great-west lifeco

A: Fairfax Financial Holdings, $398, symbol FFH on Toronto, (Shares outstanding: 16.9 million; Market cap: $6.7 billion), is a good replacement for Northbridge. Fairfax is a financial services holding company with assets of $27.9 billion. Fairfax engages in insurance, reinsurance and investment management. Fairfax provides reinsurance through Odyssey Re and Group Re. Reinsurers provide insurance to insurers. Crum & Forster is Fairfax’s main U.S. insurance subsidiary, and Northbridge Financial is its principal subsidiary in Canada. Fairfax also sells insurance in Asia. Fairfax recently acquired the 36.9% of Northbridge Financial that it didn’t already own. Northbridge was a recommendation of our Stock Pickers Digest newsletter. Fairfax’s insurance operations have remained profitable, excluding hurricane losses. Insurance businesses hold a lot of cash for investment. Since 2003, Fairfax has invested conservatively, offsetting stock and bond holdings with investments that rose when stock markets fell. These included short sales and credit default swaps (insurance against defaults on bonds). Its biggest gains came last year....

BANK OF NOVA SCOTIA $33.65 (Toronto symbol BNS: Shares outstanding: 991.9 million; Market cap: $33.4 billion; SI Rating: Above average) has completed the $2.3 billion purchase of Sun Life Financial’s 37% stake in TSX-listed CI Financial Income Fund, Canada’s third-largest mutual fund company. Bank of Nova Scotia’s revenue in its fiscal year ended October 31, 2008 fell 4.9%, to $11.9 billion from $12.5 billion. Earnings per share excluding writedowns fell 3.5%, to $3.87 from $4.01. The bank still has around $690 million U.S. of exposure to asset-based commercial paper. However, even in the unlikely event that the entire portfolio became worthless, that would mean at worst a potential after-tax loss in the range of $200 million. That’s manageable, given that the bank made $315 million in the latest quarter, even after $642 million in writedowns. Bank of Nova Scotia now trades at just 9.6 next year’s forecast earnings of $3.50 a share....

BCE INC. $21.23, Toronto symbol BCE, has confirmed that its $42.75-a-share takeover by a private consortium led by the Ontario Teachers’ Pension Plan will not proceed. The deal required auditing firm KPMG to provide an opinion on BCE’s solvency following the takeover. KPMG concluded that BCE would fail this test. BCE disagreed with KPMG’s assessment, and hired a second auditing firm, PricewaterhouseCoopers, to help it address specific items in KPMG’s report. However, KPMG did not change its opinion, and the deal died....

EMERA INC. $21 (Toronto symbol EMA) earned $0.05 a share in the three months ended September 30, 2008, down 86.5% from $0.37 a year earlier. If you disregard a writedown and one-time costs, Emera would have earned $0.22 a share in the most recent quarter. The drop was mainly due to higher fuel costs at its main subsidiary, Nova Scotia Power. Revenue fell 4.7%, to $295.8 million from $310.3 million. However, high power rates should expand revenue in 2009. Buy. TELUS CORP. $37 (Toronto symbol T.A) estimates that it will spend $50 million on restructuring activities in 2008. That’s up from its earlier estimate of $30 million. To put these costs in perspective, Telus earned $0.89 a share (total $285.1 million) in the third quarter of 2008. However, improving its efficiency will help Telus compete with new entrants in the wireless field. Buy. GREAT-WEST LIFECO INC. $27 (Toronto symbol GWO) earned $0.48 a share in the third quarter of 2008, down 5.9% from $0.51 a year earlier. The drop was mainly due to unusual charges at its U.S. mutual fund subsidiary, Putnam Investment Trust. Despite the recent market turmoil, Great-West remains well capitalized. Best Buy.

