Unfortunately, that’s not the case. And that means Constellation will have to clear a number of hurdles if it’s going to fulfill its long-term promise.
Last year, the company bet big on higher energy prices and paid the price dearly when the economy collapsed.

Constellation’s very high level of debt, with large bond maturities in 2009 and 2012 at that time meant they were flirting with financial disaster.  That forced the company into a deal with Électricité de France SA (EDF), in which the European energy giant agreed to inject $4.5 billion into Constellation in exchange for almost 50% ownership of its nuclear plants.

That includes a brand new plant, Calvert Cliffs 3, that’s still subject to pending regulatory approval. Maryland Gov. Martin O’Malley has convinced the Public Service Commission (PSC) to hold open, public hearings to determine if this new deal is in the public’s best interest.

One of the main points of contention is the two energy companies’ demand to access the cash at distributing subsidiary Baltimore Gas & Electric Co. (BGE).

“We know that BGE is a cash cow for Constellation Energy,” said Gov. O’Malley. “We know that BGE pays more than half of all dividends paid into Constellation Energy and has a huge impact on Constellation’s bottom line.  We also know that Constellation Energy has had a tumultuous history over these last few years.”

The Maryland governor also noted that Constellation last year lost 80% of its stock value and was just hours away from bankruptcy before EDF stepped in.

Potential construction costs associated with the new nuclear plant are another large uncertainty. Nuclear plants have the tendency to run over budget, and that means the utilities then come back to regulators asking for rate increases in order to fund the cost overruns.

On the other hand, EDF Vice President John Morris recently testified to the PSC that “a decision denying EDF’s application or imposing conditions on the approval of the application that cause it to fail, would bring an end to the development” of the project.

And the company’s Chairman and Chief Executive Officer, Pierre Gadonneix, told French lawmakers that EDF expects to get all the necessary approvals for this transaction by the end of the year.

The approval would generate strong economic gains for the state of Maryland, where EDF’s U.S. headquarters are based.

Électricité de France, a firm owned 84% by the French government has its own challenges.  Having bought British Energy Group PLC and embarked in other growth-oriented investments, it too got caught with too much debt. Like Constellation, EDF is in debt-reduction mode.  The company is rumored to be pondering the sale of another 20% stake in British Energy, a swap of electricity assets with German utility E.On AG and the possible float of another 14% of its own stock.

We must also factor in the possibility that destructive protectionism will affect the deal.  The Obama administration recently levied special import duties on Chinese tires.  When governments are forced to confront the tough realities of high unemployment, the likelihood that they resort to protectionism to boost local employment is high.  And this always conspires against efficiency and global growth.

Fortunately, there is no evidence of any such pressure playing a role yet.

In addition to the many uncertainties about the EDF deal and the Calvert Cliffs plant, we have to deal with regulatory uncertainties that are plaguing the industry.  Evolving environmental regulations will require large increases in capital investments.  These eventually are passed on to consumers, reducing demand.  In the months and years ahead, we might see so-called “cap-and-trade” legislation, smart grid systems and renewable portfolio standards that will complicate things even more in unpredictable ways.

The cap-and-trade legislation, should it pass, could benefit Constellation greatly.  If the United States made a stronger commitment to reducing carbon emissions, nuclear would have to be a big part of the equation. And Constellation already is well positioned to take advantage of this.  But while such regulation would be good for the company in the long run, right now it is just another uncertainty.

We also need to remember that a new nuclear power plant in the United States hasn’t been built in 20 years, so a new labor force and supply chain is needed.  And despite the fact that with the support of EDF, Constellation is the largest nuclear operator in the world, these challenges cannot be achieved overnight.

We are not going to go into the Constellation results in detail.  Demand was down in the United States in general, the summer was mild, and industrial demand – which is down between 3% and 7% in different regions – is not coming back yet.

Constellation has indeed taken steps to reduce its trading and other risks and divested several non-profitable operations.  The vast majority of Constellation’s June 30 earnings were due to special items that boosted GAAP (Generally Accepted Accounting Principles) earnings.  The special one-time items from divested earnings accounted for about 60% of the strong upside adjustment. But they are not likely to recur, and in this complex business, some other one-time items have the unfortunate trait of appearing out of nowhere – just when it is least convenient to shareholders.

I love Constellation’s strong operating performance, its strong position in nuclear energy, and its focus on growing alternative energy.  These strengths are likely to play out well over the long term, and could even lead this company to superior profits down the line.  But there are too many uncertainties weighing on an already damaged balance sheet, which makes the risk for this company too large to bear in the short term.

If Constellation is hit by any one of these risks, another big hit to the stock could lead to another equity infusion.  And the traditional argument for buying utility stocks as an income investment does not work well either, given its low dividend yield and the company’s need to conserve cash.

So, with so much left to chance, I would not buy Constellation at this time. But there is enough long-term potential, that if I already owned Constellation stock, I would hold it for a while to see if those uncertainties are resolved. But be aware that holding the stock is an overly speculative position that needs to be monitored constantly for the developments that we outlined above.

