merger

THE WESTAIM CORP. $6.90 earned $0.21 a share (total $19.5 million) from continuing operations in the three months ended December 31, 2005 compared with a loss of $0.11 a share ($10.4 million) a year earlier. However, the latest quarterly earnings included a $30.1 million gain on the recent sale of shares in subsidiary Nucryst Pharmaceuticals Corp. Westaim now owns 73.5% of Nucryst. It also aims to take its other subsidiary, iFire Technology Corp., public in the next few years. Westaim is still debt free, and has $1.29 a share in cash. Hold. MAVERICK TUBE CORP. $54 has gained 75% in the past six months, as rising energy prices have sharply increased demand for its drilling equipment and pipelines. However, the stock trades at just 8.2 times its likely 2006 earnings of $6.59 U.S. a share. Buy. NORTEL CORP. $3.20 is still having accounting problems. It’s now moving revenue from certain contracts from earlier periods to future periods. This change does not affect the total value of these contracts, but it does hurt Nortel’s reputation. Meanwhile, Nortel’s new management is focusing on sectors of the telecom equipment business where it feels it can capture at least 20% of that market. The recent merger between rivals Alcatel and Lucent could spur new interest in Nortel as a takeover target. Buy.

INCO LTD. $61 (Toronto symbol N; SI Rating: Average) is the world’s second-largest producer of nickel after Russia’s Norlisk. Nickel is a key ingredient in stainless steel, which is more resistant to rust and corrosion than untreated steel. Inco is also a major producer of cobalt and copper. In October 2005, Inco agreed to acquire rival FALCONBRIDGE LTD. $43 (Toronto symbol FAL.LV; SI Rating: Average) for $10.8 billion in cash and stock (all amounts except share price in U.S. dollars). The merger will make Inco the world’s largest nickel company, and greatly expand its production of copper and other minerals. The company feels the merger will let it save $350 million a year by the end of 2007. This is a huge purchase for Inco, whose profits before unusual items grew from $0.35 a share (total $93.0 million) in 2001 to $4.15 a share ($839.2 million) in 2004. Rising energy and other costs cut profits in 2005 to $3.64 a share ($811 million). Revenue shot up, from $2.1 billion in 2001 to $4.5 billion in 2005, as nickel prices soared....

NEWELL RUBBERMAID INC. $26 (New York symbol NWL; WSSF Rating: Average) took its current form in 1999 when the company acquired Rubbermaid Inc. That turned Newell into one of the world’s biggest makers of household products, such as storage containers, cleaning equipment and tools. It also makes children’s toys and office supply products. Newell sells its products through thousands of retailers, but Wal-Mart accounts for 14% of its total revenue. After the merger, the company began a sweeping restructuring that closed many of its plants and streamlined its remaining operations. The success of this plan lifted the stock to $37 in 2002. However, rising costs for plastics and steel hindered its earnings growth, and Newell’s stock fell to $19 in 2004. It has moved mostly sideways since, but we feel it’s set to rise again.

Second big restructuring in five years

In 2005, Newell launched a new restructuring that aims to save it $120 million a year. Under this new plan, Newell will close a third of its 80 plants, sell more of its less profitable operations and outsource more production to overseas suppliers. It’s also using acquisitions to add more profitable brands to its portfolio, such as its recent $730 million purchase of DYMO, which makes label printing equipment....

SYMANTEC CORP. $16 (Nasdaq symbol SYMC; WSSF Rating: Average) makes software that helps guard computers from viruses and electronic attacks. Its best-known product is Norton Anti-Virus, the world’s top selling anti-virus program. In the past few years, Symantec has aggressively expanded its corporate services operations. Selling a variety of programs to businesses gives it steadier revenue streams than consumer software sales. As part of this strategy, Symantec recently paid $11 billion in stock for Veritas Software Corp., which specializes in data storage products for businesses. That’s huge considering that Symantec earned just $0.26 a share (total $282.4 million) on revenue of $1.25 billion in its third fiscal quarter ended December 31, 2005. These figures exclude merger expenses and other one-time costs. The company spends 15% of its sales of $3.50 a share on research, so it’s more profitable than it appears....

