Search

WEYERHAEUSER CO. $39 (New York symbol WY; Conservative Growth Portfolio, Resources sector; Shares outstanding: 211.4 million; Market cap: $8.2 billion; Price-to-sales ratio: 1.4; WSSF Rating: Extra Risk) is a major North American lumber and paper producer. It owns or leases over 37 million acres of timberland in the U.S. and Canada. Slow housing markets continue to weigh on lumber demand. In the three months ended September 30, 2009, Weyerhaeuser’s revenue fell 33.2%, to $1.4 billion from $2.1 billion a year earlier. Its losses ballooned to $56 million, or $0.26 a share, from $3 million, or $0.01 a share. These figures exclude several non-recurring items, including gains on sales of excess land and operations, writedowns and costs to close sawmills and other facilities. So far, these moves have helped cut the company’s annual expenses by $450 million. Weyerhaeuser is still looking at converting to a real estate investment trust (REIT), which would lower its income taxes. Many of its rivals operate as REITs, and enjoy a tax advantage over the company....

NEWMONT MINING CORP. $55 (New York symbol NEM; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 490.2 million; Market cap: $27.0 billion; Price-to-sales ratio: 4.0; WSSF Rating: Average) is one of the world’s largest gold-mining companies. Newmont has major mines in the U.S., Canada, Australia, New Zealand, Peru and Ghana. It gets about 80% of its revenue from gold. The remaining 20% comes from copper, zinc and other metals. Most of Newmont’s copper comes from the large Batu Hijau gold/copper mining complex in Indonesia. As part of its original 1986 deal to develop Batu Hijau, Newmont and its partners agreed to lower their stakes in the mine, in stages, by selling them to the Indonesian government. As a result, the company recently reduced its stake in Batu Hijau to 31.5% from 45%. In exchange, Newmont received roughly $669 million. The company expects to sell more of its stake in Batu Hijau over the next few months. Meanwhile, Newmont earned $388 million in the three months ended September 30, 2009. That’s 113.2% higher than the $182 million it earned a year earlier. Per-share earnings jumped 97.5%, to $0.79 from $0.40, on more shares outstanding. Cash flow per share gained 94.8%, to $1.85 from $0.95. Revenue climbed 49.5%, to $2.05 billion from $1.4 billion. The gains were mainly caused by higher average gold prices (up 11%), and higher gold sales (up 16%). Newmont also cut its operating costs and benefited from higher copper prices and production....

APACHE CORP. $98 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 336.2 million; Market cap: $32.9 billion; Price-to-sales ratio: 4.1: WSSF Rating: Average) produces oil and natural gas from properties in the U.S., Canada, the U.K., Australia, Egypt and Argentina. The company gets roughly 50% of its production from oil, and 50% from natural gas. This balance has helped shield the company from falling gas prices, which are down over 50% from a year ago. Oil prices, by comparison, are down roughly 35%. Despite the lower prices, Apache increased its daily production to a record 607,118 barrels (including oil and natural gas) in the third quarter of 2009. That’s up 3.4% from the previous quarter, and 19% from a year earlier....

ENCANA CORP. $55 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 751.2 million; Market cap: $41.3 billion; Price-to-sales ratio: 2.1: WSSF Rating: Average) will split itself into two separate companies in December, now that shareholders have approved the plan. Break-ups like this help unlock hidden value, and generally lead to above-average results for a period of years. One company will keep the EnCana name, and will focus on unconventional natural gas. The other will operate as Cenovus Energy Inc. (New York symbol CVE), and will specialize in oil-sands projects, oil refineries and conventional natural gas. The new EnCana will account for about two-thirds of the company’s current production and reserves. Cenovus will account for the remaining third. EnCana will give its shareholders one new common share in each of the two new companies for every EnCana share they own. As well, investors will not have to pay capital-gains taxes until they sell their new shares....