Shares of Constellation Energy closed Friday down 1.45%, or 47 cents, at $31.84. The stock earlier this month hit a 52-week high of $33.37 after falling to a 52-week low of $15 in March.

Recommendation: Hold Constellation Energy Group Inc. (NYSE: CEG) (**).

Source: Constellation Energy Group Inc. Has Long-Term Potential, But Short-Term Problems

Here are listed sales in the filing, courtesy of 24/7WallStreet.com:

· 7/20/09… 1,817,000 at $28.7269 average in open market sale.

· 7/21/09… 3,915,100 at $26.9188 average in open market sale.

· 7/22/09… 2,254,200 at $26.6425 average in open market sale.

What took Buffett so long to start selling Moody’s? We have no idea. Moody’s runs one of the biggest scams on Wall Street. It charges the companies whose securities it rates (just like Standard & Poor’s and Fitch also do).

So what do you think these ratings agencies did when presented with a whole load of junk mortgage-backed securities to rate? They assigned them investment grade status and pocketed the cash.

If these ratings agencies had instead acted honestly and responsibly (rather than pimping themselves out to the highest bidder) the whole subprime debacle and the ensuing credit crisis could have been avoided.

Buffett isn’t the only investment whizz who thinks Moody’s is heading for trouble. Hedge-fund legend David Einhorn of Greenlight Capital is selling Moody’s short.

Yesterday, Moody’s shares tumbled almost 4% on the news that the Buffett had began to unwind his position in the company. We’d like to see Moody’s go out of business. But that’s maybe wishful thinking. Make sure you don’t own any shares in Moody’s. And if you’re feeling speculative, consider going short Moody’s along with Einhorn.

One of the easiest ways of deciding what stocks you should own is by “standing on the shoulders of giants.” We’re no geniuses here at Notes. But at least we are smart enough to recognize it. And that’s why we track what people far smarter than us are doing with their money.

As of the end of the first quarter this year, this is how Warren Buffett’s holdings (via Berkshire Hathaway, his investment vehicle) looked like:

1. American Express Co. (NYSE:AXP) over 151.6 million shares, same as before.

2. Bank of America Corp. (NYSE:BAC) 5 million shares; same as last quarter.

3. Burlington Northern Santa Fe (NYSE:BNI) 76.77 million shares; HIGHER than 70.089 million shares of last quarter.

4. Carmax Inc. (NYSE:KMX) 12 million shares; LOWER than the 17.63 million and that is two straight quarters of declines.

5. Coca Cola (NYSE:KO) right at 200 million shares, still same as before.

6. Comcast (NASDAQ:CMCSA) 12 million shares, same as before.

7. Comdisco Holdings (NASDAQ:CDCO) roughly 1.5 million shares, same as before.

8. ConocoPhillips (NYSE:COP) is really lower than the 71.228 million shares reported as this has been used for cutting taxes, and we already know that the number is lower than what the filing says.

9. Constellation Energy Group (NYSE:CEG) was just updated this week so the number is actually about 12.4 million rather than what the filing shows as being 14.828 million shares.

10. Costco Wholesale (NASDAQ:COST) 5.254 million shares, same as before.

11. Eaton Corp. (NYSE:ETN) 3.2 million shares; looks like new holding but may have been missed before.

There’s a lot of talk these days about how Buffett has lost his touch. This may be so. But the guy remains the world’s most successful investor. If you have a medium- to long-term investment horizon, you could do a lot worse than consider following Buffett into some of these long positions. If you think you can outsmart the guy, go ahead. But we know who our money would be with…

This from Andrew:

Two weeks ago I sold the Virginia-based utility company Dominion Resources (D).  I got out at a double-digit profit.

Of all the utilities in the S&P 500, Dominion had the best earnings growth (38.5%) last quarter. So why did I get rid of the stock?

When I recommended it in mid-2005, electricity consumption was still rising and regulated rates were providing cover for rising energy costs. Dominion also had productive gas fields in Texas and expanding Liquified Natural Gas (LNG) ports.

But now the sector is heading in the wrong direction.

In the last week alone the utility sector lost 8.2 percent. Only the financial, conglomerates and industrial goods sectors have done worse – recording bigger losses over the past week and last three months.

I got out just in time. Since I exited my position in Dominion, it has lost 9.1 percent. But as you can see, Dominion has lots of company…

As recently as last quarter, utilities were holding up fine. Their profits had risen an average of 5.3 percent (unweighted) and 0.9 percent (weighted). Along with health care and consumer staples, utilities formed a strong line of defense against the encroaching recession.

So what the heck happened?

Listen, utilities have certain advantages, like fixed prices, monopoly-like markets, and a consistent revenue stream.

