merger
CHEVRON CORP. $64 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; WSSF Rating: Above average) is one of the world’s largest integrated oil companies. It explores for and produces oil and natural gas in over 35 countries, and operates refineries that convert crude oil into gasoline and petrochemical products. It also owns over 26,000 retail gas stations. The company gets roughly 60% of its revenue from oil and natural gas sales. Refined products supply the other 40%. The United States accounts for half of Chevron’s revenue, and a third of its profit....
HEWLETT-PACKARD CO. $35 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) is holding up well despite news that the company’s former chair used questionable surveillance techniques to identify a director who leaked certain information to the media. While embarrassing, we feel that the scandal will do little long-term damage to Hewlett’s business. Hewlett-Packard is a buy. NEWELL RUBBERMAID INC. $29 (New York symbol NWL; Income Portfolio, Consumer sector; WSSF Rating: Average) has agreed to sell its Little Tykes division, which makes children’s toys and furniture. The sale should generate a gain of between $15 million and $25 million; Newell earned $149.6 million or $0.54 a share before unusual items in its most recent quarter. The sale is part of Newell’s plan to sell less-profitable products, and focus on fastergrowing products such as office supplies....
Falconbridge Ltd. (formerly Noranda Inc.) will be a hard stock to replace. We first recommended it in our April, 1995 issue. The Resources sector was depressed at the time, but we liked the stock for its high-quality reserves, steady cash flow and secure 5% dividend yield. We repeatedly recommended it and advised investors to stick with it for the low-risk Resources exposure it provided. The recent takeover of Falconbridge at $62.50 a share works out to a total return (including dividends) of 286.1%. Today’s ongoing Resource boom is bound to falter eventually, but your portfolio still needs Resources exposure. It may take years, but one day we expect to see Falconbridge-sized returns from a couple of our long-time favourites, Alcan and Agrium. ALCAN INC. $47 (Toronto symbol AL; Conservative Growth Portfolio, Resources sector; SI Rating: Average) is the world’s second-largest producer of aluminum, after U.S.-based Alcoa Inc. Canada accounts for about half of Alcan’s aluminum production, while the other half comes from operations in 14 other countries....
FORD MOTOR CO. $8 is taking steps to survive today’s disastrous car market. It cut its dividend in half (but it still yields 2.5%), and it is cutting production by 20%. Ford could raise cash by selling assets such as its luxury brands. When the car market improves, Ford’s high sales (now around $95 a share) provide a lot of leverage for improved earnings. That’s why we see it as a hold. H.J. HEINZ CO. $41 seems to have fended off a proxy challenge from billionaire investor Nelson Peltz. That will make it easier for Heinz to implement its own restructuring plan, but ongoing pressure from Peltz should continue to push the stock higher. Buy. BANK OF AMERICA $52 has raised its dividend 12.0%, from $2.00 a share to $2.24. It now yields 4.3%. Best Buy....
AT&T INC. $30 (New York symbol T; Income Portfolio, Utilities sector; WSSF Rating: Average) is the largest telecommunications company in the United States, with 47.9 million traditional lines in service in 13 states. It’s also the nation’s largest provider of wireless services, with over 57 million customers. The company took its present form and name in November 2005 when SBC Communications Inc. acquired the old AT&T Corp. for $16.3 billion in cash and stock. AT&T stockholders wound up owning 16% of the combined company. The new company gets roughly 50% of its revenue from providing telephone and data services to businesses. Its wireless and consumer businesses each supply 25% of its revenue....
Deregulation and the Internet have made it easier for cable companies and start-up firms to offer basic telephone service, usually for a fraction of what traditional telephone utilities charge. This new wave of competition has forced many telephone companies to spend huge sums upgrading their networks to handle a variety of new services, which they hope will help them hang on to their current customers and attract new ones. But many phone companies lack the cash flow to fund these costs. They also risk alienating their traditional stockholders, many of whom rely on their dividends for income....
PENGROWTH ENERGY TRUST $26 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; SI Rating: Average) produces oil and natural gas, mainly from mature properties in Western Canada. It also owns 8.4% of a pipeline that transports gas from offshore platforms near Sable Island to Nova Scotia. Pengrowth prefers to replenish its reserves with acquisitions instead of exploration, which adds to its risk. But Pengrowth’s focus on high quality properties offsets this risk. In fact, Pengrowth’s current reserves should last at least 50 years. Thanks to an aggressive acquisition policy and rising energy prices, revenue jumped from $406.4 million in 2001 to $955.3 million in 2005. Earnings fell from $1.24 a unit (total $88.2 million) in 2001 to $0.63 unit ($57.0 million) in 2002, but rose to $2.08 a unit ($326.3 million) in 2005. Cash flow per share fell from $2.93 in 2001 to $2.54 in 2002, but grew to $3.87 in 2005....
PENGROWTH ENERGY TRUST $25.23 (Toronto symbol PGF.UN; SI Rating: Average) has merged its class ‘A’ and ‘B’ units into a single class of units. The new units trade under the symbols ‘PGF.UN’in Toronto, and ‘PGH’in New York. Changes to Canadian regulations made a second class of units unnecessary, and having a single class of units has advantages. In particular, it makes Pengrowth more liquid, so it’s easier for the trust to pay for acquisitions with units. For instance, the trust has just agreed to buy Esprit Energy Trust for roughly $1.1 billion in new units. Pengrowth unitholders will own 82% of the combined trust, while Esprit unitholders will own the remaining 18%. Natural gas accounts for 75% of Esprit’s daily production; the merger will increase Pengrowth’s natural gas weighting from 45% to 52%. Although gas prices have come down in recent months, prices will probably move up over the next several years....
NVIDIA CORP. $20 should gain from Advanced Micro Devices’ merger with Nvidia’s chief rival, ATI Technologies. AMD feels that integrating ATI’s video chips with its processors will help it compete with industry leader Intel. However, most video card buyers prefer to install this equipment separately. In addition, Intel will now replace the chips it now buys from ATI with Nvidia products. We now see Nvidia as a buy. WASHINGTON MUTUAL INC. $46 plans to sell some of its mortgage servicing business, which mails statements to borrowers and collects payments. That should let it focus on more profitable businesses, like credit cards, and cut its reliance on the mortgage industry. Best Buy. MOLSON COORS BREWING CO. $71 has gained 10% in the past two months. Recent heat waves in much of the United States should spur strong demand for beer. The higher sales should more than offset rising aluminum can costs. Buy.
GENERAL MILLS, INC. $52 (New York symbol GIS; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Above average) is one of the largest food processing companies in the United States. The company owns many of the industry’s best known brands, including Cheerios and Wheaties (ready-to-eat cereals), Pillsbury and Betty Crocker (baking products), Green Giant (vegetables), Progresso (soups) and Yoplait (yogurt).