holding company

TRANSCANADA CORP. $43.51 (Toronto symbol TRP; Shares outstanding: 704.2 million; Market cap: $30.6 billion; TSINetwork Rating: Above Average; Dividend yield: 4.1%; www.transcanada.com) is expanding its Tamazunchale pipeline, which pumps natural gas from Mexico’s state-owned oil company to gas-fired power plants. This extension will cost $500 million U.S. The company expects to complete the project in 2014. The company has a 25-year supply deal with the state-owned power company, which cuts the risk of this project. Mexico continues to convert oil-fired power plants to gas, and TransCanada’s expertise should help it win more pipeline contracts. TransCanada is a buy....

ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $61 and ACO.Y [class II voting] $61; Income Portfolio, Utilities sector; Shares outstanding: 57.7 million; Market cap: $3.5 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.1%; TSINetwork Rating: Above Average; www.atco.com) is a holding company. Its main subsidiary is 52.7%-owned Canadian Utilities.

ATCO has four main divisions: Utilities (which distributes electricity and natural gas); Energy (which operates power plants); Structures & Logistics (which provides buildings and related services, such as fire protection, to construction and resource companies); and its Australian business (which operates power plants and distributes natural gas in Australia.) ATCO owns 75.5% of the Structures division; Canadian Utilities owns the remaining 24.5%.

The Structures business continues to win new contracts. For example, in January 2012, it signed a deal with Husky Energy to provide housing and related services to workers at the Sunrise Energy oil sands project in Alberta.

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ATCO and its main subsidiary, Canadian Utilities, have two major pluses that help them cut their risk: both get around two-thirds of their earnings from regulated power and gas utilities, and both have many clients under long-term contracts. The resulting stable revenue streams help them invest in new projects and raise their dividends. ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $61 and ACO.Y [class II voting] $61; Income Portfolio, Utilities sector; Shares outstanding: 57.7 million; Market cap: $3.5 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.1%; TSINetwork Rating: Above Average; www.atco.com) is a holding company. Its main subsidiary is 52.7%-owned Canadian Utilities. ATCO has four main divisions: Utilities (which distributes electricity and natural gas); Energy (which operates power plants); Structures & Logistics (which provides buildings and related services, such as fire protection, to construction and resource companies); and its Australian business (which operates power plants and distributes natural gas in Australia.) ATCO owns 75.5% of the Structures division; Canadian Utilities owns the remaining 24.5%....

We’ve chosen IBM as our “Stock of the Year”for 2012. After nearly going bankrupt in the 1990s, the company decided to shift toward selling its expertise and away from making computers. IBM now gets most of its revenue from steady, predictable long-term support and maintenance contracts. That cuts its risk. The company is now using its rising profits to expand into promising new areas, such as cloud computing and software that helps businesses quickly analyze large amounts of data. IBM’s strong reputation is also helping it expand in Asia and Latin America. That makes it less reliant on slower-growing regions like North America and Europe....

INTERNATIONAL BUSINESS MACHINES CORP. $192 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.2 billion; Market cap: $230.4 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.6%; TSINetwork Rating: Above Average; www.ibm.com) is the world’s oldest computer company (it began operating in 1911), with operations in over 170 countries.

The company continues to profit from its move away from mainframe computers and toward designing computer systems and managing them on behalf of its clients. The resulting long-term maintenance contracts give it more dependable revenue streams. IBM now gets 55% of its revenue from services.

The company continues to rapidly grow its software business. Right now, it is particularly focused on developing analytics software, which helps businesses and government agencies gather and analyze a wide variety of data. In addition, IBM makes software for applications ranging from traffic management to power grids and food production. Software now supplies 25% of IBM’s overall revenue.

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ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $61 and ACO.Y [class II voting] $60; Income Portfolio, Utilities sector; Shares outstanding: 58.2 million; Market cap: $3.4 billion; Price-to-sales ratio: 0.9; Dividend yield: 1.9%; TSINetwork Rating: Above Average; www.atco.com) is a holding company. Its main subsidiary is 52.7%-owned Canadian Utilities (see page 1).

ATCO has four main divisions: Utilities (which distributes electricity and natural gas); Energy (which operates power plants); its Australian business (which operates power plants and distributes natural gas in Australia); and Structures & Logistics (which serves construction companies and firms that explore for oil and natural gas). ATCO owns 75.5% of the Structures & Logistics division; Canadian Utilities owns the remaining 24.5%.

The company also owns several smaller businesses. For example, ATCO I-Tek manages computer networks, billing and payment processing for a wide variety of businesses. Another subsidiary, ASHCOR Technologies Ltd., makes fly ash from the residue from ATCO’s coal-fired power plants. Adding fly ash to cement makes it more durable.

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HRT Participacoes em Petroleo S.A., $2.84, symbol HRP on Toronto (Shares outstanding: 4.6 million; Market cap: $13.1 million; www.hrt.com.br), is a Brazilian oil and gas exploration holding company that owns properties in Brazil’s Amazon region and off the coast of the southern African country of Namibia. HRT Participacoes was formed by a group of senior geoscientists and engineers who previously held positions at Petroleo Brasileiro SA. Its main listing is on the Brazilian stock exchange. The company chose its drilling targets offshore Namibia with a geological theory in mind. This is the theory that present-day continents once formed a single land mass or super-continent known as Pangea. This super-continent is thought to have broken up into pieces that became today’s existing continents. After the breakup, the pieces moved to their present locations, in a gradual process known as continental drift that began about 250 million years ago....

We’ve long held a high opinion of Canadian Utilities, because the company’s regulated power plants and natural-gas distribution businesses give it steady cash flow. That gives the stock long-term stability and helps it maintain its dividend. You can also profit from Canadian Utilities through ATCO, its parent company. ATCO’s holding-company discount lets you buy Canadian Utilities, and get ATCO’s other businesses for nothing. In addition, ATCO is working to unlock its value by simplifying its complex operating structure. ATCO has risen 61% since we first recommended it in September 2009. Canadian Utilities is up 62% during the same period....

Duke Energy, $20.70, symbol DUK on New York (Shares outstanding: 1.3 billion; Market cap: $26.9 billion; www.duke-energy.com), is a holding company with utilities that together have 4.0 million electricity customers in North Carolina, South Carolina, Ohio, Indiana and Kentucky, and over 500,000 gas customers in Ohio, Indiana, and Kentucky. The company’s electricity revenue breaks down as follows: residential, 44%; commercial, 31%; industrial, 18%; and other, 7%. Coal-fired plants account for 56% of its generation, and 33% comes from nuclear. The company purchases 9% of its electricity. Duke is now buying Progress Energy for $14 billion. Headquartered in Raleigh, North Carolina, Progress has more than 22,000 megawatts of generation capacity. The company has two electric utilities that serve over 3 million customers in Florida and the Carolinas....

AMERIGO RESOURCES, $0.53, symbol ARG on Toronto, processes copper and molybdenum from the waste rock from Chile’s El Teniente, the world’s largest copper mine. This contract runs through 2021. Amerigo has a further agreement to process material from the nearby Colihues tailings pond. The company gets 94% of revenue by processing copper. The remaining 6% comes from molybdenum. In the three months ended September 30, 2011, Amerigo’s revenue rose 6.8%, to $42.0 million from $39.3 million a year earlier (all figures except share price in U.S. dollars). Higher copper prices offset lower production and molybdenum prices....