But that revenue stream has sprung a few leaks. Listen to CEO Lewis Hay of Florida Power & Light (FPL)…

“A lot of people think demand for electricity is inelastic. It’s not. Our customers are cutting back, and they’re not paying their bills, either.”

I wrote to my readers last week that “I’m not quite ready to put utilities in the same category as banks…”

But utilities are sounding more and more like banks. Here’s another utility CEO, Michael Morris of American Electric Power (AEP), sounding off…

“Clearly, industrial sales will be off,” he said, “we’re selling less electricity to neighboring utilities as their needs drop.”

The recession has finally caught up to the utilities. As a result, utilities are husbanding their cash along with all the other companies…

APE is cutting back spending from $2.5 billion to $1.25 billion. FPL is and Georgia Power is also cutting back.

And in the strongest sign yet that the utility sector is no refuge for investors, two utilities cut their dividend last week: Ameren (AEE) and Constellation Energy (CEG).

Investors made a lot of money shorting banks. I’m not ready to put utilities in the same camp as the banking sector, but the weaker companies in the utility sector definitely represent shorting opportunities. My Red Flag portfolio used to be full of banks and financials. My bets that their shares would sink made mostly triple-digit gains.

Last week I added a couple of utilities to the portfolio. The utility sector is catching up to the rest of the economy – and not in a good way.

Source: Why Utilities Are No Longer a Refuge for Safe Investors

This from Jason:

“I’ve been buying American stocks,” Buffett said in an editorial in The New York Times. “This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds… If prices keep looking attractive, my non-Berkshire net worth will soon be 100% in United States equities.”

As the world’s richest man, Buffett offers a kind of comfort that few others can.  And it couldn’t come at a better time. The fourth quarter of 2008 was the worst quarter for the Standard & Poor’s 500 Index in more than two decades, as the closely watched stock-market benchmark tumbled 23%.

It’s likely that even Buffett took the same bath as the average investor.

In separate filings with the U.S. Securities and Exchange Commission (SEC), Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK B) said it spent $9.45 billion on equity securities in the first nine months of last year, Bloomberg News reported. Among the purchases:

• Berkshire bought a majority stake in U.S. Bancorp (USB) over a period of time that never saw the bank’s share price drop below 29.09, according to Bloomberg News. That stock is currently trading at less than $15 a share.

• Berkshire increased its Ingersoll-Rand Co. (IR) stake six-fold last year when the shares never fell below $36.54. That company’s stock has lost about half its value since Buffett made those purchases.

• And Berkshire stocked up on shares of Eaton Corp. (ETN) between July and September  – a stretch in which the stock never fell below $52.32.  Eaton closed yesterday (Wednesday) at $44.36 a share.

With such ill-timed purchases, some analysts are beginning to think that “Warren” has lost his touch.

“People like to second guess Warren Buffett, but it’s not just a flip question to ask if he should have kept his powder dry a bit longer,” Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of Ram Partners LP, told Bloomberg. “He’s paid dramatically higher prices than where some of them are now trading at, so you have to wonder if he was too quick on the trigger.”

But, as a long term investor who has said that his favorite time to hold a stock is “forever,” Buffett sees things differently.

“Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month – or a year – from now,” said Buffett.  “What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

To support this claim, Fortune points to a long-revered Buffett metric: Total U.S. stock value versus gross national product (GNP). According to Buffett, stocks are a logical investment when their total market value equates to 70%-80% of GNP. And right now, it does.

In late January, total stock value equated to just 75% of GNP, down from a record peak of nearly 200% in March 2000. Indeed, for most of the past decade, the ratio of stock value to GNP has ranged from 150% to 190%. That makes now an ideal time to buy. And Buffett continues to do just that.

What Warren’s Buying

In addition to taking healthy stakes in U.S. Bancorp, Ingersoll-Rand, and Eaton, Buffett also committed $4.7 billion to Constellation Energy Group Inc. (CEG), $5 billion to Goldman Sachs Group Inc. (GS), and $3 billion to General Electric Co. (GE) last fall.

Buffett has also spent the past few years stocking up on railroad stocks, especially Burlington Northern Santa Fe Corp. (BNI). Berkshire’s most recent purchase of 2.6 million shares took its stake to more than 76 million shares – in excess of 20% – of the nation’s second-largest railroad.

And last week, Berkshire threw in a few surprises.

After buying 3% of Swiss Re (OTC: SWCEY) in January 2008, Berkshire last week poured another $2.6 billion into the world’s second-largest reinsurance company. Swiss Re has lost about three-quarters of its market value since Buffett’s original investment – further evidence that the investing icon remains undaunted by his losses.

Berkshire agreed to buy $300 million of corporate debt issued by motorcycle icon Harley Davidson Inc. (HOG). The senior unsecured notes purchased by Berkshire offer a 15% annual interest payment, making it one of Buffett’s many recent fixed-income investments.

Buffett agreed to buy $300 million of debt from USG Corp. (USG) in November, and his preferred shares of Goldman Sachs offer a 10% yield. The $2.6 billion he put into Swiss Re was accompanied by a 12% yield.

