holding company

APPLE INC., $203.94, Nasdaq symbol AAPL, rose 9% this week after it reported quarterly earnings and sales that were much higher than expected. The company also launched new versions of its iMac computers in time for the Christmas shopping season. Apple earned $1.82 a share in its fourth quarter, which ended September 26, 2009. That’s 44.4% above the $1.26 a share that it earned a year earlier. Sales rose 25.0%, to $9.9 billion from $7.9 billion. Analysts were expecting Apple to earn $1.42 a share on revenue of $9.2 billion. The gains were mainly driven by high demand for the latest version of Apple’s iPhone smartphone and strong computer sales during the back-to-school shopping season....

ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $43 and ACO.Y [class II voting] $43; Shares outstanding: 57.9 million; Market cap: $2.5 billion; Price-to-sales ratio: 0.7; SI Rating: Above Average) is a Calgary-based holding company. ATCO’s main subsidiary is 52.3%-owned Canadian Utilities Ltd.. As a result of a recent reorganization, Canadian Utilities operates most of ATCO’s main utility and energy businesses....

MDS INC., $8.37, Toronto symbol MDS, rose nearly 30% this week after it announced several moves aimed at unlocking its value. The company has three businesses: MDS Analytical Technologies sells mass spectrometers that detect and measure substances in blood and other patient samples; MDS Pharma Services conducts contract-drug research for pharmaceutical companies; and MDS Nordion supplies medical isotopes for cancer research. As a result of a strategic review, MDS plans to sell its pharma-services division, and this week it agreed to sell its analytical-technologies segment. These sales will allow MDS to focus solely on its isotope business....

GREY ISLAND SYSTEMS INTERNATIONAL $0.34, symbol GIS on Toronto, has renegotiated the terms of the friendly takeover offer it received from WebTech Wireless (symbol WEW on Toronto) last month. WebTech’s main product is its Quadrant fleet-management system, which lets dispatchers know where their vehicles are at any time. Quadrant is used in over 45 countries. Under the new offer, Grey Island shareholders will get 0.35 of a WebTech share for each of their Grey Island shares. That’s up 16.7% from 0.30 of a WebTech share under the old deal. Based on WebTech’s trading price, the new offer translates to $0.37 per Grey Island share....

FAIRFAX FINANCIAL HOLDINGS $364.55 (Toronto symbol FFH: SI Rating: Average) (416-367- 2612; www.fairfax.ca; Shares outstanding: 16.8 million; Market cap: $6.1 billion) is a financial-services holding company with assets of $27.9 billion. Fairfax engages in insurance, reinsurance and investment management. 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 or so 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. It also sells insurance in Asia. In the three months ended June 30, 2008, Fairfax’s earnings jumped to $275.4 million, or $15.65 a share, from $27.6 million, or $0.84. The latest quarter included $214.7 million of net gains on investments....

ATCO LTD. (Toronto symbols ACO.X (class I non-voting) $38 and ACO.Y (class II voting) $39; Income Portfolio, Utilities sector; Shares outstanding: 57.9 million; Market cap: $2.2 billion; Price-to-sales ratio: 0.7; SI Rating: Above Average) is a Calgary-based holding company. ATCO’s main subsidiary is 52.3%-owned Canadian Utilities Ltd.. This business distributes natural gas and electricity in Alberta. It also operates power plants in Canada, the U.K. and Australia. ATCO’s other businesses involve selling specialized services to other companies. These include building temporary structures, airfields and communication systems for resource and construction firms. It also offers billing and payment processing, natural-gas storage and travel services. The company’s revenue fell from $3.3 billion in 2004 to $2.9 billion in 2005, after Canadian Utilities sold its non-regulated retail operations, which supplied households with natural gas and electricity. But revenue rose steadily, returning to $3.3 billion in 2008. Earnings more than doubled, from $130.9 million, or $2.28 a share, in 2004 to $265.6 million, or $4.60 a share, in 2008....

Holding companies give investors the choice of buying the parent company or its publicly traded subsidiaries. In many cases, we like some subsidiaries but not others, so we prefer to invest in them directly and avoid the parent. Each situation is different, of course, and sometimes we recommend the parent over the subsidiaries. A good example is Maple Leaf Foods. Another is ATCO, the parent company of Canadian Utilities, which is a long-time recommendation of The Successful Investor. Like most holding companies, ATCO trades for less than the total value of its various pieces. This is known as a “holding-company discount.” Right now, you can buy a share of ATCO for $38, and get roughly $42 worth of Canadian Utilities. That means ATCO’s other businesses are essentially free....

DUNDEE CORP. $9.40 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 74.3 million; Market cap: $698.4 million; Price-to-sales ratio: 0.9; SI Rating: Average) is a holding company with subsidiaries in three main areas: wealth management, real estate and resources. The company’s main asset is its 49% stake (62% voting interest) in DundeeWealth Inc. (Toronto symbol DW), which provides investment-management, securities-brokerage, financial-planning and investment-advisory services. It also owns the Dynamic family of mutual funds. In the three months ended June 30, 2009, Dundee earned $29.9 million, or $0.39 a share. That’s a big improvement over the $6.6 million, or $0.08 a share, that it earned in the year-earlier quarter. The gain was largely driven by new floating-rate notes that Dundee received last January in exchange for illiquid asset-backed commercial paper. Based on improving conditions in the credit markets, Dundee recognized a $45.6-million, non-cash accounting gain on these notes in the latest quarter. Revenue fell 13.5%, to $245.6 million from $284 million, as lower stock-market values hurt Dundee-Wealth’s management fees and mutual-fund sales. As of June 30, 2009, DundeeWealth’s assets under management stood at $29.8 billion. That’s a 5.2% drop from $31.5 billion a year earlier....

These four financial companies tend to be more volatile than Canada’s big-five banks. But they are all leaders in their niche fields, and offer strong growth prospects, particularly as the economy begins to recover. We feel that conservative investors should diversify their finance-sector holdings with Great-West Lifeco and IGM Financial. More aggressive investors should consider Home Capital Group. However, we still see Dundee Corp. as a worthwhile hold. GREAT-WEST LIFECO INC. $25 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 944.3 million; Market cap: $23.6 billion; Price-to-sales ratio: 1.0; SI Rating: Above Average) is Canada’s largest insurance company, with $441.9 billion of assets under administration. Great-West also provides retirement-planning and wealth-management services. It gets about 60% of its earnings from Canada, followed by Europe (25%) and the United States (15%). Power Financial Corp. (Toronto symbol PWF) owns 68.7% of Great-West’s shares....

People’s United Financial, $15.41, symbol PBCT on Nasdaq (Shares outstanding: 348.2 million; Market cap: $5.4 billion), is a holding company for the former People’s Bank and Chittenden Corp., acquired on January 1, 2008. People’s United provides a full range of financial services to individuals, businesses and municipal governments. These include lending, cash management, banking, brokerage, equipment leasing, asset management, insurance and related services. The bank has over 300 branches throughout the U.S. northeast, including 220 traditional branches, 79 supermarket-based branches and over 400 automated-teller machines. This New England regional bank has a much lower level of non-performing loans (only 0.47%) than most other banks. It’s also well capitalized, at almost 20% of tangible equity. That’s double the capitalization of many other U.S. banks, and as much as triple the national average....