GREAT-WEST LIFECO INC. $28 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 894.4 million; Market cap: $25.0 billion; SI Rating: Above average) holds $101 million of fixed-income securities issued by Lehman Brothers, which declared bankruptcy in September, 2008. The company also holds $347 million of securities linked to troubled U.S.-based AIG (American International Group), plus $2.1 million of fixed-income securities of Washington Mutual Inc. Great-West will record an undisclosed charge against its third quarter earnings to reflect the decline in value of these investments. However, the company’s total exposure of $450.1 million is minimal next to its total assets of $131.3 billion, or equity of $12.4 billion. Great-West may also take advantage of the current crisis to buy promising operations at bargain prices. As one of our recommended Canadian dividend stocks, Great-West Lifeco is a buy....

POWER CORPORATION $31.55 (Toronto symbol POW; SI Rating: Above average) is a diversified holding company. Power Corp. controls one of Canada’s largest mutual-fund companies, IGM Financial, and Great-West Lifeco, one of the largest life insurers. Power Financial, 66.4% held, is a holding company for Power Corp.'s financial assets, including 72.9% of Great-West Lifeco and 58.4% of IGM Financial. As well, Power Financial holds 50% of Parjointco, which in turn owns a 54.3% interest in Swiss-listed Pargesa Holdings SA. Pargesa has 95% of its assets in five large European companies: Imerys (minerals), Total SA (oil), Pernod Ricard (wine and spirits), Suez (energy, water and waste services) and Lafarge SA (cement and building materials). In the three months ended June 30, 2008, Power Corp.'s earnings excluding one-time items rose 3.5%, to $382 million or $0.82 a share, from $369 million or $0.79. Great-West Lifeco contributed $254 million to earnings and IGM Financial contributed $88 million....

Power Corp. has held up well lately despite exceptional volatility in stock markets and in financial services stocks. That’s because both of its major holdings are leaders in their fields, are cheap in relation to their steady earnings and have long histories of rising dividends. POWER CORPORATION $31.55 (Toronto symbol POW; SI Rating: Above average) is a diversified holding company. Power Corp. controls one of Canada’s largest mutual-fund companies, IGM Financial, and Great-West Lifeco, one of the largest life insurers. Power Financial, 66.4% held, is a holding company for Power Corp.'s financial assets, including 72.9% of Great-West Lifeco and 58.4% of IGM Financial. As well, Power Financial holds 50% of Parjointco, which in turn owns a 54.3% interest in Swiss-listed Pargesa Holdings SA. Pargesa has 95% of its assets in five large European companies: Imerys (minerals), Total SA (oil), Pernod Ricard (wine and spirits), Suez (energy, water and waste services) and Lafarge SA (cement and building materials)....

GREAT-WEST LIFECO INC. $32 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 894.4 million; Market cap: $28.6 billion; SI Rating: Above average) is Canada’s largest insurance company, with assets under administration of $392.8 billion. The company also provides retirement planning and wealth management services. Power Corp. controls 70.6% of Great-West’s shares. The company recently sold its U.S. health care business for $1.3 billion. This business faces strong competition from larger insurers, whose size lets them negotiate better terms with medical service suppliers, so selling it made sense. The cash will help Great- West fund last year’s purchase of struggling U.S.-based mutual fund manager Putnam Investment Trust. Putnam increases Great-West’s exposure to volatile stock markets. However, the acquisition gives it an opportunity to market its products to Putnam’s large client base....

We advise most investors to place the bulk of their holdings in the Finance sector of their portfolio in two or more of the big five Canadian banks. The banks have been among the market’s top performers for several decades now, and continue to offer an attractive combination of growth and income. We also recommend that investors diversify their Finance investments with non-bank Finance sector stocks, such as these four. Like the big banks, they trade at reasonable levels in relation to their earnings. Great-West Lifeco and IGM Financial also pay above-average dividends. However, we see only three as buys right now. GREAT-WEST LIFECO INC. $32 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 894.4 million; Market cap: $28.6 billion; SI Rating: Above average) is Canada’s largest insurance company, with assets under administration of $392.8 billion. The company also provides retirement planning and wealth management services. Power Corp. controls 70.6% of Great-West’s shares....

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....