merger

AT&T INC. $35 (New York symbol T; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 5.2 billion; Market cap: $182.0 billion; Price-to-sales ratio: 1.4; Dividend yield: 5.3%; TSINetwork Rating: Average; www.att.com) is buying satellite TV provider DirecTV (Nasdaq symbol DTV) for $48.5 billion (70% stock and 30% cash).

Satellite TV demand has slowed in the past few years as consumers switch to online services like Netflix. However, DirecTV’s rural customers are a good fit with AT&T’s urban U-verse fibre optic TV service. It’s a bold move, but it could pay off.

The takeover will make AT&T the second-largest provider of pay-TV services in the U.S., with 27 million subscribers. That will help it compete with Comcast, which will have 30 million customers after it buys rival Time Warner Cable. It will also give AT&T more clout when buying entertainment and sports programming.

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We’re generally skeptical of companies that use acquisitions to expand. That’s because even the most promising purchases can come with hidden problems and costs that offset the extra sales and earnings they bring. However, we feel Loblaw’s recent purchase of Shoppers Drug Mart sets it up for years of higher profits. The Shoppers takeover diversifies Loblaw’s business and lets it sell higher-margin items, like beauty products. That will help the company compete with big U.S. retailers like Wal-Mart and Target, which are aggressively expanding in Canada. LOBLAW COMPANIES LTD. $48 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 412.7 million; Market cap: $19.8 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.0%; TSINetwork Rating: Above Average; www.loblaw.ca) is Canada’s largest food retailer, with roughly 1,200 stores. Its banners include Loblaws, Provigo, Fortinos, Real Canadian Superstore and No Frills....

We still think investors will profit most—and with the least risk—by buying shares of well-established, dividend-paying stocks with strong business prospects. These are companies that have strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace. Stocks like these give investors an additional measure of safety in today’s volatile markets. And the best ones offer an attractive combination of moderate p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects....

p>SUNCOR ENERGY INC. $43 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.5 billion; Market cap: $64.5 billion; Price-to-sales ratio: 1.5; Dividend yield: 2.1%; TSINetwork Rating: Average; www.suncor.com) is Canada’s largest integrated oil company by market cap (or the value of all its outstanding shares). Suncor gets 40% of its revenue and 65% of its earnings from producing crude oil and natural gas. Its 7.7 billion barrels of proven and probable reserves should last 35 years, based on current production rates.

The oil sands account for 70% of the company’s output. It also operates offshore platforms in Atlantic Canada and the North Sea, as well as conventional wells in Libya. However, political unrest has shut down some of Libya’s ports, limiting Suncor’s crude exports from the country.

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TORONTO-DOMINION BANK, $53.39, Toronto symbol TD, reported better-than-expected quarterly earnings this week, thanks to steady loan demand in Canada and the U.S. It’s also profiting from its recent deal with Aimia (Toronto symbol AIM) to become the main credit card issuer for the popular Aeroplan travel-reward program. In the quarter ended April 30, 2014, TD’s earnings rose 13.5%, to $2.1 billion from $1.8 billion a year earlier. Due to fewer shares outstanding, per-share earnings gained 14.7%, to $1.09 from $0.95. These figures exclude unusual items, such as costs related to the new Aeroplan card business. On that basis, the latest earnings beat the consensus estimate of $1.02 a share. Revenue rose 12.5%, to $7.4 billion from $6.6 billion. In addition to the new Aeroplan deal, TD is benefiting from last year’s purchase of retailer Target Corp.’s U.S. credit card portfolio. As well, higher debt-underwriting volumes and merger and acquisition fees pushed up revenue at TD’s wholesale banking division by 5.4%....

Pat McKeough responds to many requests from members of his Inner Circle for specific advice about stock picks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week an Inner Circle asked us about one of the few major pharmaceutical stocks based in Canada. Valeant Pharmaceuticals was purchased in 2010 by Biovail, then Canada’s largest pharmaceutical firm, and the new company adopted the Valeant name. Valeant is making headlines with its hostile takeover bid for U.S. drug maker Allergan, the maker of the cosmetic drug Botox. ...

Suncor’s shares rose from $35 after it merged with Petro-Canada in August 2009 to a peak of $46 in March 2011. After that, the stock fell and stayed between $30 and $35 for most of the past three years. That’s mainly due to setbacks at its Alberta oil sands operations, which pushed up its operating costs and forced it to write down some of its projects.

The company has now solved many of these problems, which should improve its future earnings and cash flow....

Valeant Pharmaceuticals, $147.02, symbol VRX on Toronto (Shares outstanding: 333.4 million; Market cap: $49.8 billion; www.valeant.com), is a multinational specialty pharmaceutical company that develops, makes and markets a broad range of products, mainly in the areas of neurology, dermatology and generic drugs. On September 28, 2010, Biovail Corporation purchased Montreal-based Valeant Pharmaceuticals International. The combined company took on the Valeant name. Valeant continues to grow by acquisition: in the past few years, it has spent over $19 billion buying more than 35 companies....

NEWELL RUBBERMAID INC., $28.88, New York symbol NWL, makes a variety of everyday items, such as trash cans and food-storage containers. Aside from Rubbermaid, its main brands include Sharpie, Paper Mate, Waterman and Levolor. In the three months ended March 31, 2014, Newell’s sales fell 0.7%, to $1.23 billion from $1.24 billion a year earlier. That’s partly because harsh winter weather kept many shoppers at home. As well, the company had to recall infant car seats to fix defective seat belts. Newell gets about a third of its sales from outside the U.S. If you disregard the negative impact of currency exchange rates, sales rose 0.7% in the quarter....

NEWMONT MINING $24.83 (New York symbol NEM; Shares outstanding: 497.9 million; Market cap: $12.6 billion; TSINetwork Rating: Average; Dividend yield: 0.4%; www.newmont.com) has broken off merger talks with Barrick Gold (Toronto symbol ABX) amid reports of personality conflicts and a failure to agree on key issues such as the location of a new head office and who would lead the combined company. Both Newmont and Barrick have large mining operations in Nevada, so a merger would have let them significantly cut their operating costs. That would have helped the combined firm cope with lower gold prices. Due to weak gold and copper prices, Newmont’s earnings fell 69.4% in the first quarter of 2014, to $108 million, or $0.22 a share. A year earlier, it earned $353 million, or $0.70 a share. Revenue declined 19.4%, to $1.8 billion from $2.2 billion....