merger

IMPERIAL OIL LTD. $55 (Toronto symbol IMO) continues to ration gasoline deliveries to its 532 Esso gas stations in Western Canada due to problems at its refinery in Edmonton. The company is importing and buying fuel from other suppliers as it repairs the plant. It’s unlikely the problem will have a material impact on its earnings. Best Buy. MOLSON COORS CANADA INC. $52 (Toronto symbol TPX.B) moved down after the company said it will delay further share buybacks or dividend increases until after it determines the costs of its deal to merge its operations in the U.S. with those of rival brewer SABMiller plc. However, cost savings from the merger will help the company cope with rising prices for barley and hops. Buy. CANADA BREAD CO. LTD. $71 (Toronto symbol CBY) now accounts for over 95% of the market cap of parent company MAPLE LEAF FOODS INC. $13. Canada Bread is now a hold. For new buying, we recommend Maple Leaf Foods....

NOVA CHEMICALS CORP. $24.66, Toronto symbol NCX, is down from its peak of $43.70 in July 2007, mostly due to fears of a slowing economy in the United States. Sales in the U.S. accounted for 43% of Nova’s 2007 sales. Manufacturers use the company’s products to make a wide variety of plastic products including auto parts, construction materials and packaging. Nova also needs large amounts of crude oil and natural gas to make its products, which increases its exposure to rising energy costs. However, Nova’s proximity to Alberta’s large natural gas reserves helps keep its input costs down. The recent merger of its money-losing foam cup business into a 50:50 joint venture also cuts its costs. Nova’s highly cyclical operations make it riskier than most of our recommendations. However, it’s cheap at just 7.3 times its likely 2008 earnings of $3.30 U.S. a share....

TRANSCANADA CORP. $38.06, Toronto symbol TRP, has teamed up with U.S.-based Williams Companies Ltd. to evaluate the Sunstone project, a proposed pipeline that would transport natural gas from the Rockies to the western United States. Sunstone could begin operations in 2011. Both companies already operate pipelines in the region, which cuts the risk of this project. TransCanada is a buy. TRANSALTA CORP. $30.36, Toronto symbol TA, fell 10% this week after activist shareholder Luminus Management withdrew its slate of director nominees....

J.P. MORGAN CHASE CO. $36.54, New York symbol JPM, fell 4% on Friday after it agreed to participate in an emergency loan package for troubled investment broker Bear Stearns Cos. Inc. (New York symbol BSC). J.P. Morgan will borrow funds from the Federal Reserve, and loan the money to Bear Stearns for 28 days. The Federal Reserve will guarantee the loan, so the risk to J.P. Morgan is minimal. Meanwhile, J.P. Morgan will help Bear Stearns find permanent financing. It’s possible J.P. Morgan may try to buy Bear Stearns. However, anti-trust regulators would probably block a merger. J.P. Morgan is still a buy....

AUTODESK INC. $31.09, Nasdaq symbol ADSK, fell over 15% this week after it reported earnings that fell short of earlier forecasts. In the fiscal year ended January 31, 2008, Autodesk earned $1.88 a share before unusual items, up 22.9% from $1.53 in the prior year. Revenue rose 22.2%, to $2.2 billion from $1.8 billion. The company spent 22% of its fiscal 2008 revenue on research. Autodesk gets roughly 90% its earnings from its core AutoCAD software products, which engineers and architects use to design machinery, buildings and so on. An economic slowdown, particularly in housing, could cut demand for AutoCAD, and this has weighed on the stock price. Plans to expand its salesforce will also put pressure on Autodesk’s short-term profit margins. Autodesk is still a hold....

BANK OF MONTREAL $54.32, Toronto symbol BMO, has announced several charges that will cut its earnings when it reports results for its first fiscal quarter ended January 31, 2008. The charges will total about $325 million or $0.70 a share, and consist mainly of writedowns of asset-backed securities and higher loan loss provisions. The bank earned $2.9 billion or $5.66 a share before unusual items in fiscal 2007. Bank of Montreal has now pledged roughly $12 billion U.S. to support two of its structured investment vehicles holding asset-backed securities. The extra liquidity should help them dispose of these assets in an orderly manner. These assets have minimal exposure to U.S. subprime mortgages, and Bank of Montreal feels the risk of loss is low. While the possibility of further writedowns adds risk, Bank of Montreal remains well capitalized....

MICROSOFT CORP. $28.42, Nasdaq symbol MSFT, has dropped $4 since it made a hostile takeover bid for Internet search provider Yahoo! Inc. (Nasdaq symbol YHOO) at the start of February. Yahoo has rejected the offer, leading to speculation that Microsoft may have to raise its bid. Concerns over Microsoft’s ability to meet cost reduction targets after the takeover have also weighed on the stock. As well, a hostile takeover could also prompt Yahoo’s programmers and other key employees to quit. Yahoo is now exploring alliances with other media and technology companies to fend off Microsoft. Regardless of the outcome, we still see Microsoft as a buy....

ABB LTD. ADRs, $24 (New York symbol ABB; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 2.3 billion; Market cap: $55.2 billion; WSSF Rating: Above average) is a major Swiss-based provider of power technologies for utilities. These include transformers, transmission systems and other power industry apparatus such as voltage switch gears and circuit breakers. ABB also makes automation systems and robotics that help increase plant productivity in a wide variety of industries. Europe is ABB’s largest market. It accounts for about 46% of revenues, followed by Asia (26%), the Americas (18%) and Other (10%).

Long history of success

ABB took its present form in 1988 through the merger of Sweden’s Asea AB and Switzerland’s BBC Brown Boveri AG. Asea (formed in 1883) introduced electricity into Sweden, and developed its railway network. Brown Boveri (formed in 1891) specialized in power generation and turbines....

SAPUTO INC. $28.15, Toronto symbol SAP, has agreed to buy the operations of Wisconsin-based Alto Dairy Cooperative, which makes cheeses under a variety of brand names and private labels. The $160 million U.S. price is 22% more than the $131.0 million (Canadian) or $0.63 a share that Saputo earned in the six months ended September 30, 2007. The new operations should expand revenue at Saputo’s U.S. operations by 20%. The company has a strong history of successfully integrating new operations, which helps cut the risk of expanding through acquisitions. Saputo is a buy....

Today many people seem sure that the subprime situation and associated problems will bring on a long-term market decline that could carry stock prices much lower. When conclusions like these become widespread, the conclusion or the timing or both are often wrong. Think back to how many people agreed with former Federal Reserve Board Chairman Alan Greenspan’s famous (or notorious) ‘irrational exuberance’ speech, in December, 1996. Yet nearly four years passed before the market hit its ultimate peak. In between the Greenspan speech and 2000 market peak, we went through a market setback in response to an economic crisis that started in Thailand in 1997....