“He’s got cash coming in faster than most people would have a ready place to put it,” Frank Betz, a partner at Carret Zane Capital Management, which holds Berkshire shares, told Bloomberg. “This economy is certainly providing him with opportunities.”

With about $30 billion in cash on hand at Berkshire Hathaway, analysts are wondering where Warren’s going to strike next.

There is some speculation that if Berkshire shares continue to slide, Buffett could order a share buyback.

In the past, Buffett has said a company must meet two conditions to warrant buybacks of its stock: “First the company has available funds – cash plus sensible borrowing capacity – beyond the near-term needs of the business and, second, finds its stock selling below its intrinsic value, conservatively calculated,” he said.

Shares of Berkshire are down 37% in the past year and there’s little doubt that Buffett has the money.

Of course, Buffett also said last month in an interview with PBS that he would notify shareholders of his intentions before engaging in a buyback program.

“If I ever name a number, I’ll name it publicly,” Buffett said. “I mean, if we ever get to the point where we’re contemplating doing it, I would make a public announcement.”

The last time Buffett made such an announcement was nine years ago.

Another possibility is that Berkshire will invest in energy companies with large holdings in oil sands – notably Calgary-based Nexen Inc. (NXY).

Buffett, along with Microsoft Corp. (MSFT) mogul Bill Gates visited the Athabasca Oil Sands region in northeastern Alberta last August.

“The world will be using more oil 15 or 20 years from now,” Buffett told the Financial Post in an interview. “We are on a course that cannot be changed. It would surprise me if the world doesn’t want to use 100 million barrels a day in 15 or 20 years.”

“You need some … elephant fields [of oil to meet looming demand] and we haven’t found any elephant fields in the last 15 or 20 years,” he added. “So the sands are huge.”

However, some analysts remain skeptical.

“Seems there is a rumor that Berkshire is interested in Nexen – no one can give me comfort that this is indeed the case – they haven’t bought into [exploration and production] names before … but stranger things have happened,” investment bank Scotia Capital wrote in a note to clients.

What Buffett will do next remains unclear, but there is one certainty: He won’t be sitting on the sidelines and hoarding cash.

“Today, people who hold cash equivalents feel comfortable. They shouldn’t,” Buffett wrote back in October. “They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value,” Buffett said in October.

“Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: ‘I skate to where the puck is going to be, not to where it has been’.”

Source: Buffett Bargain Hunting Despite 2008 Losses

And don’t expect that market to thaw out anytime soon. Even with the country’s energetic new president, Barack Obama, now ensconced in the White House, consumer and business confidence is virtually non-existent and worries continue to churn that the U.S. banking sector would endure a complete meltdown.

The bottom line: The M&A market has all but disappeared.

“Beyond ‘almost none,’ there is really no story at all,” said Ryan Krueger, founder and Senior Portfolio Manager of Krueger & Catalano Capital Partners LLC, a Houston-based money management firm and a hedge fund manager collectively managing more than $150 million in assets.  “With credit markets frozen, there is no M&A. Or, at least, very little.”

Krueger takes a more optimistic tone about opportunities that may present themselves in the future (if not already) based on lower valuations, but believes the timetable on deals could be rather lengthy as would-be buyers feel no need to rush into transactions at this time.

“I [recently] sat down with a banker who pitched me on a company where I could pay 30 cents on the dollar for their cash alone,” said Krueger.  “I also looked at a gold mining company with proven reserves whose share prices are so low that you could buy the entire company for a little more than $400 an ounce for their gold.  Remember, without a ticker symbol attached, gold is fetching more than $800.  There are already some amazing stories and deals to be found.  Patient acquirers with cash will truly benefit.”

Let the Good Times Roll?

Following a stellar 2007 – a year in which global deal volume reached $4.5 trillion – 2008 started out with a lot of promise. Sure, certain segments of the economy were showing some of the ill effects of the housing collapse. And the dreaded “I” word – inflation – had crept into many water cooler conversations as oil prices pushed past the $100 a barrel level.  Still, cash-rich companies seemed prepared to take advantage of distressed situations, as valuations began to look more attractive following a negative 2007 fourth quarter for stocks.

“Early in the year, companies were in acquisition mode as much of the economy appeared vibrant and business prospects for the future were bright,” said transactions expert Steve Albert, a partner with UHY Advisors Inc., the twelfth-largest accounting firm in the United States, and a member of the executive committee of the firm’s Texas practice.  “As details of Candidate Obama’s tax plan made their way onto the campaign trail [last year], people began to see the prospect of higher capital gains taxes for 2009 as a real possibility.

“Sellers of businesses had hoped to close transactions before the end of 2008 to take advantage of lower capital gains before new higher rates took effect in the following year,” Albert added. “This incentive quickly dissipated with the sudden downturn in the economy in the fall. The financial crisis that emerged reversed the sentiment that President-elect Obama would raise capital gains taxes as now unlikely since his plate would be full dealing with all these other national economic issues.”

