spin off

AGRIUM INC. $102 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 158.0 million; Market cap: $16.1 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.0%; TSINetwork Rating: Average; www.agrium.com) has gained 30% since May 2012....

AGRIUM INC. $102 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 158.0 million; Market cap: $16.1 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.0%; TSINetwork Rating: Average; www.agrium.com) has gained 30% since May 2012. That’s partly due to pressure from activist investor Jana Partners LLC, which owns roughly 4% of Agrium’s stock. Jana wants Agrium to spin off its retail business as a separate company. This division has 872 stores in North America, South America and Australia that sell seed, fertilizer and other products to farmers. They also supply two-thirds of Agrium’s revenue and half of its earnings. Jana feels the spinoff, combined with cost cuts at the retail division, could potentially unlock $50 a share of value. Agrium disputes these figures and feels that the steady revenue streams from the retail business cut its exposure to volatile fertilizer prices, as well as its overall risk....

CENOVUS ENERGY INC., $34.42, Toronto symbol CVE, has agreed to buy oil sands properties in northern Alberta and Saskatchewan held by Oilsands Quest, which went bankrupt in November 2011. Cenovus will pay $10 million when the sale closes next week. This is a small purchase for the company, which reported cash flow of $925 million, or $1.22 a share, in the three months ended June 30, 2012. Most of these new properties are next to to Cenovus’s 100%-owned Telephone Lake oil sands project. If regulators approve, the company could begin developing Telephone Lake in 2014....

From time to time, companies set up one or more of their divisions or subsidiaries as an independent company, then hand out shares in that company to their own shareholders, as a special dividend or “spinoff”.

Many investors seem to view spinoffs as a nuisance, because they leave you with a tiny holding in a stock you didn’t choose and that you know little about....

WINDSTREAM CORP. $9.59 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 588.0 million; Market cap: $5.6 billion; Price-to-sales ratio: 1.1; Dividend yield: 10.4%; TSINetwork Rating: Average; www.windstream.com) reported revenue of $1.5 billion in the quarter ended June 30, 2012, up 49.3% from $1.0 billion a year earlier. The gain is mainly due to its December 2011 purchase of PAETEC Holding Corp., which sells telecommunication services to businesses. Integration costs cut its earnings by 43.4%, to $54.7 million, or $0.09 a share, from $96.7 million, or $0.19 a share. As a result of this purchase, Windstream now gets 68% of its revenue from broadband services, up 2.5% from a year earlier. That’s helping it offset declining traditional phone revenue. The company feels that closing overlapping functions will save it $50 million in 2012 and $100 million by the end of 2014. That should let it keep paying quarterly dividends of $0.25 a share, for a 10.4% annualized yield....

PFIZER INC. $24 (New York symbol PFE; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 7.5 billion; Market cap: $180.0 billion; Price-to-sales ratio: 2.8; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.pfizer.com) plans to spin off its animal health subsidiary, which makes drugs for livestock and pets, as a separate, publicly traded company. As part of this plan, Pfizer will sell up to 20% of this business. The new company, which will be called Zoetis Inc., supplied 6% of Pfizer’s 2011 revenue of $67.4 billion.

Pfizer should complete the offering in the first half of 2013. After that, it will probably hand out its remaining shares in Zoetis to its own shareholders.

Pfizer is a buy.

...

AGRIUM INC., $98.86, Toronto symbol AGU, rose 2% this week on news that activist investment firm Jana Partners LLC now owns roughly 4% of Agrium’s stock. This is the same company that pressured McGraw-Hill (New York symbol MHP) to split itself into two new firms: one that will produce financial-information products and one that will publish textbooks for colleges and schools. McGraw-Hill is a recommendation of Wall Street Stock Forecaster, our newsletter that focuses on U.S. stocks. Jana now wants Agrium to spin off its retail division as a separate company. These stores sell seed, fertilizer and other products to farmers. They also supply two-thirds of Agrium’s revenue and half of its earnings....

Drug makers should see strong gains over the next few years, particularly due to the aging population. However, they still face challenges. For example, they must continually invest large sums to develop new drugs as patents expire on older ones. New drugs can also take years to win regulatory approval. As well, the pharmaceutical business is extremely competitive, and new, more effective products could come along at any time. To cut your risk, we recommend that you focus on leaders like Pfizer. The company recently lost the exclusive rights to its top-selling Lipitor cholesterol drug, but it has plenty of other promising products on the horizon. Its strong balance sheet is also helping it increase its research spending and buy other drug makers. PFIZER INC. $23 (New York symbol PFE; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 7.5 billion; Market cap: $172.5 billion; Price-to-sales ratio: 2.5; Dividend yield: 3.8%; TSINetwork Rating: Above Average; www.pfizer.com) is the world’s largest pharmaceutical drug maker. Its top-selling brands include Lipitor (for high cholesterol), Lyrica (epilepsy), Celebrex (arthritis pain), Viagra (erectile dysfunction), Xalatan (glaucoma), Norvasc (hypertension) and Zyvox (bacterial infections). The company is also the world’s fifth-largest maker of over-the-counter drugs. Its major brands include Advil (pain relief), Centrum (vitamins) and Robitussin (cough syrup)....

PFIZER INC. $23 (New York symbol PFE; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 7.5 billion; Market cap: $172.5 billion; Price-to-sales ratio: 2.5; Dividend yield: 3.8%; TSINetwork Rating: Above Average; www.pfizer.com) is the world’s largest pharmaceutical drug maker. Its top-selling brands include Lipitor (for high cholesterol), Lyrica (epilepsy), Celebrex (arthritis pain), Viagra (erectile dysfunction), Xalatan (glaucoma), Norvasc (hypertension) and Zyvox (bacterial infections). The company is also the world’s fifth-largest maker of over-the-counter drugs. Its major brands include Advil (pain relief), Centrum (vitamins) and Robitussin (cough syrup).

Pfizer gets about a third of its revenue by selling its products to drug wholesalers. The other two-thirds come from direct sales to retailers, hospitals, clinics and government agencies. Overseas markets supply 60% of its revenue.

Acquisitions added top-selling drugs

...

AT&T INC., $27.41, New York symbol T, is facing strong opposition from regulators over its planned purchase of rival wireless carrier T-Mobile from Germany’s Deutsche Telekom AG. Adding T-Mobile would make AT&T the largest wireless carrier in the U.S., with 132 million subscribers. The Federal Communications Commission feels the combination of AT&T and T-Mobile would hurt competition in the wireless market. As well, the Department of Justice has launched a court challenge to block the deal. The trial should begin in February 2012. Due to the growing uncertainty over this deal, AT&T said that it will record a $4-billion charge against its earnings for the fourth quarter of 2011. That represents the break-up fee ($3 billion in cash plus $1 billion in wireless spectrum) that AT&T agreed to pay Deutsche Telekom if it can’t complete the purchase....