merger

ROYAL BANK OF CANADA (Toronto symbol RY; www.rbc.com) is Canada’s largest bank, with $867.5 billion of assets. Royal recently paid $3.7 billion for Ally Financial’s Canadian operations. This business mainly provides car loans through over 1,600 dealerships across the country. It also offers no-fee savings accounts and consumer and business loans....

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific stock investment advice. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away....

Two of our food stocks— Heinz and D.E. Master Blenders (see box this page)— have recently attracted takeover offers. These companies drew buyers for the same reasons we recommended them: their steady earnings and top brands.

We also like the outlook for the five food makers below, particularly ConAgra, our top pick for 2013....

CONAGRA FOODS INC. $35 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 416.8 million; Market cap: $14.6 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www. conagrafoods.com) makes a variety of packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter, Orville Redenbacher popcorn and Reddiwip whipped cream.

The company recently completed its $4.75-billion acquisition of Ralcorp Holdings, the largest maker of private-label food in the U.S.

The purchase helped push up ConAgra’s sales by 13.4% in its 2013 third quarter, which ended February 24, 2013, to $3.85 billion from $3.4 billion a year earlier. Ralcorp contributed $291.8 million to the latest sales. In addition, ConAgra raised its prices on its branded products to offset higher ingredient costs.
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Lukoil (ADR), $65.85, symbol LUKOY on the U.S. over-the-counter market (ADRs outstanding: 1.1 billion; Market cap: $55.8 billion; www.lukoil.com), produces, refines, markets and explores for oil and gas around the world. Its exploration and production activities are primarily in Russia, Azerbaijan, Kazakhstan, Uzbekistan, the Middle East, South America, Africa and Southeast Asia. Lukoil trades at a lower price-to-earnings multiple than many major western integrated oil stocks. For example, it trades at just 5.3 times its latest 12 months of earnings, where Exxon Mobil (see below) trades at 9.2 times earnings. However, that low p/e ratio reflects the considerable political risk of investing in Russia, where there continues to be uncertainty surrounding the rule of law, corporate governance, transparency and property rights. There is also an ongoing risk of confiscation or expropriation of assets by the Russian government or its political allies....

CONAGRA FOODS INC., $34.77, New York symbol CAG, has agreed to merge its flour-milling operations into a new joint venture. Under the terms of the deal, ConAgra, privately held Cargill Inc. and CHS Inc. (Nasdaq symbol CHSCP) will combine their North American mills into a new business called Ardent Mills. ConAgra and Cargill will each own 44% of Ardent Mills. CHS will own the remaining 12%. In total, Ardent Mills will own 44 flour mills and four bakeries. It will sell its products to various food makers....

Hidden value is one of the key factors we examine when we look for top stocks. A company’s brand name is one good example of an underappreciated asset. Balance sheets often fail to assign any value to brands, even household names that have built up multitudes of loyal customers over the years. Two weeks ago we looked at the value of the brand of Canada’s best known tech company. (View the article here.) Today we examine another company whose strong brand is helping it grow internationally. THOMSON REUTERS CORP. (Toronto symbol TRI; www.thomsonreuters.com) gets 57% of its revenue and 50% of its earnings by selling news and information to professionals in the banking industry. It also sells specialized information products to clients in the legal, accounting and scientific research fields....

MOLSON COORS CANADA INC. (Toronto symbols TPX.A $44 and TPX.B $44; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 181.2 million; Market cap: $8.0 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.9%; TSINetwork Rating: Average; www.molsoncoors.com) continues to benefit from the 2005 merger of Canada’s Molson brewing operations with those of U.S.-based Coors. The combined company later merged its U.S. business with rival Miller Brewing Company.

The ongoing savings from these mergers has helped Molson Coors, which is the world’s seventhlargest brewer by volume, to compete with larger multinational brewers.

Molson Coors now aims to expand in emerging markets, where beer sales are growing faster than its main markets of North America and the U.K. That’s why it paid $3.4 billion for StarBev LP in June 2012. StarBev owns nine breweries in Central and Eastern Europe (all amounts except share prices and market cap in U.S. dollars).

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THOMSON REUTERS CORP. $31 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 826.5 million; Market cap: $25.6 billion; Price-to-sales ratio: 1.8; Dividend yield: 4.1%; TSINetwork Rating: Above Average; www.thomsonreuters.com) gets 57% of its revenue and 50% of its earnings by selling news and information to professionals in the banking industry. It also sells specialized information products to clients in the legal, accounting and scientific research fields.

The company was already a well-established specialized information provider before it merged with the Reuters news agency in 2008. That deal gave the combined company even more information to sell. It also cut its reliance on North America. Thomson Reuters now gets 57% of its revenue from the Americas, followed by Europe (31%) and Asia (12%).

In addition, the Reuters merger helped the company launch its new Eikon terminals, which deliver real-time news and financial data to securities traders and portfolio managers. Even as the uncertain global economy prompted banks and other financial service businesses to scale back their spending, the number of Eikon users rose 35% in the third quarter of 2012 from the second quarter.

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Hidden value is a key factor we look for in our stock recommendations. A good example of an underappreciated asset is a company’s brand name. Balance sheets often fail to assign any value to brands, even household names that have built up multitudes of loyal customers over the years.

These four companies own some of the best brands in their industries....