The expected follow-through in M&A activity from 2007 never materialized as the credit crunch turned into a credit crisis, which then turned into an outright credit collapse.

Through mid-November, Thomson Reuters Corp. (TRI) reported that deal volume had declined more than 30% from the 2007 levels. In fact, the reduction would have been even greater had it not been for a rash of transactions involving financial institutions – with three of the biggest getting finalized right as 2008 came to a close.

Bank of America Corp. (BAC) purchased one-time behemoth Merrill Lynch & Co. Inc. for about $24 billion, although the deal was initially priced at about $50 billion before BofA’s share price underwent a drastic decline. In the other two other deals, Wells Fargo & Co. (WFC) acquired Wachovia Bank for $15.1 billion and PNC Financial Services (PNC) bought Cleveland’s National City Corp. for $5.52 billion, in moves that allowed the acquiring institutions to receive sizable tax breaks from the losses they were assuming.

The federal government’s bailout initiative – the Troubled Assets Relief Program (TARP) – also led to additional acquisitions of ailing financial companies. In early December, Capital One Financial Corp. (COF) announced its intent to purchase Maryland-based Chevy Chase Bank FSB for $520 million, and a number of life insurance companies looked to acquire small thrifts in order to access some of the TARP money.

According to Bloomberg News data, the world governments had a major hand in more than one-third of the largest deals of the fourth quarter.

The Ones that Got Away

In reality, 2008 will be known more for the “deals that weren’t” than the “deals that were.” According to data from UBS AG (UBS), almost one-third of all transactions that had been announced in 2008 never closed because funding failed to materialize, valuations plunged after the initial announcements, or buyers simply got cold feet in this challenging environment.

“Completion risk is on everyone’s mind,” claimed Cary Kochman who co-manages M&A for the Americas at UBS. “We are, on a historical perspective, amid the lowest level of deal completion.”

While the proposed $45-plus billion acquisition of Yahoo! Inc. (YHOO) by Microsoft Corp. (MSFT) went sour due to founder ego, greed and internal shareholder disputes, other significant transactions were scrapped because of credit concerns and weak economic conditions.

Historically, M&A activity has declined during recessionary times. That makes intuitive sense as companies avoid taking on much additional risk, regardless of the attractive valuations.

Examples abound this time around. For instance, BHP Billiton Ltd. (ADR: BHP), the largest mining company in the world and the subject of a recent “Buy, Sell or Hold” story here in Money Morning, walked away from its $66 billion offer for Rio Tinto Group (ADR: RTP).  Likewise, Canadian telephone giant, BCE Inc. (BCE), was unable to complete its $42 billion sale to a private equity consortium.

Looking Ahead

Many experts expect the declining level of M&A activity to continue through this year – and perhaps even beyond. Barclays Capital Group (PGD) expects deal valuations in 2009 to fall by another 30% to about $2 trillion, levels not seen since 2005.

Barclays acquired the investment banking arm of Lehman Brothers Holdings Inc. (LEHMQ) after the firm declared bankruptcy in September, a development that turned out to be a major catalyst for the current credit crisis and equity market collapse.

According to the Bernstein Research arm of Alliance Bernstein Holding LP (AB), M&A volume will fall by another 25% this year with a total drop-off in activity of 45% from peaks levels in 2007 to 2010.

Even so, Bernstein expects that counter-cyclical industries such as healthcare may see a flurry of activity, as cash-rich companies seek to take advantage of their struggling competitors.

Larry Slaughter, co-head of European M&A for JPMorgan Chase & Co (JPM), believes that most of the deals that do close here in the New Year will be smaller, since the credit markets remain sluggish despite the coordinated government efforts to stimulate lending.

“You are less likely to see deal sizes beyond the $20 billion mark in 2009,” Slaughter said.  “The balance-sheet capacity of the banking system will make it tough to finance much-bigger transactions.”

UHY’s Albert believes we are in a buyer’s market and that companies that are flush with cash may be able to gobble up the ones that find themselves struggling or in distressed situations.

“In the spring of 2008, transactions were being priced at multiples of 8 [times] to 10 times earnings or cash flow,” Albert said. “Suddenly, after the downturn, multiples are more in the neighborhood of 3 to 4 and sellers are, quite frankly, not very excited about the new valuations.”

According to Albert, “with no access to the credit markets, many companies will not be able to finance their transactions – this situation will create a huge advantage for firms that have maintained substantial cash stockpiles on their balance sheets and would be able to consummate deals without having to access the credit markets. Typical companies included in this group with large amounts of cash are Exxon [Mobil Corp.] (XOM) and Microsoft and such corporations could prove to be winners in the current environment in terms of buying up undervalued firms.”

