spin off

CONAGRA FOODS INC. $25 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 414.5 million; Market cap: $10.4 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.8%; TSINetwork Rating: Average; www.conagrafoods.com) makes a wide variety of packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter and Orville Redenbacher popcorn. The company gets 65% of its sales from consumers. Businesses, such as restaurants, account for the remaining 35%. The company’s sales fell 3.5%, from $12.0 billion in 2007 to $11.6 billion in 2008. That’s because ConAgra sold its commodity trading operations. Sales rebounded to $12.7 billion in 2009, but fell 5.1%, to $12.1 billion, in 2010. Sales rose to $12.3 billion in 2011, thanks to acquisitions and price increases....

These two well-established food makers are using different strategies to increase their sales and profits. Heinz continues to expand overseas, while ConAgra prefers to focus on its domestic business. Both companies continue to cut costs and improve their efficiency. Both strategies should help Heinz and ConAgra spur their longterm growth, and give them lots of room to keep raising their dividends. As well, both continue to trade at attractive multiples to earnings....

GOOGLE INC., $490.92, Nasdaq symbol GOOG, is buying Motorola Mobility Holdings Inc. (New York symbol MMI). Motorola Mobility makes mobile phones and tablet computers that use Google’s Android operating system software. Google will pay $40.00 a share for Motorola Mobility, or a total of $12.5 billion. Google held cash of $39.1 billion, or $121.15 a share, on June 30, 2011, so it can easily afford this purchase. The company aims to close the transaction by the end of 2011. The purchase price is 63% more than Motorola Mobility’s trading price just prior to the takeover announcement. That’s why Google’s stock fell on the news. As well, investors are concerned that software specialist Google is buying a struggling manufacturing company. Moreover, Google has agreed to pay a $2.5-billion break-up fee to Motorola Mobility if the deal falls through....

TUPPERWARE BRANDS CORP., $71.45, New York symbol TUP, has gained 174.8% since we first recommended it in the May 2007 Wall Street Stock Forecaster at $26. It’s also up 56.6% since we named it as our “#1 Stock of the Year” for 2011 in the January 28, 2011 Hotline. The company makes high-quality products for the home, including plastic food and beverage containers and children’s educational toys. It also makes wide range of cosmetics, bath oils and fragrances. Tupperware sells its products through independent dealers and over the Internet, instead of retail stores. This keeps its distribution costs down, and gives it greater flexibility to handle rising prices for plastic resins made from petroleum. As well, Tupperware continues to see strong growth in emerging markets like Brazil, Turkey and Indonesia....

El Paso Corp., $20.43, symbol EP on New York (Shares outstanding: 762.0 million; Market cap: $15.7 billion; www.elpaso.com), ships, gathers, processes and stores natural gas. It also produces and explores for natural gas and oil. The company owns or has an interest in 42,000 miles of pipeline. El Paso’s profits have lagged so far this year, partly because of the weak economy in California and the southwestern U.S. As well, the cost of building new pipelines has been higher than El Paso expected. However, those new pipelines will start up soon, and the company should earn $1.10 a share this year. The stock trades at 18.6 times that estimate. In an effort to unlock shareholder value, El Paso plans to spin off its exploration and production unit into a separate, publicly traded company by handing out shares to its shareholders. That spinoff could give El Paso’s stock price a boost, but it’s likely already largely reflected in the company’s current share price....

SARA LEE CORP. $19 (New York symbol SLE; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 639.3 million; Market cap: $12.1 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.4%; TSINetwork Rating: Above Average; www.saralee.com) has gained 58.3% since we first recommended it in the December 2009 Wall Street Stock Forecaster. That’s because the company is focusing on its processed-food operations, and has sold most of its less-profitable household and body-care products businesses. As a smaller company, Sara Lee is reportedly attracting takeover offers. However, Sara Lee may instead spin off its meat and beverage businesses as separate companies. Break-ups like this help unlock hidden value, and generally lead to above-average results for a period of years. Sara Lee is still a buy.

MOTOROLA INC. $7.30 (New York symbol MOT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.3 billion; Market cap: $16.8 billion; Price-to-sales ratio: 0.8; No dividends paid since January 2009; WSSF Rating: Average) has settled a three-year-long patent dispute with Research in Motion Ltd. (Nasdaq symbol RIMM). Research in Motion makes the popular BlackBerry smartphone. Research in Motion will pay Motorola an undisclosed sum, as well as regular royalties related to certain wireless technologies. The two companies also agreed to drop all outstanding lawsuits. Setting this dispute improves the prospects for Motorola’s cellphone business, which it plans to spin off as a separate company next year. However, this business is still losing money. It also faces increasing competition from other smartphones, including Apple’s iPhone and the BlackBerry....

We hardly ever recommend buying new issues when they are first sold to the public, and often stay away from them for months, if not years, afterward. That’s because new issues often come to market when it’s a good time for the company and/or its insiders to sell, but that’s not necessarily a good time for you to buy.

Spinoffs are in many ways the antithesis of new issues....

Most power plants are located near big cities to keep transmission costs down. However, wind farms tend to be in remote areas with steady winds. Growth in wind power will force utilities to expand their electrical-power grids. That should lead to higher sales for transmission-equipment suppliers, such as General Electric and ABB. GENERAL ELECTRIC CO. $12 (New York symbol GE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.6 billion; Market cap: $127.2 billion; Price-to-sales ratio: 0.8; WSSF Rating: Above Average) is one of the world’s largest makers of industrial equipment. Products include aircraft engines, medical-imaging scanners and locomotives. GE is also a major supplier of electrical infrastructure equipment, such as turbines, voltage regulators and fuses. These accounted for 21% of its 2008 revenue, and 23% of its profit. Moreover, as a leading maker of windmills and nuclear-power plants, GE is in a good position to profit from new environmental rules that limit greenhouse-gas emissions....

GENERAL ELECTRIC CO. $12 (New York symbol GE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.6 billion; Market cap: $127.2 billion; Price-to-sales ratio: 0.8; WSSF Rating: Above Average) is one of the world’s largest makers of industrial equipment. Products include aircraft engines, medical-imaging scanners and locomotives. GE is also a major supplier of electrical infrastructure equipment, such as turbines, voltage regulators and fuses. These accounted for 21% of its 2008 revenue, and 23% of its profit. Moreover, as a leading maker of windmills and nuclear-power plants, GE is in a good position to profit from new environmental rules that limit greenhouse-gas emissions. In the three months ended June 30, 2009, GE’s revenue fell 16.6%, to $39.1 billion from $46.8 billion a year earlier. Revenue fell 29% at GE Capital, the company’s struggling finance business, but just 7% at its industrial operations. Earnings fell 48.4%, to $2.9 billion, or $0.26 a share, from $5.6 billion, or $0.54 a share....