Cenovus Energy Inc.

CENOVUS ENERGY INC. $33 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 753.9 million; Market cap: $24.9 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.4%; TSINetwork Rating: Extra Risk; www.cenovus.com) operates three oil-sands properties in Alberta, and one in Saskatchewan. Cenovus ships the heavy bitumen from these projects to refineries in Illinois and Texas. ConocoPhillips (New York symbol COP) owns 50% of these refineries, as well as 50% of Cenovus’ two main oil-sands projects. Cenovus also owns conventional oil and natural-gas properties. The company has received approval from regulators to expand its Christina Lake oil-sands project in Alberta. It will build this project in three phases; each phase will add 40,000 barrels per day to Christina Lake’s current production of 18,000 barrels per day. Cenovus will complete the first phase in 2014, the second phase in 2016 and the third phase in 2017....

We continue to advise against overindulging in oil stocks. That’s because the Resource sector (including oil) is highly volatile, and no one can accurately predict future oil prices. For instance, after rising to $115 U.S. a barrel, oil dropped 16% in the first week of May 2011, to $97 U.S., on fears that the global economic recovery may be stalling. That’s why investors should stick with well-established oil producers with high-quality reserves and rising production, such as these three. All three should also benefit from the election of the Conservative majority government, which has promised not to impose onerous new carbon taxes or environmental regulations on oil-sands operators....

ENCANA CORP $31.24 (Toronto symbol ECA; Shares outstanding: 735.4 million; Market cap: $23.0 billion; TSINetwork Rating: Average; Dividend yield: 2.6%; www.encana.com) had cash flow of $1.29 a share in the three months ended March 31, 2011 (all amounts except share price in U.S. dollars). That’s down 17.3% from the company’s year-earlier cash flow per share of $1.56 a share. Revenue fell 53.0%, to $1.7 billion from $3.5 billion. Lower natural gas prices were the main reason for the drop in revenue and cash flow. (Natural gas accounts for 95% of Encana’s production.) The company’s average selling price for gas fell 18.6% during the quarter, to $5.00 per thousand cubic feet from $6.14 a year earlier. The price decline offset a 2.1% rise in the company’s total production....

CGI GROUP INC., $20.70, Toronto symbol GIB.A, is Canada’s largest provider of computer-outsourcing services. The company’s services can automate certain routine functions, such as accounting and buying supplies. That makes its clients more efficient, and lets them focus on their main businesses. In its fiscal 2011 second quarter, which ended March 31, 2011, CGI earned $117.0 million. That’s up 43.4% from $81.6 million a year earlier. Due to fewer shares outstanding, earnings per share rose 50.0%, to $0.42 from $0.28. If you exclude a tax gain, the company would have earned $0.40 a share in the latest quarter. That beat the consensus earnings estimate of $0.38 a share. Revenue rose 24.5%, to $1.1 billion from $910.4 million a year earlier. If you exclude the negative impact of exchange rates, revenue would have risen 27.9%. Canadian revenue rose 4.3%, and U.S. revenue jumped 67.3%, mainly because the company won a number of new contracts from the U.S. federal government....

ENCANA CORP. $32 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.3 million; Market cap: $23.6 billion; Price-to-sales ratio: 2.5; Dividend yield: 2.4%; TSINetwork Rating: Average; www.encana.com) is one of North America’s largest natural-gas producers. The company prefers to focus on large unconventional reserves, including shale gas, which is natural gas that is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the natural gas. At current production rates, Encana’s proven reserves should last 12 years.

Encana has lagged behind Cenovus

Encana took its current form when the old EnCana Corp. split itself into two separate companies in December 2009. Since then, the new Encana has gained just 8%. The other company, Cenovus Energy Inc. (Toronto symbol CVE), which focuses on oil-sands projects, has jumped 38%....

ISHARES S&P/TSX 60 INDEX FUND $20.44 (Toronto symbol XIU; buy or sell through a broker; ca.ishares.com) is a good, low-fee way to buy the top stocks 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, it holds a few we wouldn’t include, such as Yellow Media Inc. The index’s top holdings are: Royal Bank, 6.7%; Suncor Energy, 5.9%; TD Bank, 5.8%; Bank of Nova Scotia, 5.3%; Canadian Natural Resources, 4.4%; Barrick Gold, 4.3%; Potash Corp., 4.2%; Goldcorp, 3.1%; Bank of Montreal, 2.9%; CN Railway, 2.7%; Manulife Financial, 2.7%; CIBC, 2.7%; Research in Motion, 2.5%; and Cenovus Energy, 2.3%....

I think the political turmoil in the Arab world will eventually turn out to be a good thing for the world economy and stock markets. However, it definitely raises the already high political risk for foreign companies, including oil and gas firms, operating in those countries. In Canadian Wealth Advisor, we’ve long emphasized oil and gas stocks with a strong base of growing operations in Canada and the U.S. That not only eliminates political risk, but lets them profit when turmoil elsewhere pushes up oil and gas prices. Here are six top favourites:...

Exchange-traded funds (ETFs) may have a place in your portfolio. That’s because, unlike many other financial innovations, they don’t load you up with heavy management fees, or tie you down with high redemption charges if you decide to get out of them. Instead, they give you a low-cost, flexible, convenient alternative to mutual funds. ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You’ll have to pay brokerage commissions to buy and sell ETFs. However, ETFs’ low management fees still give them a cost advantage over most conventional mutual funds. As well, shares are only added or removed when the underlying index changes. As a result of this low turnover, you won’t incur the regular capital-gains bills generated by the yearly distributions most conventional mutual funds pay out to unitholders....

Cenovus Energy Inc., symbol CVE on Toronto, operates three oil-sands properties in Alberta, and one in Saskatchewan. Cenovus ships the heavy bitumen from these projects to refineries in Illinois and Texas. ConocoPhillips (New York symbol COP) owns 50% of these refineries, as well as 50% of Cenovus’ two main oil-sands projects. Cenovus also owns conventional oil and natural gas properties. Cenovus split off from EnCana Corp. in December 2009. In 2010, Cenovus earned $993.0 million, or $1.32 a share. That’s up 21.4% from $818.0 million, or $1.09 a share, in 2009. The oil stock’s production rose, as did oil prices. These were the main reasons for the higher earnings. These gains were somewhat offset by higher costs for shipping oil due to problems along the Enbridge pipeline system, and costs to upgrade its U.S. refineries. The oil stock’s cash flow fell 15.1% in 2010, to $2.4 billion, or $3.21 a share, from $2.8 billion, or $3.79 a share in 2009. Lower volumes and selling prices for natural gas were the main reasons for the declines....

Encana Corp. (symbol ECA on Toronto) earned $665 million, or $0.90 a share, in 2010 (all amounts except share price in U.S. dollars). The commodity stock’s latest earnings were down 62.4% from its 2009 earnings of $1.8 billion, or $2.35 per share. Cash flow per share fell to $6.00 from $6.68 in 2009. (Note: The 2009 figures assume that the breakup of the old EnCana Corp. into the new Encana and Cenovus Energy took place at the start of 2009 instead of December 1, 2009.) Depressed natural gas prices were the main reason for lower earnings and cash flow. (Natural gas accounts for more than 95% of the commodity stock’s average daily production.) Encana’s average selling price for gas fell 22.0 % in 2010, to $5.48 per thousand cubic feet from $7.03 in 2009. The price decline offset a 12.0 % rise in the company’s total production....