stock prices

Japanese stock markets have moved down lately along with global markets. As well, recent election losses by the ruling Liberal Democratic-led coalition may slow some economic and social reforms. However, overall, we think that Japan’s economy will continue to grow and push stock prices up. JAPAN EQUITY FUND $8.12 (New York symbol JEQ; CWA Rating: Aggressive) invests mostly in large capitalization stocks on the Tokyo Stock Exchange. The Japan Equity Fund’s top holdings include: Toyota Motor, Mitsubishi UFJ Financial Group, Mizuho Financial, Matsushita Electric Industrial, Nomura Holdings, Mitsubishi Heavy Industries, Canon, Takeda Pharma, and NTT....

TRANSCANADA CORPORATION $37 (Toronto symbol TRP; SI Rating: Above average) has raised $1.7 billion in an issue of common shares. The company will use the cash to fund its $3.4 billion U.S. purchase of natural gas pipelines and storage facilities in Texas and several midwestern states. Dilution fears have hurt the stock in the past few weeks. The extra shares will cut the company’s 2007 earnings by roughly $0.05 a share; TransCanada earned $1.90 a share in 2006, excluding unusual items. But the steady cash flow from these new assets will help offset the dilution. TransCanada also received regulatory approval for a crucial part of its Keystone pipeline project, which would transport crude oil from Alberta to the U.S. Midwest. Keystone will cut TransCanada’s reliance on gas pipelines, and help it take advantage of expanding production in Alberta’s oil sands region....

STATE STREET CORP. $68.35, New York symbol STT, has agreed to acquire rival Financial Services Corp. in an all-stock transaction worth $4.5 billion, or roughly 20% of State Street’s market cap of $22.7 billion. Financial Services provides custodial and related services to institutional investors. State Street investors will own roughly 85% of the combined company. The company anticipates between $625 million and $675 million in pre-tax restructuring charges. But merging the two firms’ back offices and technology platforms should save State Street between $345 million and $365 million in the first two years, and bring additional savings in future years. State Street’s stock moved down on the news, due to concerns over the company’s ability to reach its cost savings targets. It may also have trouble hanging on to some Financial Services’ clients. The stock will probably stay in a narrow range until it realizes some of the benefits of the merger....

A question investors often ask at this time of year is “What role should bonds play in my RRSP?” If you’re going to hold bonds, an RRSP is a good place for them. That’s because bond interest lacks any tax advantages, unlike dividends from Canadian companies, which carry the dividend tax credit. Bonds usually have fixed maturity dates as well, so you can’t defer capital gains indefinitely, as you can with stocks. But the bigger question is this: should you hold any bonds at all? Holding a mix of bonds and stocks will reduce the volatility of your portfolio over long periods. But it will also cut the long-term return on your portfolio, especially with bond yields as low as they are today....

Both BCE and Telus have unveiled plans to convert into income trusts, which helped spark a rise in their stock prices. Canada’s other big telecom company, Manitoba Telecom, moved up on rumors that it too would convert. The trust structure will let BCE and Telus avoid a big tax increase in the next few years as certain tax shelters expire. But investors have higher payout expectations of a trust compared with a regular company. Telecom companies must invest large sums in new equipment, or risk losing customers. These costs could hurt BCE’s and Telus’s ability to raise future cash distributions....

Uncertainty over interest rates, oil prices and the Mideast situation has hurt world equity markets in the past few months. However, we feel that this is a temporary setback, and not the start of a protracted bear market. These three investment firms earn much of their income based on the value of the securities they manage. Consequently, the recent downturn has hurt their short-term earnings growth and stock prices. Our view is that their earnings will probably rebound with the markets, particularly as we get closer to the two-year period before the next Presidential election. In the meantime, we see them as worthwhile holds....

Many tech stocks have moved down this year. The decline is largely due to investor uncertainty that corporations will spend heavily this year on new technology. Many companies are instead focusing on consolidating their existing technologies and cutting costs. On the other hand, spending by consumers on new technology remains steady. Despite lower stock prices, it would be a risky mistake to load up on tech stocks in your portfolio, since a major turnaround could take years to arrive. You also need to avoid junior techs that may have more conceptual than financial appeal. Many such stocks can make great scientific progress without making much if any money for investors. If you want to invest in tech funds, limit your investment to modest quantities. And these funds should only make up a portion of the manufacturing sector holdings in your portfolio. Above all, invest only in funds, like these two, that focus on established businesses rather than start-ups....

The brokerage industry is organized in a way that makes it hard for investors to find a good broker. The industry mostly pays brokers on commission, and commissions vary with the type of investment. That arrangement gives brokers an incentive to trade. It also gives them an incentive to place their clients in new issues and in-house mutual funds, which are more profitable for the broker but expose you to above-average risk and below-average returns. Brokers may also get incentives for selling securities that their firm has in inventory and wants to dump. This situation naturally attracts individuals who are willing to abuse their clients for their own gain. The worst of these individuals rarely last long in the brokerage business. However, if you fail to choose a broker carefully, you can wind up dealing with a series of bad brokers over a period of years or even decades, at great cost to your finances. ...

Rising stock prices inevitably lead some investors to get too confident and make dumb mistakes. I’ve seen it again and again since 1964, when I had the good fortune to stumble into an investing-related part-time job at age 16. Back then, investors were still shell-shocked at memories of the 1962 market collapse. But a great deal changed by the end of that decade. As the market rose, investors forgot the lessons and caution they learned from their 1962 losses. A new generation of money managers (the so-called ‘gunslingers’) rose to prominence. The gunslingers scandalized older money managers with tactics such as buying ‘letter stock’. This was an investment in junior companies that had no market for their common stock. The buyer had to send a letter to the securities commission, promising not to sell the stock until the company produced an acceptable prospectus. Of course, some companies went broke before they got around to producing a prospectus....

With their first budget, the Conservatives are increasing the federal dividend tax credit on Canadian dividend income. If fully matched by the provinces, this will lower taxes on dividends by about five percentage points for top income earners. That means you’ll pay less tax on dividend income than on capital gains. However, that would make it more advantageous for investors to seek less risky dividends in place of risker capital gains. Just as dividends are taxed at a lower rate than lower-risk interest income, it stands to reason that in a future budget, the Conservatives will introduce measures to lower taxes on capital gains. This could take the form of deferring the capital gains tax for individuals on the sale of assets when the proceeds are reinvested within six months, as proposed in the election campaign....