UHY’s Albert sees opportunities for acquisitions within the energy sector, as struggling smaller companies face additional stress with oil trading in the neighborhood of $42 a barrel, meaning they won’t be able to financially justify drilling activities with crude prices so low.

Albert also noted that a talk of a higher capital gains tax could resurface, should the Obama administration economic plan begin to stimulate growth this year, meaning companies would have incentives to close deals before the new tax rates take effect.

Predicting M&A in 2009

Albert also believes that large companies may look to sell off non-core businesses or even international arms as they streamline and downsize operations.

“More than ever, management must play to their strengths and some may look to unload non-critical operations, particularly those that require substantial cash flow to manage,” Albert said.

Krueger & Catalano’s Krueger suggests that the current challenges will create future opportunities.

“As a result of the deepest most violent collapse in asset prices of all flavors, we are now planting the seeds for future deals,” Krueger said.

By dropping interest rates to historically low levels, he said that the government is practically begging investors to consider mergers and acquisitions again.

“Bottom line, capital will seek a return and risky assets like businesses will look better and better as long as risk-free Treasuries promise less and less in return,” he said.

Of note, Krueger believes companies that possess hard assets represent unusually good values in this environment.

“Materials companies catch my eye for many reasons and I am looking in some cases at multiples of 2 or 3 times cash flow and very little debt,” he said. “A related industry that serves many of these companies is engineering where we are finding backlogs of signed contracts whose value is more than three times the total value of every single share of its stock.  Potential acquirers may find attractive valuations here, especially since the Obama stimulus plan focuses on infrastructure enhancements.”

Would-be buyers also may emerge from abroad as foreign companies attempt to take advantage of the domestic challenges and enter the United States’ marketplace in various industries. Recently, Electricite’ de France SA offered $4.5 billion for a chunk of the nuclear power business of Constellation Energy Group Inc. (CEG), outbidding a unit of Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) in the process. Completion of the deal will enable the French company to participate in the U.S. nuclear industry. Regulatory issues may be drawing out completion of the Constellation nuke group buyout.

Richard Griffiths, director of the Hong Kong-based M&A unit of the Royal Bank of Scotland Group PLC (ADR: RBS) thinks that China and Japan may emerge as significant M&A players this year.

“Japan is likely to continue to [figure] highly in outbound M&A, as it benefits from a lower cost of borrowing and a stronger yen,” said Griffiths. “China remains a key draw for investors and a source of outbound M&A.”

Perhaps Krueger summed up the situation best with the following analogy.

“Mergers and acquisitions right now to me look a lot like my four- and six-year-old kids on the top step of our monkey bars in the backyard,” he said. “They are looking at each other with an unusual combination of smiling mouths and terrified eyes. Neither is going to move an inch until they see the other one flinch and then I have to run over there because they’ll move so fast to grab the same bars they’ll collide.”

In other words, the same financial crisis that froze the M&A business will ultimately set the stage for the next round of dealmaking to flourish.

Source: The U.S. Market for Deals Remains in a Deep Freeze

Editor’s Note: With the New Year under way, Money Morning will continue to help investors look ahead, and will continue to run installments of our “Outlook 2009” economic forecasting series.

• Toyota Motor Corp. (ADR:TM) yesterday (Tuesday) named Akio Toyoda, the grandson of the company’s founder, as the new company president. The announcement car the same day Toyota announced 2008 sales figures, down 5% in Japan and down 4% worldwide.

• Constellation Energy Group Inc. (CEG) said it agreed to sell the majority of its London commodities unit to Goldman Sachs Group Inc. (GS), a move to boost the power company’s liquidity, Reuters reported. A dollar amount of the deal was not released. Constellation is also trying to sell its Houston-based gas trading operation.

• For the first time in 6 years, China’s urban unemployment rate rose, climbing from 4% to 4.2% in the three months ended Dec. 31. “Growth has fallen off a cliff in China in recent months. It does already feel like a recession for a lot of people,” Paul Cavey, chief China economist at Macquarie Securities Ltd. in Hong Kong, told Bloomberg.

• Kingdom Holding Co., the investment company owned by Saudi Arabia’s Prince Alwaleed bin Talal, reported a massive $8.26 billion fourth-quarter loss. “The loss is phenomenal. This is the biggest corporate story for Saudi Arabia in many years,” John Sfakianakis, chief economist at Saudi British Bank, told Bloomberg.

• Warner Bros. Entertainment Inc. said yesterday (Tuesday) that it plans to cut 800 jobs, or 10%, of its global workforce, as the company struggles with the current recession. “We are very sad to announce that based on the global economic situation and current business forecasts, the studio will have to make staff reductions in the coming weeks in order to control costs,” Barry Meyer, chairman and chief executive, and Alan Horn, president of the studio said in a statement.

• Johnson & Johnson (JNJ) yesterday (Tuesday) reported a 14% increase in fourth-quarter profit. The company earned $2.71 billion, or 97 cents per share, up from $2.37 billion, or 82 cents per share, in the year-ago quarter. However, revenue fell 4.9% to $15.18 billion from $15.96 billion — the first drop since 2004. Excluding charges and gains, J&J earned 94 cents a share.

