holding company

Olin Corp., $12.58, symbol OLN on New York (Shares outstanding: 77.9 million; Market cap: $980.2 million), is a holding company with two main businesses: 1) The chlor-alkali products division supplied 72% of Olin’s revenue and 91% of its profits in 2008. It is North America’s third-largest maker of chlorine, caustic soda and other industrial chemicals. The division has nine plants in the U.S. and one in Canada. Chlorine is a raw material in a wide variety of plastics. It is also used to purify water. Caustic soda is an ingredient in soaps and detergents. Pulp-and-paper producers also use it as a bleaching agent....

MDS INC., $5.36, Toronto symbol MDS, gets all of its medical isotopes from the 52-year-old Chalk River nuclear reactor near Ottawa. The reactor was shut down this week after its operator, Atomic Energy of Canada Ltd., discovered a water leak. (Water helps stabilize the nuclear fission process.) Atomic Energy estimates that it will take at least a month to repair the leak. MDS makes over half of its earnings by selling isotopes to medical labs, which use them to detect and treat cancer and other diseases. The company estimates that a prolonged outage will cut its gross earnings by $4 million a month (all amounts except share price in U.S. dollars). MDS earned $2 million, or $0.02 a share, in the three months ended January 31, 2009....

DUNDEE CORP. $5.10 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 74.3 million; Market cap: $378.9 million; Price-to-sales ratio: 0.3; SI Rating: Average) is a holding company with subsidiaries in three main areas: wealth management, real estate and resources. Its main asset is its 49% stake (63% voting interest) in Dundee-Wealth Inc. (Toronto symbol DW). DundeeWealth provides investment management, securities brokerage, financial planning and investment advisory services. It also owns the Dynamic family of mutual funds. In all, Dundee-Wealth manages $56.2 billion worth of assets. In 2008, Dundee lost $196.3 million, or $2.62 a share. The loss was largely caused by writedowns of securities, including a $113.8-million charge related to its holdings of asset-backed commercial paper. In 2007, Dundee earned $277.6 million, or $3.49 a share. This figure included a $136.6-million gain on the sale of subsidiaries. Revenue fell 12.2%, to $1.2 billion from $1.4 billion. Dundee’s stock continues to be held back by fears of more writedowns of illiquid securities. As well, lower prices for oil, gold and other commodities have hurt the value of its resource-related investments. The recession could also hurt Dundee’s residential real-estate development business....

We continue to recommend that all investors own at least two of Canada’s big-five banks. But these should not be the extent of your financial holdings. Other types of financial investments, such as high-quality insurance companies, should play a role in your portfolio, as well. Here are four non-bank financial companies we like. All offer an attractive combination of growth and value. However, only three are buys right now. GREAT-WEST LIFECO INC. $16 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 943.9 million; Market cap: $15.1 billion; Price-to-sales ratio: 0.6; SI Rating: Above Average) is Canada’s largest insurance company. Great-West administers $339 billion worth of assets. The company also offers wealth-management services. It operates in Canada (55% of its earnings), Europe (35%) and the U.S. (10%). Power Corp. (Toronto symbol POW) owns 72.7% of Great-West’s shares....

INTERNATIONAL BUSINESS MACHINES CORP., $92.51, New York symbol IBM, is in talks to buy computer-hardware maker Sun Microsystems Inc. (Nasdaq symbol JAVA). The rumoured $6.5-billion price is roughly double Sun’s market cap before the news became public. This would be a big purchase for IBM, which earned $12.3 billion, or $8.93 a share, in 2008. Sun’s appeal justifies the high price, and it’s a good fit with IBM. Both IBM and Sun make computer servers for governments and big corporations, so IBM would cut its costs and increase its market share by purchasing Sun. (IBM has about 30% of the server market, and Sun would push this up to 40%.) The move would also help IBM compete with Cisco Systems Inc., which plans to enter the server business. In addition, Sun’s software expertise and its widely used Java programming language would enhance IBM’s web-based services....

POWER CORPORATION $17.23 (Toronto symbol POW; Shares outstanding: 407.5 million; Market cap: $7.0 billion; SI Rating: Above Average) is a diversified holding company. It controls one of Canada’s largest mutual-fund companies, IGM Financial, and Great-West Lifeco, one of the country’s largest life insurers. Power Financial, 66.4% held, is a holding company for Power Corp.'s financial assets, which include 72.9% of Great-West Lifeco and 58.4% of IGM Financial. As well, Power Financial holds 50% of holding company 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 September 30, 2008, Power Corp.'s earnings, excluding one-time items, fell 6.2%, to $332 million, or $0.70 a share, from $354 million, or $0.76. Great-West contributed $203 million to Power’s earnings and IGM contributed $74 million....

The bulk of Power Corp.’s investments are in financial services companies, and turmoil in credit markets has hurt those holdings. But both of the major businesses it controls are leaders in their fields. They remain well capitalized and are cheap in relation to earnings. POWER CORPORATION $17.23 (Toronto symbol POW; Shares outstanding: 407.5 million; Market cap: $7.0 billion; SI Rating: Above Average) is a diversified holding company. It controls one of Canada’s largest mutual-fund companies, IGM Financial, and Great-West Lifeco, one of the country’s largest life insurers. Power Financial, 66.4% held, is a holding company for Power Corp.'s financial assets, which include 72.9% of Great-West Lifeco and 58.4% of IGM Financial. As well, Power Financial holds 50% of holding company 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)....

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....

NEWMONT MINING CORP., $39.78, New York symbol NEM, has agreed to buy the 33.3% of the new Boddington gold mine, in western Australia, that it does not already own from AngloGold Ashanti Ltd. Newmont will pay $1.1 billion, consisting of cash, stock and future royalties. The purchase price is roughly 30% more than Newmont’s likely 2008 earnings of $840 million, or $1.85 a share. Newmont plans to issue up to 34.5 million new common shares, at $37 each, to pay for this...

OILEXCO INC., $0.19, symbol OIL on Toronto, announced last week that its UK subsidiary Oilexco North Sea Ltd. intends to file for bankruptcy protection. The UK subsidiary holds almost all of Oilexco’s assets. In December, 2008, The Royal Bank of Scotland, Oilexco’s main lender, provided $47.5 million U.S. in bridge-financing due January 31, 2009. That provided Oilexco with just over a month to restructure. However, Oilexco said that it needed incremental short-term financing in addition to the bridge loan. In late December, 2008, the Royal Bank of Scotland informed Oilexco that lenders were not prepared to provide any further financing, prompting the bankruptcy petition. Petro-Canada, BG Group plc and Talisman Energy have reportedly expressed interest in some of Oilexco’s assets. However, after seeking bankruptcy protection, Oilexco’s assets are likely to be sold at discount prices, leaving little for shareholders....