Wait to board Carnival

AB Foods worth storing away; Minmet is failing to find a rich seam

Investors in P&O Princess Cruises embarked on their final journey today; destination: the US of A. The UK group's epic 17-month voyage to tie the knot with its bigger American suitor, Carnival Corporation, ends on Tuesday next week, when the combined group docks in the FTSE 100.

Renamed Carnival plc, it will steam in with a fleet of 66 ships, more than twice the size of its nearest competitor, the jilted-at-the-altar Royal Caribbean. A further 17 ships, or 42,000 beds, will be added over the next three years, making it the most modern fleet on the high seas. It will carry up to 5 million passengers next year.

Should shareholders rush to get on board the new combination, which will be listed on Wall Street and in London?

The corporate brochure paints an alluring picture of a group with combined revenues of nearly $7bn (£4.4bn) and net income of just under $1.5bn. The tie-up promises annual savings of more than $100m and a chance for Micky Arison, son of Carnival's founder and now group chairman and chief executive, to unleash his highly-regarded operational skills on the enlarged business.

Yet while the long-term outlook for Carnival may be sunnier than Christmas in the Caribbean, hurricane season is approaching. Neither group would give guidance about the short-term outlook, although Mr Arison did admit that takings in the second half of the year will be down.

Worse than the worries spawned by war and terrorism, potential passengers in the three major cruising markets of America, Britain and Germany are becoming more cautious. Carnival's new liners are scheduled to reach port at about the same time as new ships for just about every other cruise company – and that means profits in the next few years could be plagued by industry overcapacity.

Although analysts reckon the market has priced in the immediate trading woes, new investors should wait before booking themselves a ticket. Existing P&O Princess shareholders should hold on for the long haul.

AB Foods worth storing away

There will always be a market for cooking oil, sugar, cheap jeans and Ovaltine. (The latter is big in the Philippines.) Associated British Foods, which makes or sells all this and more, is one of the UK's most cautious and economically best insulated conglomerates.

It has been a solid, dependable earner in the past few years, thanks to its wide range of popular household brands, including Twinings Tea and Kingsmill bread. Despite £500m of acquisitions last year, it still has a cash pile of £836m.

The management team, led by the chief executive Peter Jackson, is keen to spend this mighty warchest but he won't rush and can be banked on to bring aboard only earnings-generative companies that fit neatly within the fold.

The group continues to please, reporting robust first-half figures yesterday that beat expectations. Pre-tax profits were up 13 per cent at £204m for the first six months of its financial year and sales were up 8 per cent at £2.2bn.

Some were concerned about the ABF chairman's warning that it is not totally immune to the general economic and political uncertainty – but what is? There is a case for arguing that penny-pinching shoppers might actually trade down to its Primark discount clothing chain if things get really tough.

The share price, off a ha'penny at 525p, is 13 times estimates of the current financial year's earnings forecasts, which makes it look fairly to fully valued. But if you strip out the £836m of cash, the valuation put on the rest of the business is only 5 times earnings. ABF runs a highly efficient operation, and its shares are worth holding.

Minmet is failing to find a rich seam

If only Minmet had enjoyed the luck of the Irish, its shares – owned by some 26,000 private investors – might not be languishing at their lowest since 1996. But the Dublin-based mining and exploration group had to write off several of its flagship projects last year. At one site in Brazil, there was simply not enough gold in the ground. In Portugal, the company had its licence revoked on environmental grounds, and in Honduras it has also faced difficulties with the locals and had to scale back.

So mining stocks are risky investments. Very risky. Minmet is hoping to minimise the dangers for its investors with a focus now on stable production and cash generation. It hopes its cash pile of £5.5m will be enough to fund exciting work in the Dominican Republic and Brazil. In Sweden, it has bought into a bankrupt gold mine that looks viable once more now that the gold price has increased.

Minmet is doing the right thing in chasing production but, until stable revenue streams are established, the stock (up 0.02p to 1.76p) will be for hardened gamblers only.