• Rohm and Haas Co. (ROH) yesterday (Tuesday) said it would cut 900 jobs, or 5.5% of its workforce. The company plans to adjust production schedules in certain manufacturing facilities, reducing sales and marketing positions and freezing discretionary spending and employee salaries, Reuters reported.

• Google Inc. (GOOG) said yesterday (Tuesday) that it would end its Print Ads program on February 28, Reuters reported. The program was intended to create a new revenue stream for newspapers, but was not having the desired impact and fell by the wayside as Google retrenched amid the current global downturn.

Source: Global Investment News Briefs Wednesday, January 21st, 2009

Warren Buffet continues to show investors why his name is consistently at the top of the list of richest Americans. The man makes deals that simply work, no matter what happens in the industry or economy surrounding him.

Take this week’s news as a prime example. Buffet wanted to diversify into the nuclear-power industry, so he offered to buy Constellation Energy Group (NYSE:CEG) for $4.7 billion. It was a pretty low bid and drew plenty of criticism from shareholders.

But most importantly, it drew bids from other competitors.

Shortly after Buffet made his bid, French utility giant Electricite de France stepped in and made an offer for just 50% of Constellation’s nuclear operations. It was willing to pay $4.5 billion.

Naturally, you would think Buffet would walk away from the deal with his tail between his legs. But you do not become a multi-billionaire without the savvy to hedge your bets. Buffet had a termination clause in his contract with Constellation that allowed him to prance away with almost $1.6 billion in profits after the proposed deal went sour. Not bad.

How does he do that?

With Buffet’s kind of investing intelligence, it is certainly no surprise to see another one of his prized holdings making bold moves today. Coca-Cola Enterprises (NYSE:CCE) boosted its 2008 earnings estimates this morning and issued a strong forecast for 2009. As I write, shares of the iconic company are up by more than 10%.

The economic maelstrom is having dramatic effects on the cola manufacturer, but the impact appears to be nothing the company’s management team cannot handle. The company is cutting unnecessary operations, increasing brand integrity and reducing supply chain waste. They are margin-increasing moves that will lower the company’s exposure to economic headwinds.

What is most intriguing is the impact macroeconomic factors are having on the company. With a well-known, inexpensive product, Coke does not have to worry about declining sales. It is not as if people need credit to buy a two-liter bottle of Sprite.

So while most firms are struggling from a lack of demand, Coke has the enviable position of actually being able to take advantage of the deflationary pressure storming the economy.

Today’s report shows how falling commodity prices are a boon to the company’s bottom line. The cheaper its inputs, the higher the company’s profit margins.

Repatriating profits

But what investors really need to pay attention to are currency fluctuations. Coca-Cola has a huge global exposure. Its products are sold through an array of currencies, but its profits are calculated in dollars.

If the dollar continues the downward spiral it is enduring this week, revenues repatriated from euros and yen could be significantly higher this time next year. Instead of one euro buying $1.37, right now the company can get $1.43. The story is even more dramatic with the yen.

The news from Coke is more proof that Buffet’s buy-what-you-use strategy has increasing merit.

Throughout the last few months, consumer staples like McDonalds (NYSE:MCD), Campbell Soup (NYCE:CPB) and General Mills (NYSE:GIS) have all proven to be strong, market-beating investments. That theme’s importance will only increase as the economy continues to slow.

If you are a traditional value investor like Buffet, look in your pantry for investing ideas. Stick with companies with broad economic exposure and a product lineup that will remain in high demand no matter how bad the economy gets.

It is how Buffet got rich and it is how you will boost your portfolio into something worth bragging about.

Source: Coca-Cola (CCE) teaches us a valuable lesson

• The world’s biggest nuclear utility company, Electricité de France SA will offer as much as $6.5 billion for assets of Constellation Energy Group, Inc (CEG), source familiar with the matter told The Wall Street Journal. A previous offer by EDF was turned down, with Constellation opting for a $4.7 billion bid from Warren Buffett’s MidAmerican unit of Berkshire Hathaway Inc. (BRK.A,BRK.B).

• Research In Motion Ltd.’s (RIMM) third-quarter subscriptions and profit fell short of forecasts, as it simultaneously faces increased competition and recession in its largest market. Profit for the Blackberry maker rose no more than 83 cents a share in the quarter ended Nov. 29, well short of its goal of 97 cents, Bloomberg reported.

• Legg Mason fund manager Bill Miller said yesterday (Wednesday) that the “bottom has been made” in U.S. equities and that the Federal Reserve should purchase stocks and junk bonds to pull the United States out of the financial crisis Reuters reported. Miller said that all long-term investors believe that stocks today are cheap after acknowledging that his funds “performed far worse than I would’ve predicted we would” this year.

