead of time, if only because of the reaction they get from their first tentative selling efforts. Hot new issues are always in short supply, so brokers reserve them for their most profitable clients....

AMERICAN EXPRESS CO. $38.04, New York symbol AXP, has settled its anti-trust lawsuit with MasterCard Inc. Amex had accused MasterCard of illegally blocking U.S. banks from issuing American Express credit cards. MasterCard has now agreed to pay Amex $1.8 billion in quarterly installments over the next three years. Combined with its November, 2007 settlement with Visa Inc., Amex will now receive $880 million a year for the next three years. In 2007, Amex earned $3.9 billion or $3.29 a share. Weaker retail spending has hurt revenue growth at Amex’s credit card business. However, credit card use continues to expand internationally. As well, the Visa and MasterCard settlements will help Amex offset rising loan losses....

PENGROWTH ENERGY TRUST $20.11 (Toronto symbol PGF.UN; SI Rating: Average) lost $0.23 a unit in the three months ended March 31, 2008, mostly due to losses on commodity hedging contracts and foreign exchange losses. It lost $0.29 a unit in the year-earlier quarter. However, cash flow per unit grew 55.4%, to $0.87 from $0.56, mostly due to higher oil and natural gas prices. Revenue rose 5.9%, to $457.6 million from $432.1 million. Pengrowth paid out 77% of its cash flow as distributions in the latest quarter, down from 135% a year earlier. Pengrowth’s improving cash flow should let it keep paying monthly distributions of $0.225 a unit (13.1% yield), as well as replenish its reserves through drilling and acquisitions. Pengrowth is a buy among royalty trusts.

Washington Mutual Inc. recently cut its quarterly dividend, from $0.15 a share to $0.01. It now yields just 0.4%. The company needs to conserve capital in the face of rising loan losses and writedowns of mortgage-backed securities. As well, telephone directory publisher Idearc Inc. suspended its $1.37 dividend due to slowing advertising revenue. Consequently, we’re moving Washington Mutual and Idearc from the Income Portfolio to the Aggressive Growth Portfolio. We still see both as holds. Instead, we’re adding these three companies to our Income Portfolio:...

BCE INC. $37.30, Toronto symbol BCE, earned $0.57 a share in the three months ended march 31, 2008, up 9.6% from $0.52 a year earlier. These figures exclude restructuring costs and gains on the sale of investments. Most of the increase was due to savings from the restructuring, as well as lower taxes and interest expenses. Revenue crept up to $4.39 billion from $4.38 billion, as growing demand for BCE’s wireless and Internet services offset lower revenue from its traditional telephone operations. The stock is now trading 13% below the $42.75 a share that a group led by the Ontario Teachers’ Pension Plan has offered for the company. That’s because investors fear that problems in the debt markets will force the consortium to delay, reprice or scrap the deal. However, we feel the takeover will go through by the end of the year. BCE is still a buy....

CHEVRON CORP. $94 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $197.4 billion; WSSF Rating: Above average) has gained just 24% since January 2008. Oil is up 40% since then. In general, oil stocks have lagged because oil prices rise or fall in response to short-term changes in oil supply or demand, which can reverse overnight. Despite the recent gains, a slowing U.S. economy could spur a large drop in oil prices. We recommend conservative investors stick to industry leaders like Chevron. Its wide sources of revenue (production, refining and retail gas stations) helps shield it from volatile oil prices....

Oil has shot up 40% since January 2008, from around $85 a barrel to nearly $120. However, many oil stocks have failed to rise along with it. For example, CHEVRON CORP. $94 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $197.4 billion; WSSF Rating: Above average) has gained just 24% during the same time. In general, oil stocks have lagged because oil prices rise or fall in response to short-term changes in oil supply or demand, which can reverse overnight. Despite the recent gains, a slowing U.S. economy could spur a large drop in oil prices....

The odds are improving that the market bottom is behind us and that the investment outlook and stock prices will improve through the end of the year and beyond. We have probably seen the worst of the sub-prime crisis in the U.S., and the ABCP (asset based commercial paper) crisis here in Canada. These developments led to widespread predictions of recession, but the recession has yet to appear. It’s worth remembering that recession predictions come along far more frequently than the recessions themselves. Then too, by the time a recession appears, the stock market has often gone as low as it is going to go and is headed upward....

IDEARC INC. $3.86, New York symbol IAR, fell 15% on Friday after the company said it will stop paying its $0.3425 a share quarterly dividend. Idearc does not expect any near-term liquidity problems. However, it wishes to conserve cash as the slowing economy has hurt demand for advertising at its Yellow Pages phone directories, which supplies 90% of its revenue. Idearc is now a hold. J.C. PENNEY CO. INC. $37.48, New York symbol JCP, fell 7% on Friday after it said it would earn about $0.50 a share in its first fiscal quarter ending April 30, 2008. That’s about a third less than its previous estimate of up to $0.80 a share. Higher gasoline, food and other costs have hurt customer traffic and sales....

JP MORGAN CHASE & CO. $45.97, New York symbol JPM, got a great bargain in its agreed-upon takeover of troubled brokerage firm Bear Stearns (New York symbol BSC), assuming the deal goes through. Morgan is only paying $236 million for the company. That’s entirely in stock, and it’s less than 2% of Morgan’s 2007 earnings of $15.4 billion or $4.38 a share. Morgan will have to spend $6 billion or so to integrate Bear Stearns and deal with the inevitable class-action lawsuits from Bear Stearns stockholders. But it thinks the purchase will eventually add $1 billion to its annual earnings. To counteract Bear Stearns’ severe liquidity problems, the Federal Reserve will finance the purchase of up to $30 billion of Bear Stearns’ less liquid assets, backed solely by those assets. That greatly cuts Morgan’s risk. In light of Bear Stearns’ dire situation and the Fed’s support, anti-trust regulators will probably give the deal quick approval. The takeover also needs the approval of Bear Stearns’ stockholders. Bear Stearns is trading for more than twice the offer’s current value, which means investors expect a higher bid. However, the Federal Reserve is unlikely to offer the $30 billion financing guarantee to other potential buyers....