takeovers

Adding strength with timely U.S. acquisitions, Royal Bank and TD Bank bolster their status as solid blue chips stocks in a sluggish economy.

You can find a lesson about acquisitions in our latest edition of Wall Street Stock Forecaster, which we sent out last week.

Investors often under-estimate the hidden risk of a corporate strategy of growth-by-acquisition. This strategy is inherently risky. It’s a little like buying new stock issues.

Acquisitions generally come on the market when it’s a good time to sell. That may not be, and often isn’t, a good time to buy. Insiders and managers at the selling company know a lot more than the buyers about the company itself, and its business strengths and weaknesses.

Some takeovers work out well for the buyers, of course. This doesn’t diminish the inherent risk. More important, risk multiplies as takeovers become a habit.

Takeovers are more likely to succeed when the buyer is already a successful company and is under no pressure to buy anything. That way, the buyer can take its time and wait for a truly attractive, low-risk opportunity to come along.

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Emera is both a high-yielding utility and a growth stock aiming to raise its dividend with the help of new projects: our recommendation.

A holding company is a company that owns all or a substantial part of a variety of different businesses. These businesses may be private companies, or publically traded. Holding companies may own all, or a majority or a minority, of companies in which they invest. The one thing most holding companies have in common is that they trade for less than the combined value of their holdings. This “holding company discount” is a well-known phenomenon in finance. It represents a special kind of hidden asset and potential profit for investors in holding companies. When holding companies sell assets or break themselves up into their constituent parts, much if not all of the discount may disappear. In other words, holding companies can usually sell their assets for fair market value, rather than at a discount. In addition, fair market value may turn out to be be more than analysts figured they were worth. Even without a break-up, buying a holding company at a discount to its asset value puts more assets to work for you for each dollar you invest....

Helped by a rise in online shopping and a string of takeovers in international markets, FedEx is taking off.

Pat McKeough responds to many requests from members of his Inner Circle on specific stock picks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week an Inner Circle Member asked us about a stock that has risen and fallen sharply in the past year. AutoCanada has almost four dozen franchised auto dealerships across Canada and continues to add more through takeovers. While the company has benefited from a rebound in car sales, it also faces several challenges in a cyclical, competitive business. Pat examines the risk of its growth-by-acquisition strategy and the potential impact of lower oil prices on Western Canadian car sales.

Q: Pat: I am a new member and I have a question. What is your current view of AutoCanada? Thanks.

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CARFINCO FINANCIAL GROUP INC., $10.53, symbol CFN on Toronto, rebounded closer to its takeover price of $11.25 a share this week, after falling as low as $8.30 last week. In November 2014, Carfinco’s shareholders voted to accept a friendly $11.25-a-share takeover bid from Spain’s Banco Santander SA (ADR symbol SAN on New York). Carfinco is confident the deal will go through, and this week the last two conditions were met: Spanish regulators granted their approval and Carfinco entered into an agreement to sell Persian Acceptance Corp., its U.S. subsidiary....

Catamaran Corp., $43.78, symbol CTRX on Nasdaq (Shares outstanding: 204.7 million; Market cap: $9.2 billion; www.catamarancorp.com), is a pharmacy benefits manager. (These companies negotiate discounts from pharmaceutical firms so their clients—employers—can provide drug benefits to their workers at less cost.) Catamaran also provides information technology services to the health care benefits management industry. The company bought Catalyst Health Solutions for $4.4 billion in July 2012. It then changed its name to Catamaran from SXC Health Solutions Corp. The combined business is now the fourth-largest pharmacy benefits manager in the U.S. by prescription volume: it manages over 350 million prescriptions each year on behalf of 32 million customers....

NEWELL RUBBERMAID INC., $28.88, New York symbol NWL, makes a variety of everyday items, such as trash cans and food-storage containers. Aside from Rubbermaid, its main brands include Sharpie, Paper Mate, Waterman and Levolor. In the three months ended March 31, 2014, Newell’s sales fell 0.7%, to $1.23 billion from $1.24 billion a year earlier. That’s partly because harsh winter weather kept many shoppers at home. As well, the company had to recall infant car seats to fix defective seat belts. Newell gets about a third of its sales from outside the U.S. If you disregard the negative impact of currency exchange rates, sales rose 0.7% in the quarter....

PLEASE NOTE: Our next Hotline will go out on Friday, April 25, 2014. GOOGLE INC. $543.34, Nasdaq symbol GOOGL, has paid an undisclosed sum for Titan Aerospace. Titan is a privately held company that’s developing unmanned aircraft, or drones, that run on solar power. That means they don’t need to refuel, so they can fly non-stop for up to five years....