holding company

ATCO LTD. (Toronto symbols ACO.X (class I non-voting) $50 and ACO.Y (class II voting) $51; Income Portfolio, Utilities sector; Shares outstanding: 58.2 million; Market cap: $2.9 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.1%; SI Rating: Above Average) is a holding company. Its main subsidiary is 52.3%-owned Canadian Utilities. ATCO recently reorganized its operations into three main divisions: Utilities (which distributes electricity and natural gas); Energy (which operates power plants); and Structures & Logistics (which provides services to energy-exploration and construction companies). ATCO owns 75.5% of the Structures & Logistics division; Canadian Utilities owns the remaining 24.5%....

Utility stocks have more appeal than they used to, mainly because low interest rates have made bonds less appealing. (See later in this issue for our full analysis of why utilities are a better choice than bonds for your portfolio.) We see all five of these electrical-power utilities as buys. That’s because they offer an attractive mix of safety, income and growth. As well, they have maintained or raised their dividends, despite the recession and stock-market downturn. CANADIAN UTILITIES LTD. (Toronto symbols CU (class A non-voting) $47 and CU.X (class B voting) $47; Income Portfolio, Utilities sector; Shares outstanding: 125.9 million; Market cap: $5.9 billion; Price-to-sales ratio: 2.2; Dividend yield: 3.2%; SI Rating: Above Average) distributes electricity and natural gas in Alberta. It also operates 19 power plants: 15 in Canada, two in the U.K., and two in Australia, As well, Canadian Utilities sells engineering services to other utilities. ATCO Ltd. (see right) owns 52.3% of the company....

Seacliff Construction Corp., $14.30, symbol SDC on Toronto (Shares outstanding: 21.9 million; Market cap: $312.8 million), is a holding company that provides engineering and construction services, mainly in western Canada. Seacliff first sold shares to the public on April 24, 2008, for $13.00 each. Seacliff has three main divisions: 1) Dominion Construction provides general construction services, including project planning, mainly to industrial clients. Dominion accounted for roughly 73% of Seacliff’s 2009 revenue....

SAPUTO INC., $29.70, Toronto symbol SAP, will distribute its foods in Toronto from a new facility in Vaughn, Ontario (it currently distributes from a number of different warehouses in the city). The company will complete this consolidation in stages, and expects to be finished by the end of September 2010. As well, Saputo will close its plant in Brampton, Ontario, in October 2010. This plant processes milk and cheese products. The company will merge this plant’s operations with its other Ontario facilities. In all, these moves will cost Saputo $4.6 million. However, the company expects the plan to save it $6.5 million a year. To put these figures in context, Saputo earned $104.3 million, or $0.50 a share, in the three months ended December 31, 2009....

Brookfield Asset Management, $26.37, symbol BAM.A on Toronto (Shares outstanding: 572.9 million; Market cap: $15.1 billion), is a holding company that mainly focuses on real estate, infrastructure and power generation. Its holdings include interests in Brookfield Renewable Power Fund and BPO Properties, which owns, develops and manages office buildings. Brookfield Asset Management also holds resource investments, including Norbord. Brookfield Asset Management has a complex holding company structure that could make it difficult to spot problems, should they arise. We see the stock as okay to hold, but don’t recommend it for new buying. RioCan, $18.56, symbol REI.UN on Toronto (Units outstanding: 242.0 million; Market cap: $4.5 billion) – see above – is a buy for income and growth....

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.)...

New York Community Bank, $15.01, symbol NYB on New York (Shares outstanding: 423.2 million; Market cap: $6.4 billion), is a holding company with two primary subsidiaries: It operates 243 community branches in New York City, Long Island, Westchester County, New Jersey, Ohio, Florida, and Arizona. It also operates 35 commercial branches that serve customers in Manhattan, Queens, Brooklyn, Westchester County and Long Island. Eighteen of these branches operate under the Atlantic Bank name. New York Community Bank continues to grow by acquisition. That adds risk, but the company feels it is offsetting that risk by buying distressed assets at bargain prices. That includes the recent purchase of $11 billion in deposits from the U.S. Federal Deposit Insurance Corporation. The bank’s 6.7% dividend yield adds appeal. New York Community Bank is okay to hold....

Power Corp. has moved up this year, along with most financial services related stocks. Both of its major holdings are leaders in their fields. Both are still cheap in relation to earnings, and both have a long history of raising their dividends. POWER CORP. $29.32 (Toronto symbol POW; Shares outstanding: 408.4 million; Market cap: $12.0 billion; SI Rating: Above Average; Dividend yield: 4.0%) is a diversified holding company. Power Corp. holds its financial assets through 66.4%-owned Power Financial. Power Corp.’s financial assets include 68.7% of Great-West Lifeco, one of Canada’s largest life insurers, and 56.4% of IGM Financial, one of the country’s largest mutual-fund companies. As well, Power Financial owns 50% of holding company Parjointco, which holds a 54.3% stake in Switzerland-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)....

GABRIEL RESOURCES, $3.35, symbol GBU on Toronto, shot up over 30% this week after it added a new investor with experience in permitting and building large industrial projects in Romania. That’s where Gabriel’s 80.23%-owned Rosia Montana project is located. Rosia Montana contains an estimated 10 million ounces of gold reserves, and could produce over 500,000 ounces a year. This gives it the potential to become Europe’s largest producing gold mine. BSG Capital Markets, a unit of Beny Steinmetz Group, a privately owned holding company, is buying 30 million units of Gabriel at $2.25 each (or a total of $67.5 million). Aside from one common share, each unit includes a two-year warrant that entitles BSG to buy additional Gabriel stock. For the first 18 months, BSG may buy Gabriel shares for $2.50 each. The price rises to $3.00 a share for the final six months....

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....