• Online retail spending rose 15% on “Cyber Monday,” the Monday immediately after Thanksgiving, from a year earlier, according to tracking firm comScore Inc. Consumers spent $846 million shopping online Monday, comScore said.

• Declining imports led to a surprise drop in U.S. crude oil stocks last week, the Energy Information Administration (EIA) said yesterday (Wednesday). Supplies of crude oil fell by 400,000 barrels to 320.4 million barrels in the week to November 28. Crude imports fell 1.46 million barrels per day (bpd), the IEA said.

• New Zealand’s central bank yesterday (Wednesday) cut its key interest rate by 1.5 percentage points to 5%, hoping to break the worst recession its faced in nearly two decades, Bloomberg reported. “Today’s decision takes monetary policy to an expansionary position,” Reserve Bank Governor Alan Bollard said in a statement in Wellington today. “Policy is working together with the depreciation of the New Zealand dollar and fiscal stimulus to create the conditions for some rebound in growth.”

Source: Global Investing Roundups Thursday, December 4th, 2008

The venture – Areva Newport News LLC – will emanate from a $360 million investment, and will lead to the construction of a 300,000-square-foot production-and-engineering facility, the two companies said yesterday (Thursday). It will employ 500 workers when completed in 2011, according to an MSNMoneycentral report.

Mike Petters, president of Northrop Grumman Shipbuilding, the unit that has signed on to work with Areva, told The Wall Street Journal that “we’ve watched manufacturing wane in shipbuilding and we’ve watched for other opportunities to go into adjacent areas…We think a nuclear renaissance is coming and we have the work force.”

The facility will promote U.S. market sales of Areva’s “evolutionary power reactor,” or EPR. Areva is seeking to get the reactor design certified by the Nuclear Regulatory Commission (NRC) for use in the U.S. market, The Journal reported.

The deal is also the latest illustration that commercial nuclear power – which has been on a more or less permanent hiatus in the U.S. market since the 1979 near-meltdown at the Three Mile Island nuclear powerlant near Harrisburg, Pa.— may finally be making a comeback in the energy-starved U.S. market.

There hasn’t been a single new nuclear plant built since the Three Mile Island accident; this new manufacturing facility will be the first of its kind built in this country in 35 years, the Newport News Daily Press reported.

The state-run Areva is trying to compete in an industry in which Japanese firms – such as  Hitachi Ltd. (ADR: HIT) and Toshiba Corp. (OTC: TOSBF), have come to play a large role. No surprise, too, that China is building up its nuclear capabilities, and has global objectives for that business.

“Our target is 80% U.S. content” for U.S. nuclear power plants, Anne Lauvergeon, chief executive of Areva, told  The Journal. Lauvergeon believes Areva’s linkup with Northrop will give the French company a competitive advantage over rivals that are more reliant on imported goods. That’s why she said that she’s emphasizing the need to have 80% of the content for U.S. reactors to be built domestically.

Orders from U.S. nuclear operators could top $100 billion in coming years, and some are hoping that a wave of nuclear construction could also bolster the U.S.’s ailing manufacturing sector.

Areva’s Lauvergeon said her company’s existing heavy manufacturing facility at Chalon/Saint Marcel, France, is operating at capacity with a five-year backlog of orders. Nucelar plants built with Areva’s design are under construction in France, Finland and China. Three U.S. utilities have selected Areva’s design including Constellation Energy Group Inc. (CEG), PPL Corp. (PPL) and Ameren Corp. (AEE).

With its decision to invest so heavily in the U.S. market – and to involve a partner – it’s clear Areva is highly confident that plans to build new nuclear plants in North America will move forward, The Journal reportedSource: French Nuclear Giant Areva Links Up With Northrop in Groundbreaking Production Venture

The current mess has created lots of imbalance in stock prices. As thousands of financial ‘professionals’ worry about their job prospects, stock prices are getting hammered. But that doesn’t mean that all of these companies deserve this mistreatment. There are solid businesses out there that have been completely undervalued by the market.

I’ve long been a proponent of contrarian investing and buying assets on the cheap. It delivers superior long-term returns and uncovers portfolio “superstars.” And it seems that I’m not the only one beating the pavement for deep values…

Warren Buffett just took a $5 billion stake in Goldman Sachs (NYSE:GS), with the ability to buy another $5 billion more. And MidAmerican Energy, one of his subsidiaries, just bought Constellation Energy (NYSE:CEG) shares for half of what they were trading at earlier this month.

Clearly Buffett has been using the liquidity crisis to grab some phenomenal bargains. And we should be on the lookout for the same. The market’s recent fluctuations have been offering investors some tantalizing buys. (Take a look at today’s crib sheet for 3 ideas.)

So keep a level head and invest with caution in the current environment. The rules of the game are changing and short-term relief could be replaced with higher inflation and a longer bear market.

But that doesn’t mean there are some great values out there.

Source: Forget the Bailout, Buy Like Warren Buffett