stock split

ALCOA INC. $47.35, New York symbol AA, jumped 10% after losing out in its attempt to buy Canadian aluminum producer Alcan Inc. Anglo-Australian mining company Rio Tinto Ltd. agreed to buy Alcan for $101 a share in cash. The Rio offer is about one third richer than Alcoa’s stock-and-cash offer for Alcan, recently worth roughly $77 per Alcan share. Alcoa has now dropped its Alcan offer. This makes it more likely that Alcoa will attract a takeover offer from some other big mining company, such as BHP Billiton. Alcoa earned $0.81 a share from continuing operations in the second quarter of 2007, down 4.7% from $0.85 a year earlier. The latest quarterly figure includes a $0.04 charge for the temporary shutdown of two facilities, and $0.02 in extra costs related to the Alcan bid. Revenue rose 3.9%, to a record $8.1 billion from $7.8 billion, thanks to higher aluminum prices and volumes....

TECK COMINCO LTD. $83 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 215.8 million; Market cap: $17.9 billion; SI Rating: Average) is the world’s largest producer of zinc, which helps prevent steel from rusting. Zinc accounts for a third of Teck’s revenue. The company is also a major producer of copper and gold. Thanks to the huge jump in metal prices in recent years, Teck’s revenue nearly tripled, from $2.2 billion in 2002 to $6.5 billion in 2006. Earnings before unusual items shot up from $0.15 a share (total $30.0 million) in 2002 to $10.43 a share ($2.3 billion) in 2006. Cash flow per share soared from $1.27 to $11.95. (These figures do not reflect a planned 2-for-1 stock split in May 2007.)

New projects help cut risk

Teck is using its strong balance sheet (it has cash of $5.4 billion or about $25.00 a share, while long-term debt of $1.5 billion is just 0.2 times equity) to diversify into other areas of the resources industry. It’s particularly interested in projects where its mining expertise can help cut costs....

FINNING INTERNATIONAL INC. $54 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 89.5 million; Market cap: $4.8 billion; SI Rating: Above average) is one of the world’s largest dealers of heavy equipment made by Caterpillar Inc., such as tractors, bulldozers, pavers and trucks. Major customers include the mining, forest products and construction industries. Revenue grew at a compound annual rate of 11.8%, from $3.2 billion in 2002 to $5.0 billion in 2006. Most of that growth is due to higher commodity prices, which have spurred strong demand for heavy equipment from mining and oil exploration firms. Profits from continuing operations were $1.68 a share (total $132.3 million) in 2002 and $1.68 a share ($132.0 million) in 2003, but rose to $2.27 a share ($240.7 million) in 2006. (These per-share figures do not reflect a 2-for-1 stock split planned for May 2007.) Cash flow per share rose from $5.99 in 2002 to $6.55 in 2003. It fell to $6.37 in 2004, and to $5.95 in 2005, but grew to $6.71 in 2006....

Finning supplies equipment and services to the mining and oil exploration industries. Thanks to the huge rise in cyclical resource prices, Finning’s stock has doubled in the past five years. The stock could suffer if resource prices fall. But we feel this boom has several years of life ahead, due to spreading industrialization in Asia. The company should also continue to gain from its exposure to the construction industry, particularly as governments increase spending on infrastructure. Despite Finning’s big rise, we feel it still has great long-term appeal. The stock is still attractive in relation to earnings, cash flow and sales. FINNING INTERNATIONAL INC. $54 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 89.5 million; Market cap: $4.8 billion; SI Rating: Above average) is one of the world’s largest dealers of heavy equipment made by Caterpillar Inc., such as tractors, bulldozers, pavers and trucks. Major customers include the mining, forest products and construction industries....

ANDREW PELLER LTD. $12 (Toronto symbol ADW.A; Income Portfolio, Consumer sector; SI Rating: Above average) is the new name for Andres Wines Ltd. The company is Canada’s second-largest producer of wines (after Vincor International Inc.), with about 12% of the market. It sells its products through provincial liquor agencies, as well as roughly 100 retail stores in Ontario. Revenues grew at a compounded annual rate of 11.1%, from $139.0 million in 2002 (fiscal years end March 31) to $211.8 million in 2005. Part of the company’s growth comes from acquisitions, particularly small wineries that specialize in high-quality wines. That has paid off, since premium wines generate higher profits for Peller than regular wines. That trend will likely continue. Recent medical studies that link moderate wine consumption with certain health benefits have also spurred sales....

