recent acquisitions

Harvest Energy Trust, $5.01, symbol HTE.UN on Toronto (Units outstanding: 158.2 million; Market cap: $792.5 million), is an energy trust with upstream (or exploration and production) and downstream (or refining) segments. Harvest’s production properties are located in Alberta and Saskatchewan, and its refining business consists of an oil refinery with a capacity of 115,000 barrels per day located at Come by Chance, Newfoundland. Harvest Energy Trust first sold units to the public at $8, and began trading on Toronto in November 2002. Calgary-based Harvest continues to grow by acquisition. The trust focuses on buying mature producing properties; its recent acquisitions include Reveal Resources (March 2007), Grand Petroleum (August 2007) and Greenfield Resources (August 2008). In July 2008, Harvest bought a private oil and gas company, and, in September 2008, it added the assets of another private company. In the three months ended September 30, 2008, Harvest’s cash flow per unit rose 45.7%, to $1.34 from $0.92 a year earlier. The gain was largely because of higher oil and gas prices, acquisitions and refining improvements. Harvest’s revenues rose 53.5%, to $1.7 billion from $1.1 billion, while its average production fell 8.4%, to 54,926 barrels of oil equivalent per day, because of longer-than-expected repairs to one of its gas plants. Harvest’s production mix is about 73% oil and 27% gas....

PHILIPS ELECTRONICS N.V. ADRs $20 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 972.4 million; Market cap: $19.4 billion; WSSF Rating: Average) makes consumer electronic products, such as TV sets, DVD players and kitchen appliances (roughly 50% of revenue). The company also makes lighting equipment (25%) and high-end medical equipment (25%). Each American Depository Receipt represents one Philips common share. Due to the slowdown in consumer spending, Philips plans to speed up its current restructuring plan. It now expects to report charges of roughly 1.3 billion Euros in the fourth quarter of 2008 (1 Euro = $1.44 U.S.). These charges include writedowns of Philips’ holdings in companies that make computer chips and flat-panel TV screens. To put these costs in context, Philips earned 347 million Euros in the three months ended September 30, 2008, up slightly from 346 million Euros a year earlier. However, earnings per share grew 19.4%, to 0.37 Euros from 0.31 Euros, on fewer shares outstanding. Revenue fell 2.0%, to 6.3 billion Euros from 6.5 billion Euros....

AT&T INC. $28 (New York symbol T) earned $0.55 a share in the third quarter of 2008, up 10.0% from $0.50 a year earlier. Most of that gain was due to strong demand for Apple’s iPhone and high-speed Internet services. If you exclude costs related to acquisitions and other unusual items, earnings per share fell 5.6% to $0.67 from $0.71. Revenue grew 4.0%, to $31.3 billion from $30.1 billion. Buy. BUCKEYE PARTNERS L.P. $35 (New York symbol BPL) has raised its quarterly distribution rate by 1.4%, from $0.8625 a unit to $0.875. The new annual rate of $3.50 yields 10.0%. Buckeye’s recent acquisitions of natural gas storage terminals cut its reliance on its traditional gasoline and jet fuel pipelines. The new operations should also help it keep raising its distributions. Buy. NEWELL RUBBERMAID INC. $12 (New York symbol earned $0.36 a share before one-time items in the third quarter of 2008, down 30.8% from $0.52 a year earlier. Most of the drop was due to lower consumer spending on its household products. Sales grew 4.3%, to $1.8 billion from $1.7 billion, due to acquisitions. The company uses oil to make many of its products, so falling oil prices help its profit margins. The $0.84 dividend still seems secure, and yields 7.0%. Buy.

FIRSTSERVICE CORP. $14.21 (Toronto symbol FSV; SI Rating: Extra Risk) (416-960-9500; www.firstservice.com; Shares outstanding: 27.9 million; Market cap: $396.5 million) operates in the expanding real estate services market, providing services in the following areas: commercial real estate; residential property management; and property improvement. The company has more than 17,000 employees. FirstService continues to expand profitably through acquisitions and internal growth. Both avenues still offer lots of potential for expansion in the fragmented service sector. Revenues rose 23.5% in the three months ended June 30, 2008, to $457.8 million from $370.5 million a year earlier. (All figures except share price in U.S. dollars.) Excluding one-time items, earnings per share rose 6.3%, to $0.51 from $0.48. Cash flow per share rose 8.2%, to $1.06 from $0.98....

