SAP

EUROPEAN EQUITY FUND $11.98 (New York symbol EEA; CWA Fund Rating: Conservative) invests mainly in large-capitalization European stocks in the 13 countries that use the Euro currency. This includes Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain. The fund’s top holdings are: Societe Generale (French bank), Compagnie de Saint Gobain (French building products), SAP (German software), Banca Intesa (Italian bank), Sanofi- Aventis (French pharmaceuticals), Telefonica (Spanish telecom), Hypo Real Estate (German mortgage finance), AXA (French insurance), Vallourec (French steel tube maker) and Pernod Ricard (French wines & spirits)....

The food-processing industry seems dull to many investors, but sometimes it creates surprisingly large capital gains. That can happen when a company builds brand names that generate rising sales at premium prices. On the other hand, because consumers tend to stick with brands they know and trust, food processors offer a substantial margin of safety. Here are two leading food processing companies pursuing opposite strategies. Saputo is expanding through acquisitions, mainly of smaller competitors that it can quickly absorb. In contrast, Maple Leaf Foods is consolidating its operations to focus on its more profitable businesses. Still, both approaches should improve their long-term profitability. SAPUTO INC. $39 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 103.2 million; Market cap: $4.0 billion; SI Rating: Average) is Canada’s largest producer of dairy products. Major brands include Saputo, Armstrong, Stella and Dairyland. The company is also the fifth-largest cheese producer in the United States, and the third-largest dairy company in Argentina. Saputo’s Canadian businesses supply 80% of its profit....

SAPUTO INC. $39 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 103.2 million; Market cap: $4.0 billion; SI Rating: Average) is Canada’s largest producer of dairy products. Major brands include Saputo, Armstrong, Stella and Dairyland. The company is also the fifth-largest cheese producer in the United States, and the third-largest dairy company in Argentina. Saputo’s Canadian businesses supply 80% of its profit. Revenue fell from $3.5 billion in 2002 (fiscal years ended March 31) to $3.4 billion in 2003, but climbed steadily to $4.0 billion in 2006. Profits rose from $1.54 a share (total $160.2 million) in 2002 to $2.20 a share ($232.1 million) in 2005. A writedown cut profits in 2006 to $1.82 a share ($192.1 million). Much of Saputo’s recent growth has come from acquisitions. That’s because the North American dairy business is a mature, slow-growing industry, and acquisitions are a faster and at times cheaper way to expand market share than internal growth....

SAPUTO INC. $38 (Toronto symbol SAP; Aggressive Growth Portfolio; Consumer sector; SI Rating: Average) will likely earn an extra $0.06 a share a year thanks to a ruling by agricultural regulators in the United States that will cut the cost of bulk milk for cheese makers like Saputo. However, the cut is only half of what cheese makers were asking for. Due to shrinking profit margins, the decision could prompt smaller companies to put themselves up for sale. Saputo has a strong history of consolidating acquisitions and cutting costs, and would be a likely buyer. It would probably focus on specialty cheese companies, which are less sensitive to milk prices than regular cheeses....

SAPUTO INC. $35 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; SI Rating: Average) is the largest dairy food processor in Canada. Its main brands include “Armstrong”, “Frigo” and “Stella”. Canada accounts for two-thirds of its revenue. Saputo also has dairy operations in the United States and Argentina. Saputo’s revenue fell from $3.5 billion in 2002 (fiscal years end March 31) to $3.4 billion in 2003, but grew steadily to $4.0 billion in 2006. Income rose from $1.54 a share (total $160.2 million) in 2002 to $2.20 a share ($232.1 million) in 2005. However, a writedown cut Saputo’s earnings in 2006 to $1.82 a share ($192.1 million). The company relies on acquisitions to fuel its growth. Although this adds to its risk, Saputo has a good history of quickly integrating new businesses and cutting their costs....

Many investors see the food industry as stable and slow-moving. However, food is in the news every day. Consumers worry about the risk of common foods from transfats and other ingredients. New scientific studies link health with the presence of vitamins, minerals and other food components. Obesity is a growing concern as it becomes more common and its risk becomes better understood. This volatile situation creates opportunities for well-managed food producers like these three. All are improving their market share with new products, and cutting costs. They are also enhancing their longterm potential with new projects outside of Canada. CANADA BREAD COMPANY, LTD. $61 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; SI Rating: Above average) is a leading supplier of fresh and frozen baked goods to supermarkets and restaurants. It also makes pastas and sauces. Its main brands include “Dempster’s”, “Tenderflake” and “Olivieri”....

EUROPEAN EQUITY FUND $10.64 (New York symbol EEA; CWA Fund Rating: Conservative) invests mainly in large-capitalization European stocks in the 12 countries that use the Euro currency. This includes Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. The fund’s manager is Deutsche Asset Management, owned by Deutsche Bank, one of the world’s largest banks. European Equity Fund can also invest up to 20% of its assets in major stocks in other European countries. The fund’s top holdings are: Total SA (French oil & gas), Societe Generale (French bank), E.ON (German utility), SAP (German software), Banca Intesa (Italian bank), DaimlerChrysler (German automaker), Siemens (German industrial conglomerate), Hypo Real Estate (German mortgage finance), AXA (French insurance) and Capitalia (Italian bank)....

SAPUTO INC. $33 (Toronto symbol SAP; SI Rating: Average) has made itself the top dairy producer in Canada in the past few years through acquisitions. However, heavy regulation limits Saputo’s growth in Canada. Consequently, the company is aggressively expanding outside Canada. It is targeting the United States where it’s now the fifth-largest cheese producer, and Argentina, where it’s the third-largest dairy company. Saputo earned $0.43 a share (total $45.0 million) in its third fiscal quarter ended December 31, 2005, down 21.8% from $0.55 a share ($58.3 million) a year earlier....

It pays to be skeptical of companies that grow by acquisition. Even the most promising acquisitions can come with hidden problems and unexpected costs that devastate the buyer’s finances. However, some companies are strong enough to overcome the drawbacks of growing by acquisition. Here are four examples. Only three are buys right now, and then only for aggressive investors. SAPUTO INC. $33 (Toronto symbol SAP; SI Rating: Average) has made itself the top dairy producer in Canada in the past few years through acquisitions. However, heavy regulation limits Saputo’s growth in Canada....

UNIVERSAL FUTURE FUND $18.38 (CWA Rating: Aggressive) has about half of its holdings invested in technology or information-related firms. However, it cuts risk by picking large-capitalization, well-established companies in those fields. As well, the rest of Universal Future Fund’s portfolio is invested in high-quality, conservative stocks. The top holdings of this $567 million fund are Research in Motion, Texas Instruments, Rogers Commmunications, Cognos Inc., Sun Life Financial, SAP AG, Shoppers Drug Mart, Workbrain Corp., eBay and Celestica Inc. Universal Future Fund’s one-year gain is 5.6%. The Nasdaq composite index (in Canadian dollars) lost 1.8% over the same period. The fund has an MER of 2.47%....