public offering

A key part of our approach to investing is spreading your money out among the five economic sectors: Finance; Utilities; Consumer Goods & Services; Resources & Commodities; and Manufacturing & Industry. That way, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or changes in investor fashion. Generally speaking, stocks in the Resources & Commodities sector and the Manufacturing & Industry sectors are apt to expose you to above-average volatility, while those in the Finance and Utilities sectors involve below-average volatility. Consumer stocks are in the middle. Due to the recent market downturn, investors are now taking a closer look at Consumer stocks. But the Consumer sector is a two-tier market, where some stocks thrive while others stagnate. That’s why it pays to zero in on well-established companies with strong brands that are attractive in relation to current prices, like these three....

TIM HORTONS INC. $35 (Toronto symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 188.8 million; Market cap: $6.6 billion; SI Rating: Extra risk) operates 2,733 coffee-and-donut shops in Canada, and 345 in the United States. Franchisees operate 97.5% of its stores. Much of the company’s growth comes from a steady stream of new products, and innovative promotions. Healthier menu items such as fresh sandwiches, soups and salads have also helped it attract customers who avoid donuts. In the three months ended July 1, 2007, earnings fell 11.9% to $67.2 million from $76.3 million a year earlier. Write-offs related to the company’s initial public offering gave it an unusually low tax rate of 19.8% in the year-earlier quarter. The tax rate in the latest quarter grew to a more normal 33.8%. Per-share earnings fell 7.7%, to $0.36 from $0.39, due to fewer shares outstanding....

TIM HORTONS INC. $32 (New York symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 189.7 million; Market cap: $6.1 billion; WSSF Rating: Extra risk) operates over 2,700 coffee-and-donut shops in Canada, and 340 in the United States. Franchisees operate 97% of its stores. The company was a wholly owned subsidiary of Wendy’s International Inc. up until April 2006. That’s when it sold shares to the public at $23.162 each. In October, Wendy’s handed out its remaining Tim Hortons stock as a tax-deferred dividend. Investors received 1.3542759 shares for every Wendy’s share held....

Fast-food stocks have been among our biggest gainers since the 2002 stock market slump. Despite increasing concerns over nutritional content, Americans are eating more of their meals outside of the home. Fast-food is also an increasingly affordable luxury in developing countries. However, rising gas prices could cut customer traffic and put a damper on profit growth. Rising food and labor costs will also squeeze margins. We designed our system to zero in on fast-food companies whose strong brands and market share will help them overcome these setbacks. Here are three top examples....

To make the most of their asset value, companies may set up a subsidiary as an independent company, then hand out stock in the subsidiary to their own shareholders as a special dividend or spin-off. As a general rule, both the spin-off and its parent do better than comparable stocks for years afterwards. It often takes months or years for the above-average performance to get underway, but not always. One exception is Chipotle Mexican Grill, another is Idearc. Altria began its spin-off of Kraft Foods with a public offering in 2001. The stock stagnated for much of the time since then. But Kraft has strong brands, a steady dividend and a restructuring plan that could invigorate its earnings. A few earnings gains could spur heavy buying by institutional investors. KRAFT FOODS INC. $36 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $57.6 billion; WSSF Rating: Above average) is the world’s second-largest food company, after Nestle. It owns some of the industry’s top brands, including Kraft (cheese), Maxwell House (coffee), Nabisco (biscuits and cookies), Post (cereals) and Oscar Meyer (meats). North America accounts for two-third of its sales....

MOTOROLA INC. $19.85, New York symbol MOT, jumped 7% after billionaire investor Carl Icahn, who owns 1.4% of Motorola’s stock, said he plans to seek a seat on the company’s board of directors. Mr. Icahn says he wants Motorola to enhance its stockholder value by using its cash of $15.6 billion ($6.25 a share) to buy back stock and increase its $0.20 dividend (1.0% yield). He may also pressure Motorola to spin off some of its divisions as independent companies. That would let the company focus on improving profits and market share at its core mobile phone business. Motorola is a buy....

TIM HORTONS INC. $35 (Toronto symbol THI; Aggressive Growth Portfolio, Consumer sector; SI Rating: Extra risk) operates 2,600 stores in Canada that sell coffee, donuts and other foods. The company also has roughly 300 outlets in the United States. Franchisees operate 96.5% of its stores. The company was a wholly owned subsidiary of Wendy’s International Inc. until March 2006. That’s when it completed an initial public offering of common shares at $27.00 each. In September 2006, Wendy’s handed out its remaining 82.75% stake in Tim Hortons to its own shareholders as a taxdeferred special dividend. Tim Hortons’ revenue grew from $926.1 million in 2001 to $1.5 billion in 2005, or 12.8% compounded annually. Profits grew from $0.83 a share (total $132.2 million) in 2001 to $1.28 a share ($205.1 million) in 2004. A $53.1 million pre-tax writedown of goodwill cut profit in 2005 to $1.19 a share ($191.1 million)....

FREESCALE SEMICONDUCTOR INC. (New York symbols FSL $38 and FSL.B $38; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Extra risk) was formerly the chipmaking subsidiary of Motorola Inc. Motorola did a partial public offering of Freescale in 2004. In December of that year, Motorola handed out its remaining Freescale to its own investors as a special dividend or spinoff. The stock started out trading around $17 ($18 for the Class B multiple voting shares) at the time of the spin-off. Freescale has now accepted a $40-a-share all-cash takeover offer from a private investment group. The agreement lets Freescale entertain competing bids until November 4, 2006, but we don’t expect to see a higher bid. Investors should plan to tender to get the full value of the takeover....

SONY CORP. ADRs $44 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) will have to absorb part of the $400 million cost to recall faulty batteries it sold to computer maker Dell Inc. Sony feels the recall will have only a small effect on its profits. In its first fiscal quarter ended June 30, 2006, Sony earned $0.27 per ADR (total $281 million). It lost $0.08 per ADR ($66 million) a year earlier. Each American Depository Receipt represents one common share. After several delays, the company now plans to launch its new PlayStation 3 video game player on November 17. Although priced higher than competing products, PlayStation 3’s advanced features should make it a strong seller....

TIM HORTONS INC. $29 (Toronto symbol THI; Aggressive Growth Portfolio, Consumer sector; SI rating: Extra risk) has 2,900 coffee and donut stores in Canada and the United States. Franchisees own 97% of these outlets. On March 24, 2006, Tim Hortons sold stock to the public at $27.00 each in an initial offering. That cut parent Wendy’s International Inc.'s interest, from 100% to 82.75%. Wendy’s plans to hand out its remaining Tim Hortons shares to its own shareholders by the end of this year. In the three months ended April 2, 2006, Tim Hortons earned $0.39 a share (total $63.6 million), up 30.0% from $0.30 a share ($47.5 million) a year earlier. Most of that gain came from non-recurring tax rulings that cut its tax bill by $10.1 million. Revenue rose 15.2%, to $372.8 million from $323.6 million, thanks to successful new menu items and 27 new stores. Same-store sales rose 8.7% in Canada, and 9.8% in the U.S....