CANON INC. ADR’s $55 (New York symbol CAJ; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) is a leading maker of business machines such as copiers and printers (67% of revenue), cameras (21%) and optical products such as chips and specialty lenses for TV sets and medical equipment (12%). Markets outside of Japan account for 75% of its total sales.

Each Canon ADR represents one Canon common share. (All per ADR data adjusted for a 3-for-2 stock split in August 2006.)

Canon’s revenue rose from $22.0 billion in 2001 to $33.3 billion in 2004. In 2005, sales fell to $31.8 billion due to the rise in the Japanese Yen. Excluding the currency effect, sales grew 8.3% in 2005. Earnings per ADR grew from $0.95 to $2.48 in 2004, but fell to $2.45 in 2005. Excluding exchange rates, earnings in 2005 rose 11.9%.

New products fueled sales growth

Canon spends close to 8% of its sales of $25 per ADR on research, which makes it look less profitable than it really is. But new products from this research accounted for 66% of Canon’s sales in 2005, up from 44% five years earlier. These products have helped Canon dominate several industries.

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WELLS FARGO & CO. $35 (New York symbol WFC; Conservative Growth Portfolio, Finance sector, WSSF Rating: Average) is the fifth-largest bank in the United States, with assets of $499.5 billion. It operates over 3,000 retail branches, mostly in Western and Midwestern states. It also has 1,000 home mortgage offices. Wells Fargo’s revenue rose from $20.2 billion in 2001 to $32.9 billion in 2005, or 13.0% compounded annually. Its earnings grew at a compounded annual rate of 22.8%, from $0.99 a share (total $3.4 billion) in 2001 to $2.25 a share ($7.7 billion) in 2005 (all per share amounts adjusted for 2-for-1 stock split in August 2006). In the three months ended June 30, 2006, earnings rose 10.7%, to a record $0.62 a share (total $2.1 billion) from $0.56 a share ($1.9 billion) a year earlier. Revenue rose 11.4%, to $8.8 billion from $7.9 billion....

JONES APPAREL GROUP INC. $34 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; WSSF Rating: Average) earned $0.22 a share (total $25.8 million) in the three months ended April 1, 2006, down 69.0% from $0.71 a share ($87.0 million) a year earlier. The company’s sale of its Polo jeans business generated a $45.1 million loss in the latest quarter. Excluding all unusual items, it would have earned $0.66 a share in the latest quarter. Sales fell 9.6%, to $1.22 billion from $1.35 billion. The company is making good progress with its latest restructuring, and should reach its goal of cutting $100 million out of annual costs by the end of 2007. In the meantime, it’s still looking into various ways to enhance stockholder value. These include putting the entire company up for sale. Jones Apparel Group is a hold....

ROYAL BANK OF CANADA $47 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is Canada’s largest bank, with assets of $487.9 billion. In the past few years, Royal has steadily built up its U.S. operations, mainly through acquisitions of regional banks and wealth management firms. Royal prefers to focus on smaller markets like North Carolina where it can quickly build market share. This way, it avoids competing directly with larger U.S. banks. Thanks to a restructuring, earnings from Royal’s U.S. operations in its first fiscal quarter ended January 31, 2006 rose 3.1%, to $101 million from $98 million a year earlier. If you exclude the impact of the rising Canadian dollar, profit at the U.S. division grew 9%. Royal itself earned $0.89 a share (total $1.17 billion) from continuing operations in the quarter, up 18.7% from $0.75 a share ($977 million) a year earlier (all pershare amounts adjusted for a 2-for-1 stock split in April 2006)....

Canadian bank stocks have moved down in recent weeks, mainly due to fears that rising interest rates will hurt demand for mortgages and other loans. While that is a possibility, the banks are in a much better position to handle a drop in loan volumes than they were a few years ago. Tighter credit policies have cut the risk of big loan write-offs. The banks’ entry into new businesses such as insurance and mutual funds has cut their reliance on traditional banking operations. Growing overseas operations also cut their geographic risk. We still like the long-term prospects of all five of Canada’s big banks, and recommend that every Canadian investor aim to own at least two of them....