AT&T INC. $27 (New York symbol T; Income Portfolio, Utilities sector; Shares outstanding: 5.9 billion; Market cap: $159.3 billion; Price-to-sales ratio: 1.3; WSSF Rating: Average) sells traditional telephone services to 45.7 million consumer and business customers in 13 states. Its wireless division has 81.6 million customers nationwide. Since 2007, AT&T has been the exclusive U.S. carrier of the hugely popular Apple iPhone. The company attracted a record 3.2 million new iPhone users in the three months ended September 30, 2009. About 40% of these customers were new to AT&T. Despite these new clients, AT&T’s third-quarter revenue fell 1.6%, to $30.9 billion from $31.3 billion a year earlier. Earnings fell 1.2%, to $3.19 billion from $3.23 billion. Earnings per share fell 1.8%, to $0.54 from $0.55, on more shares outstanding....

VERIZON COMMUNICATIONS INC. $32 (New York symbol VZ; Income Portfolio, Utilities sector; Shares outstanding: 2.8 billion; Market cap: $89.6 billion; Price-to-sales ratio: 0.9; WSSF Rating: Average) has 33.4 million phone customers in 28 states. It also has 89 million wireless users. The company is the exclusive carrier of Motorola’s new Droid smartphone, which uses the Android operating system developed by Internet search provider Google. This new phone should help Verizon compete with the iPhone. Meanwhile, Verizon earned $0.60 a share (or a total of $1.7 billion) in the third quarter of 2009. That’s down 9.1% from $0.66 a share (or $1.9 billion) a year earlier. These figures exclude integration and other costs related to Verizon’s January 2009 purchase of rural wireless carrier Alltel Corp. Revenue rose 10.2%, to $27.3 billion from $24.8 billion, mainly because of Alltel....

Tax-loss selling (or tax-loss harvesting) is a strategy for lowering your Canadian capital gains tax that involves selling a security at a loss in order to offset your capital gains. You can then deduct these losses against your taxable capital gains in the current tax year. For example, December 24 is the 2009 deadline for tax-loss selling on the Toronto Stock Exchange. If you sell at a loss on or before that date, you could deduct your loss against your 2009 capital gains. However, you can also carry your loss back for the three previous years (2008, 2007 and 2006), or carry it forward indefinitely to offset past or future capital gains. ...

There are many ways to calculate the performance of a stock market newsletter. Some provide far more favourable figures than others. That’s why, in our newsletters, we simply provide the return since our first recommendation, and leave more detailed calculations to independent sources, particularly The Hulbert Financial Digest. (We recently posted returns that were far higher than an index of all publicly traded U.S. stocks — see below for further details.) ...

When investing in the stock market, most investors place “market orders” or “limit orders.” With a limit order, you specify the highest price you are willing to pay to buy. The main risk here is that you won’t get a fill for your order if there is no stock available at or below your price. This introduces a filtering mechanism that can cost you money, especially if you set your limit below the current market price. If you set a price limit, some of your orders will go unfilled, since no stock is available at the price you want to pay....

Iraq’s instability has weighed heavily on its oil exports. That’s caused many oil companies, including some Canadian oil stocks, to hold off on investing in the country. However, the situation has presented some real bargains for foreign firms willing to take larger interests in Iraq. For example, China’s Sinopec recently paid $8 billion U.S. for Addax Petroleum, which was developing the huge Taq Taq oil field in Iraq’s northern Kurdistan region. (See below for an update on a Canadian oil stock with a new presence in Kurdistan. We’ve updated our view on this company in the latest Stock Pickers Digest.)...

The U.S. dollar is down 22% against the Canadian dollar so far this year. Many investors fear it will keep falling. If you knew the U.S. dollar would keep falling, the best strategy would be to sell all of your U.S. stocks and buy them back when the dollar stabilizes. However, you don’t know where the U.S./Canada exchange rate is going next — you never do. ...

When you join my Inner Circle service, you get to ask me your own personal investment questions, plus you get to see what other Inner Circle members have asked, along with our answers. So you can see how the service works, and get a sense of how it might help your portfolio, I’d like to share a member question about the liquidity of more aggressive stock market picks. I hope you enjoy and profit from it. Q: Would you comment on the liquidity of stocks? I fear that if I bought a stock, especially a speculative one, and wanted to sell I wouldn’t be able to. Does the average volume of a stock have any bearing on the stock’s quality, or the ease of being able to sell that stock? I guess what I am asking is if there are any ways to determine the liquidity of a stock. A: Many speculative stocks, including some of our stock market picks in Stock Pickers Digest, our newsletter focusing on more aggressive investments, are inactive or “thin” traders. They trade perhaps a few thousand shares daily, compared to tens, if not hundreds of thousands for, say, a Canadian bank....

