option

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on successful investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Today’s tip: “Treat Canadian stock options like lottery tickets, because the odds are almost as bad.” Canadian stock options come in two varieties. Calls give you a right, but not the obligation, to buy a stock at a fixed price, for a fixed period. Puts give you the right, but not the obligation, to sell....

A high short position is no longer a particularly telling stock-market indicator. That’s because traders and hedge funds often combine a short sale with some other transaction in stock options or stock futures. Rather than having to buy the stock back in the market, for instance, short sellers may hold call options that they can exercise; that way, they buy the stock from the option seller, not in the open market....

3M COMPANY, $83.84, New York symbol MMM, announced two acquisitions this week. Both purchases will strengthen 3M’s position in the fast-growing security-products industry. The company is buying California-based based Cogent Inc. (Nasdaq symbol COGT). Cogent specializes in biometric technologies, such as devices that scan fingerprints before allowing access to secure facilities or computer data. 3M will pay $943 million for Cogent. However, Cogent holds cash of $513 million, so the price is really $430 million. This is a small purchase for 3M, which earned $1.1 billion, or $1.54 a share, in the three months ended June 30, 2010. The company expects to close this deal by the end of 2010. 3M has also agreed to buy privately held Attenti Holdings S.A. for $230 million. Israel-based Attenti makes devices that keep track of people, such as hospital patients or people awaiting trial or on probation. This purchase should close in the fourth quarter of 2010....

Members of Pat McKeough’s Inner Circle sometimes ask us how to find good investments for young children. If children are under the age of 18, they cannot yet invest as adults. However, there are a couple of savings and investment options available:

1. You (or the child) can open a bank account in the child’s name: Interest paid on small balances may range from zero to, say, 0.50% annually, paid monthly. All of the major banks have special bank accounts for children, usually without service fees on basic transactions. However, once the child has accumulated $500, he or she could move the money into an interest-paying guaranteed investment certificate (GIC).
2. Informal in-trust account: If you want to build up an investment portfolio for a child, then an informal in-trust account is a low-cost and flexible option. (Investments or investment accounts in the name of a child must be set up in trust because minors are not allowed to enter into binding financial contracts.) An adult must be responsible for providing the investment instructions and signing the contract on the child’s behalf. An informal in-trust account has a donor (or “settlor”) who contributes funds to the trust. The trustee is the person in charge of the account, and is responsible for managing the funds for the child (the “beneficiary”). The settlor should not act as the trustee. The settlor’s spouse can be a trustee, however. The money belongs to the child, but only the trustee can make withdrawals if the child is under the age of 18. Once the child reaches 18, the money is theirs to do with as they wish.
   
   

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TIM HORTONS INC., $37.05, Toronto symbol THI, is selling its half of its Maidstone Bakeries business to Aryzta AG of Switzerland. (Tim Hortons and Aryzta own the bakery through a joint venture.) Based in Brantford, Ontario, Maidstone supplies donuts and other baked goods to Tim Horton’s stores in Canada and the U.S. Tim Hortons will receive $475 million when the sale closes later this year. As part of the deal, Maidstone will continue to supply Tim Hortons until 2016. The company has the option to extend this agreement for another year, if necessary. That gives it plenty of time to find new suppliers, or build its own bakery. Meanwhile, Tim Hortons earned $94.1 million in the three months ended July 4, 2010. That’s up 21.0% from $77.8 million a year earlier. Earnings per share rose 25.6%, to $0.54 from $0.43, on fewer shares outstanding. The latest earnings beat the consensus estimate of $0.50 a share. That caused the stock to rise 4% this week....

RUSSEL METALS, $19.08, symbol RUS on Toronto, earned $0.31 a share before one-time items in the three months ended June 30, 2010. That’s a big improvement over the $0.10 a share it earned a year earlier. Revenue rose 9.4%, to $506.1 million from $462.5 million. The company distributed more steel during the quarter; that was the main reason for the higher revenue. As well, Russel continues to do a good job of controlling its costs and conserving cash: In early 2009, it cut 500 jobs (or 16.7% of its workforce), lowered executive pay by 10% and reduced its remaining employees’ hours. Those measures are helping push up its earnings. As well, the company cut its quarterly dividend by 44.4% last year, to $0.25 a share from $0.45. The stock now yields 5.2% a year, and the dividend now appears safe. Russel holds cash of $283.8 million, or $4.75 a share. Its $335.5 million of long-term debt is a reasonable 30.5% of its market cap....

Whiterock Real Estate Investment Trust, $13.99 symbol WRK.UN on Toronto (Units outstanding: 16.1 million; Market cap: $225.9 million), owns, develops and operates office, industrial and retail properties across Canada. As of March 31, 2010, Whiterock owned 33 office buildings, 13 industrial buildings and 7 retail properties. In all, these holdings include 4 million square feet of leasable area. The trust gets 46% of its revenue from Ontario, 20% from Quebec, 15% from Saskatchewan, 10% from Atlantic Canada and 9% from Alberta. Whiterock’s largest tenants include SIQ (a Quebec government agency), the Province of Ontario, Intact Insurance Co., SNC-Lavalin Group, the Government of Canada, the Province of New Brunswick, the Province of Nova Scotia and Teranet, which manages Ontario’s electronic land-registration system. Government tenants account for about 29% of Whiterock’s revenue....

Buying and selling stock options is different from regular stock transactions. You can make money in options investing, of course, but to be successful in this complex, often risky area, it’s crucial to have a firm grasp of how options investing works (and how to avoid the pitfalls that can expose you to serious risk). An option is a contract between a buyer and a seller that is based on an underlying security, usually a stock. The buyer pays the seller a fee, or premium, for certain rights to the stock. In exchange for the premium, the seller assumes certain obligations.

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ALIMENTATION COUCHE-TARD INC., $19.22, symbol ATD.B on Toronto, will now direct its takeover offer to shareholders of Casey’s General Stores (symbol CASY on Nasdaq). In April, Couche-Tard directed its offer at Casey’s management and board of directors, hoping to win their approval. However, Casey’s rejected Couche-Tard’s all-cash, $36-a-share bid as inadequate. Casey’s is now trading at $35.66, which is just 0.9% below Couche-Tard’s offer. That suggests investors may not be expecting a significantly higher bid. Couche-Tard also plans to nominate nine candidates to replace Casey’s current board of directors....

ING Risk Management Natural Resources Fund, $15.92, symbol IRR on New York (Units outstanding: 22.4 million; Market cap: $357.4 million), is a closed-end fund that holds stocks of companies in the energy, natural-resources and basic-materials industries. Most of ING Risk Management Natural Resources Fund’s portfolio is invested in the U.S. (88%) and Canada (7%). The fund’s breakdown by industry is as follows: Integrated Oil & Gas, 35.53%; Oil & Gas Exploration & Production, 19.54%; Oil & Gas Equipment & Services, 14.76%; Diversified Chemicals, 3.58%; Coal & Consumable Fuels, 3.56%; Diversified Metals & Mining, 3.49%; Gold, 2.83%; Oil & Gas Storage & Transportation, 2.56%; Oil & Gas Drilling, 2.34%; and Steel 1.97%....