merger

Small caps are companies with a “market cap”(the value of shares they have outstanding) below $2 billion, or some other arbitrary figure. Small-cap stocks are generally more volatile than large-cap stocks. Temporary setbacks, such as a poor quarterly earnings report or the loss of a contract, can quickly cut their share prices. To cut your risk, you should focus on small caps that are market leaders, such as these four industrial companies. They’re also attractive in relation to earnings, and provide above-average dividend yields. GENUINE PARTS CO. $38 (New York symbol GPC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 159.6 million; Market cap: $6.1 billion; Price-to-sales ratio: 0.6; Dividend yield: 4.2%; WSSF Rating: Average) distributes automotive replacement parts to over 4,800 independent stores in North America. It also owns and operates over 1,100 auto-parts stores under the NAPA banner....

GENERAL ELECTRIC CO., $16.20, New York symbol GE, will pay Vivendi SA of France $5.8 billion for the 20% of NBC Universal that it doesn’t already own. The company will then merge NBC Universal with cable stations and regional sports networks owned by cable operator Comcast Corp. (Nasdaq symbol CMCSA). GE will retain 49% of the joint venture, and receive about $8 billion. To put these figures in context, GE earned $2.5 billion, or $0.22 a share, in the three months ended September 30, 2009. The deal should close by September 2010. Selling control of NBC Universal will let GE focus on its main industrial businesses. These include manufacturing aircraft engines and power-station equipment. The move also lowers GE’s exposure to falling television advertising revenue. However, the company’s financial division, which accounts for a third of its revenue, continues to struggle....

LOBLAW COMPANIES LTD., $32.52, Toronto symbol L, gained 7% this week after it reported better-than-expected earnings. However, the food retailer’s sales fell short of analysts’ predictions. Loblaw earned $0.69 a share in the three months ended October 10, 2009, up 21.1% from $0.57 a year earlier. That beat the $0.62 a share that analysts were expecting. Savings from Loblaw’s restructuring plan were behind the gain. The company’s restructuring included fixing its supply networks, improving productivity at its distribution centres and installing new inventory-information systems. Sales fell 0.2%, to $9.47 billion from $9.49 billion. That fell short of the $9.62 billion that analysts were expecting. Same-store sales fell 0.6%, mainly because strong competition from other supermarkets, as well as discount retailers such as Wal-Mart and Costco, is forcing Loblaw to cut its prices. However, the company should continue to benefit from its lower operating costs. Moreover, well-known private-label brands, such as President’s Choice and Joe Fresh, will help Loblaw maintain its market share....

Oil prices fell from their July 2008 peak of $148 U.S. a barrel to just under $40 U.S. in February 2009. Prices have roughly doubled since then, but it’s unlikely they will soon surpass last year’s highs. Still, oil is a good hedge against inflation. We feel that the best way to cut your risk in the volatile resource sector is through well-established oil producers like these three. Their large reserves should last decades. Moreover, they focus on politically stable North America. SUNCOR ENERGY INC. $37 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.6 billion; Market cap: $59.2 billion; Price-to-sales ratio: 1.7; SI Rating: Average) is Canada’s largest oil producer following its purchase of Petro-Canada on August 1, 2009. Petro-Canada shareholders received 1.28 Suncor common shares for each Petro-Canada share they held....

MOLSON COORS CANADA INC. $49 continues to benefit from the cost savings generated by last year’s merger of its U.S. brewing operations with those of SABMiller. These savings should continue to help Molson Coors increase its earnings in the face of weak beer sales. Best Buy. BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $27 is closing most of its 16 customer-support call centres in Atlantic Canada and merging them into five main centres. This move will cost $13 million, but it should improve Bell Aliant’s efficiency. The fund earned $98.8 million, or $0.62 a unit, in the third quarter. Buy. EMERA INC. $23 reported that its third-quarter earnings rose 40.9%. The gain was partly due to last July’s start up of the Brunswick Pipeline, which pumps natural gas from a liquefied natural gas plant in Saint John, New Brunswick, to markets in New England and Atlantic Canada. Buy.

THE STANLEY WORKS, $49.19, New York symbol SWK, has agreed to buy rival toolmaker Black & Decker Corp. (New York symbol BDK) for $4.5 billion in stock. That’s 12.5% more than Stanley’s $4-billion market cap. Assuming both companies’ shareholders approve, the deal should close in the first half of 2010. Stanley shareholders will own 50.5% of the combined company (to be called “Stanley Black & Decker”). Black & Decker investors will own the remaining 49.5%. This looks like a good move for Stanley. Black & Decker specializes in power tools, so there’s little overlap with Stanley’s hand tools. Moreover, Black & Decker’s security products, which include door locks and keyless-entry systems, are a nice fit with Stanley’s building-security business....

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....

Open Range Energy, $2.20, symbol ONR on Toronto (Shares outstanding: 26.5 million; Market cap: $58.4 million), is a Canadian company that develops, produces and explores for oil and natural gas in west-central and central Alberta. Open Range was formed in November 2005 through the merger of Tempest Energy and Daylight Energy Trust. Open Range produced 2,245 barrels of oil equivalent per day in the three months ended June 30, 2009. That’s up 12.5%, from 1,996 barrels per day a year earlier. About 90% of the latest quarter’s total was natural gas, and 10% was oil. Despite the higher production, Open Range’s cash flow per share fell 61.5%, to $0.10 from $0.26 a year earlier. Lower oil and gas prices were the reason for the drop....

TRANSALTA CORP., $21.86, Toronto symbol TA, will pay roughly $755 million, or $5.25 a share, for Canadian Hydro Developers Inc. (Toronto symbol KHD). The purchase price is 15.4% higher than TransAlta’s earlier offer of $4.55 a share. Canadian Hydro is currently trading at $5.22, which indicates that investors do not expect a better offer. TransAlta aims to complete the purchase in the next month or two, once Canadian Hydro shareholders approve the takeover. TransAlta will also assume Canadian Hydro’s $876-million debt. To put these figures in context, TransAlta’s 2008 cash flow was $828 million, or $4.16 a share....

SUNCOR ENERGY INC. $37 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.6 billion; Market cap: $59.2 billion; Price-to-sales ratio: 1.1; SI Rating: Average) plans to double ethanol production at its plant in Sarnia, Ontario. Ethanol, which is made from corn, is a gasoline additive that cuts harmful emissions. Increasing ethanol production will help Suncor comply with proposed new environmental regulations. This project should be completed by the end of 2010, and will cost $120 million. To put this in context, Suncor earned $185 million, or $0.20 a share, in the second quarter of 2009 (excluding unusual items and last August’s merger with Petro-Canada). Suncor is a buy.