Last week, Barrick Gold (symbol ABX on Toronto) said that its research shows that global gold production has been falling by roughly one million ounces a year since 2000. Barrick is the world’s largest gold-mining company. Moreover, the company says that poorer-quality ore has driven down total global mine supply by roughly 10%. In Canada, the U.S, and Australia, for example, average grades of mined ore have fallen to nearly three grams per tonne. That’s down from roughly 12 grams per tonne in 1950. What’s more, Barrick says that South Africa’s gold output has fallen by about 50% from its peak in 1970. ...

Recently, President Barack Obama visited a Florida solar-power plant operated by FPL Group (symbol FPL on New York), one of the green stocks we cover in our Wall Street Stock Forecaster newsletter. The president was there to announce a $200 million U.S. grant to FPL that will help with the green stock’s installation of “smart meters.” Customers can use these meters to cut their power use and save on their electricity bills. The grant is part of the government’s continuing investment in strengthening and upgrading the country’s power grid. FPL is in a good position to scoop up even more green-power subsidies over the next few years. See below for more on this company’s leading-edge operations....

The term “buying on margin” means that you’re borrowing money from your broker to buy securities. The main cost involved with this stock market trading strategy is interest on the money you borrow. Plus, when you sell a security that you’ve bought on margin, you must first pay back the loan from your broker. If you could buy on margin when the market hits bottom, stay margined as the market rises, and sell out at the peak, you could very quickly build a large fortune. But of course, no one has the sense of superhuman timing necessary to consistently succeed in that.

...

Technology stocks have always been a more speculative segment of the stock market. But you can turn the odds in your favour by investing in those that have hidden assets, or assets that other investors overlook. Hidden assets are items that don’t show up on a company’s balance sheet, but can offer dramatic rewards for investors who are able to spot them. ...

If you feel stocks have become overpriced lately, you might want to take advantage of this by short selling stocks — that is, selling borrowed shares in hopes of a drop in price. We advise against this strategy, mainly because of the perennial drawbacks of short selling. Short selling is when you borrow stock from a broker and then sell it. However, you eventually have to buy back the stock on the market to return it to its owner. If the stock falls in price while you are “short,” you can buy it back at a lower price. You have then made a profit. But if the stock rises in price, you must buy it back at a higher price than you sold it, and you lose money. [ofie_ad]...

When building your portfolio, it’s crucial to follow our stock investing advice of downplaying stocks that seem to be near-universally recommended by brokers and are getting a lot of favourable media coverage. That’s because, in investing, familiarity can breed excessive feelings of comfort, security and performance. After all, brokers get information from the media, investment journalists spend a lot of time talking to brokers, and company managers listen to both. A feedback loop can develop that spurs high expectations, derails criticism, and leads companies (and their investors) to make devastating mistakes. You may get the feeling that these are can’t-miss investments, and that it’s safe to buy and forget them. That’s exactly the wrong thing to do with these stocks. Our stock investing advice is that your in-the-limelight holdings are the ones you need to watch most closely....

We noted with interest (and some amusement) the unveiling of the prototype of “The Rationalizer,” a new device that aims to sense day traders’ stress levels and alert them when it may be time to step back from trading. The idea is to ensure that traders avoid the mistake of trading based on emotion. The device is made by Philips Electronics (symbol PHG on New York), one of the blue chip stocks we’ve taken a close look at in the most recent issue of Wall Street Stock Forecaster (see below for a full update on this Netherlands-based electronics firm). The Dialogues Incubator, an initiative of Dutch bank ABN AMRO, also played a role in its design. Users of the device wear an “Emo Bracelet,” which senses a trader’s stress level and makes the accompanying EmoBowl, which sits on the traders’ desk, change from yellow to red as the trader becomes more stressed....