ADOBE SYSTEMS INC. $36 (Nasdaq symbol ADBE; WSSF Rating: Average) makes software that helps users create electronic documents. Its main product is Acrobat, which let users convert documents to the popular PDF format. In December 2005, Adobe merged with Macromedia Inc. in an all-stock transaction valued at $3.4 billion. Macromedia’s main product is Flash, which lets Internet web page creators add animation and other features that make their sites easier to use. Like Acrobat, Flash is an industry standard. In Adobe’s first fiscal quarter ended March 3, 2006, it earned $0.32 a share (total $197.5 million) before restructuring and other unusual costs, up 23.1% from $0.26 a share ($133.8 million) a year earlier. Revenue grew 38.6%, to $655.5 million from $472.9 million....

Our recommendations in software stocks have delivered huge gains in the past few years. But many now face growing competition from free software on the Internet, or they trade at high p/e’s. Computer makers are also demanding lower prices for pre-installed programs to keep the costs of new computers down. We still hold a high opinion of these top software makers, but we advise against new buying right now. AUTODESK INC. $38 (Nasdaq symbol ADSK; WSSF Rating: Average) makes AutoCAD, the world’s top selling computer aided design program. About 4 million architects and engineers in over 100 countries use it to design and test new buildings and products. This business supplies nearly 90% of its revenue. The remainder comes from programs that filmmakers use to create special effects....

MOLSON COORS CANADA INC. (Toronto symbols TPX.LV.A $79 and TPX.NV $79; SI Rating: Average) is a wholly owned subsidiary of Molson Coors Brewing Co., the world’s fifth-largest brewer by volume. Holders of exchangeable shares in Molson Coors Canada can swap them at any time for common shares of the parent, Molson Coors Brewing Company (New York symbol TAP), on a one-for-one basis. Now that Ottawa has eliminated foreign content limits inside registered accounts such as RRSPs, the company will probably convert its exchangeable shares to common in the next few years. The company recently sold 68% of Kaiser, Brazil’s second-largest brewer, for $68 million (all amounts except share price in U.S. dollars). Kaiser has lost money and market share in the past few years, so its sale removes a weight from Molson Coors’ future earnings. Molson Coors still owns 15% of Kaiser, which will let it profit from any upturn in the Brazilian beer market. It can also use Kaiser’s brewing and distribution operations if it decides to launch Coors Light or other top-selling brands in Brazil....

MANULIFE FINANCIAL $73 (Toronto symbol MFC; SI Rating: Above-average) sells life and other forms of insurance, as well as mutual funds and investment management services. It operates in 19 countries and territories worldwide. Manulife has assets under administration of $372.3 billion. Manulife acquired New York-listed John Hancock Financial Services in 2003 for $15 billion in shares. The merger was one of the largest ever in the life insurance industry, but the integration has gone smoothly. John Hancock continues to add to Manulife’s sales and profits in the U.S. In the three months ended December 31, 2005, Manulife’s earnings rose 18.3%, to $900 million or $1.14 a share, from $761 million or $0.93 a share a year earlier. Revenue rose 3.6%, to $8.20 billion from $7.92 billion. The shares yield 1.9%....

We’ve said for some time that insurers are riskier than they look. Insurance has a stable image, but it has always been highly competitive and volatile. For safety-conscious investors, right now we recommend just three Canadian insurance companies as buys: Manulife Financial, Great-West Lifeco and Sun Life Financial. GREAT-WEST LIFECO $29 (Toronto symbol GWO; SI Rating: Above-average) is a leading Canadian insurance company, with $177.3 billion in assets under administration. The company also provides wealth management and other financial services. It also operates in the U.S. and Europe. Power Corp. of Canada controls about 75% of the company’s common stock. Great-West’s earnings in the three months ended December 31, 2005 rose 10.3%, to $469 million or $0.53 a share from $423 million or $0.48. Revenues rose 13.6%, to $6.52 billion from $5.74 billion....

GAMESTOP CORP. (New York symbols GME $41 and GME.B $37; WSSF Rating: Extra risk) operates over 4,400 stores in the United States and Europe that sell video game players and software. It also publishes a video game magazine. In October 2005, GameStop paid $1.44 billion (70% in cash and 30% in stock) for rival video game retailer Electronics Boutique. That’s a huge investment for the company, which earned $1.17 a share (total $67.7 million) in the fiscal year ended January 31, 2005. Thanks to the takeover, GameStop’s sales in the nine weeks ended December 31, 2005 rose 133% to $1.35 billion. However, if you assume that GameStop acquired Electronics Boutique a year earlier, pro forma same-store sales fell 1.5% due to shortages of Microsoft’s new Xbox 360 video game console....