option

H&R BLOCK INC. $23 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 322.9 million; Market cap: $7.4 billion; WSSF Rating: Above average) aims to sell its Option One mortgage business in October for about $970 million. Option One specializes in mortgage lending to borrowers with poor credit histories. During the housing boom earlier in this decade, this business accounted for roughly half of H&R Block’s profits. But rising interest rates and falling housing prices have led to higher loan defaults and write-offs. Consequently, H&R Block lost $1.34 a share (total $433.6 million) in the fiscal year ended April 30, 2007. If you exclude Option One, it would have earned $1.15 a share ($374.3 million), up 29.2% from $0.89 a share ($297.5 million) in the prior fiscal year. Revenue grew 11.1%, to $4.0 billion from $3.6 billion....

APPLE INC. $124.49, Nasdaq symbol AAPL, hit a new all-time high this week after it confirmed that it will start selling its new iPhone on June 29. The new device combines a mobile phone, a digital music player and a camera. At around $500, the iPhone is more expensive than competing models, but Apple’s marketing skill and reputation for ease of use generally let it charge premium prices for its products. Strong consumer interest should help Apple reach its one-year sales target of 1% of the world mobile phone market. We continue to hold a high opinion of Apple and its products. But its high price in relation to earnings (p/e of 40) and revenue (about $24 a share) limits its appeal right now. Apple is still a hold....

CELTIC MINERALS $0.41 (Toronto symbol CME; SI Rating: Start-up) (403-261-2890; www.celticminerals.com; Shares outstanding: 60.0 million; Market cap: $24.6 million) has as its main asset a 50% interest in the 113 square kilometer West Voisey’s Bay project, located on the southwestern edge of Inco’s Voisey’s Bay nickel mine and property in Labrador. Celtic hopes to discover a deposit similar to Inco’s Voisey’s Bay orebody on its West Voisey’s Bay property. Celtic is also adding to its nickel properties outside the Voisey’s Bay area. It recently entered into an option agreement to acquire a 100% interest in the Muscocho Lake nickel project in northwestern Quebec....

TELUS CORP. (Toronto symbols T $62 and T.A $61; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 334.4 million; Market cap: $20.6 billion; SI Rating: Above average) has gained roughly 15% in the past few weeks, as a possible takeover bid for rival BCE Inc. has spurred speculation that Telus could also become a takeover target. It’s also possible the two firms will merge, but that would face strong opposition from telecom regulators and consumer groups. Meanwhile, strong demand for new wireless services such as downloadable video, games and ringtones helped offset slower subscriber growth. That helped increase the company’s total revenue in the first quarter of 2007 to $2.21 billion, up 6.3% from $2.08 billion a year earlier. Earnings jumped 50.0%, to $0.90 a share from $0.60. The most recent figure excludes a one-time charge related to its employee stock option program. Telus’s ongoing investments in its wireless network, as well as new rules that let customers keep their current mobile number, should help it attract more subscribers....

CHEVRON CORP. $78 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.2 billion; Market cap: $171.6 billion; WSSF Rating: Above average) has teamed up with WEYERHAEUSER CORP. $77 (New York symbol WY; Conservative Growth Portfolio, Resources sector; Shares outstanding: 241.0 million; Market cap: $18.6 billion; WSSF Rating: Average) to develop new ways to make biofuels such as ethanol out of wood. Right now, ethanol comes mainly from corn. However, rising ethanol production has led to much higher corn prices. Chevron and Weyerhaeuser feel turning scrap wood into ethanol could broaden their revenue sources, and improve their image with politicians and environmentalists. We see both Chevron and Weyerhaeuser as buys....

H&R BLOCK INC. $23 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 322.9 million; Market cap: $7.4 billion; WSSF Rating: Above average) has agreed to sell its Option One mortgage business, which specializes in loans to borrowers with poor credit histories, for about $300 million. That’s a lot less than this unit’s tangible book value of $1.3 billion, so the company will record a pre-tax non-cash charge of up to $320 million on the sale. To put that in perspective, H&R Block earned $0.08 a share (total $25.0 million) from continuing operations in its third fiscal quarter ended January 31, 2007. Getting out of the mortgage business cuts the company’s exposure to rising defaults in the subprime segment of the mortgage industry. It will also let H&R Block focus on expanding its more profitable operations, such as tax preparation, banking and accounting services....

ALCOA INC. $35.12, New York symbol AA, earned $0.79 a share in the first quarter of 2007, up 12.9% from $0.70 a year earlier. These figures exclude restructuring costs. Revenue rose 11.3%, to $7.9 billion from $7.1 billion, due to higher aluminum prices and sales of aerospace parts and building materials. The latest earnings exceeded earlier forecasts of $0.76 a share, and the stock gained 2%. Earnings should continue to improve as the company realizes more of the benefits from its recent restructurings. New projects in Iceland and Brazil should also help Alcoa take advantage of strong global demand for aluminum. Alcoa is a buy....

APPLE INC. $93 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 861.9 million; Market cap: $80.2 billion; WSSF Rating: Extra risk) has started shipping its new “Apple TV” set-top device, about a month behind its original schedule. This product uses wireless technology to transfer movies and other videos from a computer to a regular TV set. By making it easier to watch these shows on a TV instead of a computer screen, Apple hopes to spur more downloads from its iTunes web site. This product has the potential to dominate this niche, much in the same way the iPod captured the bulk of the music player market. But at 30 times earnings, Apple is vulnerable to a big setback if earnings fail to meet expectations. The SEC is still investigating the company’s stock option practices, which adds to its risk. Apple is a hold.

MCGRAW-HILL COMPANIES LTD. $63 (New York symbol MHP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 351.3 million; Market cap: $22.1 billion; WSSF Rating: Average) has three main operations: school textbooks (40% of sales in 2006, 21% of profit); financial information under the Standard & Poor’s brand (44%, 76%); and the media division which includes BusinessWeek magazine and four TV stations (16%, 3%). McGraw-Hill’s specialized information products and databases are ideally suited for the Internet, and it is rapidly expanding its online services. Electronic distribution speeds up delivery and cuts costs for postage and paper, while its mainly subscription based services gives it predictable revenue streams. In 2006, McGraw-Hill’s profits before one-time items grew 12.3%, to $2.56 a share (total $939.3 million) from $2.28 a share ($872.3 million) in 2005. The company began expensing stock option costs in 2006, which cut its earnings by $0.23 a share. Revenue grew 5%, to $6.3 billion from $6.0 billion....

Advertisers continue to shift spending to Internet sites and away from newspapers and other print publications. But these three leading publishers are doing a good job adapting their businesses to the Internet, and profiting from it. They own some of the best-known brands in this industry, which gives their online properties instant credibility. Strong web sites also make it easier for them to attract advertisers with custom packages that include a variety of platforms. We feel all three will thrive as they expand their Internet activities. But only two are buys right now....