Cenovus Energy Inc.

Canada’s oil sands continue to face strong opposition from environmentalists. That’s mainly because the process of recovering heavy oil from the oil sands produces higher carbon emissions than conventional sources. However, new technology has let oil stocks cut way down on their oil-sands emissions. As well, turmoil in Egypt and other Middle Eastern countries highlights the oil sands’ strategic importance to the U.S. and Canada. These factors make it less likely that Ottawa will introduce regulations that would slow oil-sands development.

Cenovus: a diversified producer with a focus on the oil sands

...

BCE INC., $35.90, Toronto symbol BCE, continues to profit from recent upgrades to its wireless and high-speed Internet networks. As a result, BCE’s earnings rose 11.9% in 2010, to $2.2 billion from $1.9 billion in 2009. The company spent $500 million on share buybacks in 2010. Because of fewer shares outstanding, earnings per share rose 13.6%, to $2.84 from $2.50. These figures exclude costs related to a restructuring plan, which included cutting jobs, relocating employees and selling excess real estate. The latest earnings also beat the consensus estimate of $2.83 a share. Revenue rose 1.9% in 2010, to $18.1 billion from $17.7 billion. Wireline revenue (which accounts for 57% of BCE’s total revenue) rose just 0.3%. New high-speed Internet and satellite-TV subscribers offset lower local and long-distance telephone revenue. At the end of 2010, the company had 2.1 million high-speed Internet subscribers (up 2.0% from a year earlier) and 2.0 million TV subscribers (up 3.7%)....

Canada’s oil sands still face strong opposition from environmentalists. However, new technology has sharply lowered the oil sands’ greenhouse-gas emissions. As well, turmoil in Egypt and other Middle Eastern countries highlights the oil sands’ strategic importance to the U.S. and Canada. These factors make it less likely that Ottawa will introduce regulations that would slow oil-sands development. These three oil-sands producers have all moved up lately, but they still have plenty of room to grow. SUNCOR ENERGY INC. $40 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.6 billion; Market cap: $64.0 billion; Price-to-sales ratio: 1.7; Dividend yield: 1.0%; TSINetwork Rating: Average; www.suncor.com) became Canada’s largest oil company when it merged with Petro-Canada in August 2009. About 50% of Suncor’s production is conventional oil and natural gas. The remaining 50% comes from oil sands, including the company’s 12% stake in the massive Syncrude development. Suncor aims to expand its oil-sands operations until they account for about 70% of its production....

ENCANA CORP $29.14 (Toronto symbol ECA; Shares outstanding: 735.3 million; Market cap: $21.4 billion; TSINetwork Rating: Average; Dividend yield: 2.8%; www.encana.com) earned $98 million, or $0.13 a share, before one-time items in the three months ended September 30, 2010 (all amounts except share price in U.S. dollars). The latest earnings were down 74.1% from the company’s year-earlier earnings of $378 million, or $0.50 a share. Revenue rose 10.2%, to $1.5 billion from $1.3 billion on higher production. Cash flow per share fell 9.4%, to $1.54 from $1.70. (Note: The year-earlier 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 the lower earnings and cash flow. (Natural gas accounted for 96% of Encana’s average daily production in the latest quarter.) Encana’s average selling price for gas fell 29.2% during the quarter, to $5.27 per thousand cubic feet from $7.44 a year earlier. The price decline offset a 15.2% rise in the company’s total production....

It has been a year since the old EnCana split itself into two new companies: the new Encana focuses on unconventional natural gas, and Cenovus Energy specializes in oil-sands projects. Encana is down slightly since the breakup, due to low natural-gas prices. However, Cenovus has gained 20%. We continue to see both stocks as buys for long-term gains. ENCANA CORP. $28 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.3 million; Market cap: $20.6 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.9%; TSINetwork Rating: Average; www.encana.com) is a leading North American natural-gas producer. It focuses on unconventional reserves, such as shale-gas deposits. (Shale gas is natural gas that is trapped in rock formations.)...

BANK OF MONTREAL, $61.74, Toronto symbol BMO, rose 4% this week after it reported earnings that matched the consensus estimate. In its 2010 fiscal year, which ended October 31, 2010, the bank earned $2.8 billion. That’s up 57.2% from $1.8 billion a year earlier. Earnings per share rose 54.2%, to $4.75 from $3.08, on more shares outstanding. Unusual items, such as severance costs and writedowns of securities the bank holds, depressed its fiscal 2009 earnings. If you exclude these items, earnings per share would have risen 19.9%. Earnings at Bank of Montreal’s main retail-banking division rose 7%, while its wealth-management business’s earnings gained 31%. However, earnings at its capital-markets division fell 6%. That’s because volatile stock markets and concerns over European sovereign debt hurt trading volumes. Revenue rose 10.4%, to $12.2 billion from $11.1 billion....

CENOVUS ENERGY INC. $32 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 752.0 million; Market cap: $24.1 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.5%; TSINetwork Rating: Extra Risk; www.cenovus.com) earned $0.21 a share in the quarter ended September 30, 2010, down 63.2% from $0.57 a year earlier. Cash flow per share fell 44.7%, to $0.68 from $1.23. Lower natural-gas production and prices were the main reasons for the declines. Unplanned outages at two refineries in the U.S. Midwest also hurt the company’s results; Cenovus and ConocoPhillips (New York symbol COP) each own 50% of these refineries. However, the partners are expanding the refinery in Illinois. That should make this facility more profitable, starting in late 2011. Cenovus is a buy.

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 2010 deadline for tax-loss selling on the Toronto Stock Exchange. If you sell at a loss on or before that date, you get to deduct your loss against your 2010 capital gains. If you still have capital losses left over, you can carry them back up to three years (2009, 2008 and 2007), or forward indefinitely to offset past or future capital gains....

ENCANA CORP., $28.26, Toronto symbol ECA, fell 7% this week after the company reported lower-than-expected earnings. In the three months ended September 30, 2010, Encana earned $98 million, or $0.13 a share (all amounts except share price in U.S. dollars). These figures exclude a $331-million gain on hedging contracts that the company uses to lock in selling prices for its natural gas, and a $140-million foreign-exchange gain. On this basis, the latest earnings fell well short of the consensus estimate of $0.19 a share. They were also down 74.1% from the company’s year-earlier earnings of $378 million, or $0.50 a share. Cash flow per share fell 9.4%, to $1.54 from $1.70. (Note: The year-earlier figures assume that the breakup of the old EnCana Corp. into the new Encana and Cenovus Energy Inc. took place at the start of 2009 instead of December 1, 2009.)...

CENOVUS ENERGY $29.60 (Toronto symbol CVE; Shares outstanding: 751.7 million; Market cap: $22.3 billion; SI Rating: Extra Risk; Dividend yield: 2.7%) has received regulatory approval to expand its 50%-owned Foster Creek oil-sands project in northern Alberta. The company will expand Foster Creek in three phases over the next seven years. When the expansion is finished, Foster Creek’s average daily production will rise to 210,000 barrels (Cenovus’ share will be 110,000 barrels) from the current 120,000 barrels. To put these figures in context, Cenovus’ average daily production, including natural gas, was 253,733 barrels in its latest quarter....