This downturn is going a lot further down that I ever expected. I still see it as a financial panic, rather than an indicator of the depth of the recession that now seems to have started. In other words, the market drop reflects a drying up in lending activity and fear of a depression, rather than a drying up in business activity. In the depths of a market downturn, some observers always predict that we are on the verge of another 1930s depression. In the 1930s, however, the U.S. and other governments did all the wrong things. They raised taxes, raised tariffs and did nothing to halt bank failures. The U.S. and other governments are doing all the right things to revive lending and credit, in my view. They are injecting funds into the financial system, arranging takeovers of failing financial companies, and moving to protect depositors. Eventually these efforts will pay off. Lending will then swiftly revive, and the market will go through a sharp recovery. There is no way to tell when that will happen, but you can bet that it will spur widespread disbelief, and warnings that it is just a temporary reprieve and that the downturn will soon resume....

SAPUTO INC. $28 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 206.4 million; Market cap: $5.8 billion; SI Rating; Average) is Canada’s largest producer of dairy products, including milk, butter and cheese. It also produces dairy products in the United States, Argentina and Europe. These operations account for 97% of its revenue. The remaining 3% comes from its bakery operations, which make snack-cakes, cookies and tarts. Much of the company’s recent growth comes from 16 acquisitions of bargain stocks over the past 10 years. We generally downplay companies that expand through acquisitions, due to the hidden risk that comes with most new purchases. However, Saputo has a strong record of picking up struggling operations with bargain stocks and quickly turning them around.

Focused on international markets

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Some investors worry that Washington’s $700 billion bailout of the banking industry is going to fall apart, and that this will lead to a rise in gold and a drop in the stock market. We think the bailout will go through. The only obstacle to it is the political bickering and posturing that is bound to go into a highly visible effort like this, all the more so just prior to a presidential election. There is always a possibility that the market will move lower from here. Meanwhile, gold will stay volatile. But we still feel stock prices will hit bottom over the next month or two, then move up for six months or more. WASHINGTON MUTUAL INC. $0.16, New York symbol WM, fell over 90% on Friday before the New York exchange halted trading. That’s because banking regulators have seized control of the company. Regulators subsequently sold the assets of Washington Mutual’s main banking subsidiary to J.P. MORGAN CHASE & CO. $48.24, New York symbol JPM. The purchase included branches, deposits and the loan portfolio....

TRANSCANADA CORP. $38.00, Toronto symbol TRP, and U.S.-based oil producer ConocoPhillips each own half of the proposed Keystone pipeline project, which will transport crude oil from Alberta’s oil sands to the United States. Due to strong interest from oil shippers, the partners now plan to extend the pipeline from the U.S. Midwest to refineries in the Gulf Coast region. They will also expand Keystone’s total capacity. This $7 billion U.S. expansion will increase the total cost of the project to $12.2 billion U.S. TransCanada’s share of that total comes to $6.1 billion U.S., which is equal to 2.4 times its 2007 cash flow of $2.6 billion (Canadian) or $4.93 a share. Keystone will reduce TransCanada’s reliance on its traditional gas pipeline business. The partners aim to complete this extension by the end of 2011....

FIRSTSERVICE CORP. $24 (Toronto symbol FSV; SI Rating: Extra Risk) (416-960-9500; www.firstservice.com; Shares outstanding: 28.8 million; Market cap: $687.4 million) operates in the rapidly growing service sector, providing services in the following areas: commercial real estate; residential property management; integrated security services; and property improvement services. The company continues to expand profitably through acquisitions and internal growth. Both avenues still offer lots of potential for expansion in the fragmented service sector. FirstService reported 34% higher revenues in the three months ended December 31, 2007, to $502.2 million from $374.8 million a year earlier. (All figures except share price in U.S. dollars.) Excluding one time items, earnings per share rose 31.8%, to $0.29 from $0.22. Cash flow per share rose 35.3%, to $0.92 from $0.68. FirstService now trades at 6.5 times cash flow....

BOMBARDIER INC. $6.32 (Toronto symbol BBD.A) earned $0.26 a share in its fiscal year ended January 31, 2008, up 85.7% from $0.14 in the prior year (all amounts except share price in U.S. dollars). Revenue grew 17.5%, to $17.5 billion from $14.9 billion. Aircraft deliveries rose 10.7% in fiscal 2008, to 361 from 326. Revenue at Bombardier’s train division grew 18.2%, thanks to strong demand for passenger railcars in China and India. Buy. INDIGO BOOKS & MUSIC INC. $13 (Toronto symbol IDG) is doing a good job attracting users to its website with online community groups based on authors and genres. Since their launch in October 2007, these groups now have over 100,000 members. Features like this help build customer loyalty and spur sales. Buy. TRANSCONTINENTAL INC. $18 (Toronto symbol TCL.A) has increased its quarterly dividend 14.3%, from $0.07 a share to $0.08. The new annual rate of $0.32 yields 1.8%. Buy....