If you need steady income and want to hold bond funds, we advise you to focus on those with short-term maturity dates (see below for more on bond funds). That’s because bonds with shorter terms face a lower risk from interest-rate increases. You should also avoid funds that take part in any kind of speculative trading. The iShares Canadian Short Bond Index Fund (symbol XSB on Toronto) is a bond exchange-traded fund (ETF) that’s a long-time recommendation of our Canadian Wealth Advisor newsletter. The fund cuts risk by avoiding speculative trading and emphasizing government bonds.

...

Warren Buffett’s Berkshire Hathaway Inc. recently announced that it will buy the 77% of U.S.-based railway Burlington Northern Santa Fe Corp. that it doesn’t already own. The company will pay $44 billion U.S. to complete the takeover. Burlington Northern owns one of the largest railroad networks in the U.S., with about 51,500 kilometres of track. ...

IBM $121.29 (New York symbol IBM; Shares outstanding: 1.3 billion; Market cap: $159.3 billion; SI Rating: Above Average) is the world’s largest computer company, with operations in over 170 countries. IBM specializes in making large mainframe computers for governments and corporations. The company is also the world’s second-largest software maker, after Microsoft Corp. IBM gets 22% of its revenue from sales of software. IBM’s service division now supplies almost 60% of it’s revenue. As well, long-term contracts for designing and maintaining computer systems provide steady revenue streams. This cuts the company’s risk. In the three months ended September 30, 2009, the slower economy pushed down revenue by 6.9% to $23.6 billion from $25.3 billion a year earlier. However, IBM’s earnings rose 13.8%, to $3.2 billion from $2.8 billion, because of its shift to services and software, which generate higher profit margins. Earnings per share rose 17.6%, to $2.40 from $2.04, on fewer shares outstanding from share buybacks....

ISHARES CDN LARGECAP 60 INDEX FUND $16.46 (Toronto symbol XIU; buy or sell through a broker) (units split 4-for-1 in August 2008) is a good, low-fee way to buy the top stocks and income trusts on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.17% of assets. Most of the stocks in the index are high-quality companies. However, as it must ensure that all sectors are represented, the index holds a few we wouldn’t include, such as Yellow Pages Income Fund. The index’s top holdings are: Royal Bank, 8.2%; Suncor Energy, 5.9%; TD Bank, 5.7%; Bank of Nova Scotia, 5.0%; EnCana, 4.8%; Barrick Gold, 4.1%;Canadian Natural Resources, 3.9%; Manulife, 3.5%; Research in Motion, 3.2%; Potash Corp., 3.1%; Goldcorp, 3.1%; Bank of Montreal, 2.9%; CN Railway, 2.6%; and CIBC, 2.5%....

ISHARES DIVIDEND INDEX FUND $17.74 (Toronto symbol XDV; buy or sell through a broker) holds the 30 highest-yielding Canadian stocks based on dividend growth, yield and average payout ratio. The weight of any one stock is limited to 10% of assets. The fund’s MER is 0.50%. iShares Dividend Index Fund has a yield of 4.0%. Top holdings are National Bank, 8.9%; Bank of Montreal, 8.0%; CIBC, 7.2%; TD Bank, 6.3%; IGM Financial, 5.0%; Bank of Nova Scotia, 5.0%; Royal Bank, 4.9%; Manitoba Telecom, 4.6%; TMX Group, 3.6%; Sun Life, 3.2%; Power Financial, 3.2%; Telus, 3.1%; and Russel Metals, 2.8%. iShares Dividend Index Fund is a buy.

S&P DEPOSITORY RECEIPTS $104.92 (New York symbol SPY; buy or sell through brokers) are commonly called “Spiders.” The fund holds the stocks in the S&P 500 Index, which consists of 500 major U.S. stocks that are chosen based on their market share, liquidity and industry group. The index’s 10 highest-weighted stocks are Exxon Mobil, Microsoft, Procter & Gamble, Apple, JP Morgan Chase & Co., Johnson & Johnson, IBM, Chevron, General Electric and AT&T. The fund’s expenses are just 0.10% of its assets. If you want exposure to the S&P 500 Index, S&P Depository Receipts are a buy.