commodity

Redknee Solutions Inc. $5.81, symbol RKN on Toronto (Shares outstanding: 95.6 million; Market cap: $575.6 million; www.redknee.com), sells software and services that help wireless and wireline (or traditional telephone) providers manage and bill for voice, messaging and data services. Redknee has over 200 clients in 90 countries. In March 2013, the company acquired the Nokia Siemens Networks’ Business Support Systems unit, which provides billing and customer service to over 130 telecommunication firms. In the three months ended September 30, 2013, Redknee’s revenue jumped to $57.4 million from $14.5 million a year earlier, mostly due to the Nokia Siemens acquisition. The company lost $269,000, or $0.01 a share, down from a profit of $1.9 million, or $0.03, partly because of costs to integrate the purchase....

Fertilizer prices remain volatile, but these two producers have bright long-term outlooks. That’s because the growing global population is increasing food demand. Without fertilizer, the world would need 50% more farmland to meet this need....

Here’s the text of the quarterly letter I recently sent to our Portfolio Management clients: “In my last couple of quarterly letters, I talked about my belief that we’re in a secular bull market. This is a long-term stock-market rise that carries the market to successively higher levels over a period of a decade or two, if not longer. Secular bull markets generally start after a period of financial distress, when many investors feel at least somewhat negative toward the stock market. This period of financial distress may have lasted up to a decade, or longer. It’s a time when corporate earnings are weak or irregular, and investors assume they will stay that way indefinitely. Investor sentiment becomes extremely negative, and investors take it for granted that the market may be headed for another big downturn. The secular bull market begins around the time when investors begin to swing back to a more positive view of the stock market....

SHERRITT INTERNATIONAL (Toronto symbol S; www.sherritt.com) is a diversified natural resource company that produces nickel, cobalt, thermal coal, oil and gas. It also manages 356 megawatts of power generation capacity in Cuba, with an additional 150 megawatts starting up soon....

SHERRITT INTERNATIONAL CORP., $3.70, symbol S on Toronto, has announced that it plans to sell all of its coal interests. A group led by Altius Minerals (symbol ALS on Toronto) will buy Sherritt’s development-stage coal projects and mining royalties for cash of $481 million. In addition, Westmoreland Coal (symbol WLB on Nasdaq) will purchase Sherritt’s operating coal mines for cash of $312 million. Westmoreland will also assume $153 million of equipment lease obligations. These sales will let Sherritt focus on its nickel, cobalt and oil interests and pay down some of its $2.1-billion debt....

Stocks in the Manufacturing & Industry sector tend to be more volatile than those in the Finance, Utilities and Consumer sectors. That’s because demand for their products moves up and down with the economy....

FINNING INTERNATIONAL INC. $25 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 172.0 million; Market cap: $4.3 billion; Price-to-sales ratio: 0.7; Dividend yield: 2.4%; TSINetwork Rating: Above Average; www.finning.com) rents, sells and services heavy equipment made by U.S.-based Caterpillar Inc. (New York symbol CAT). Its main customers are in the oil, mining, forest products and construction industries.

Canada supplies 50% of Finning’s revenue, followed by South America (37%) and the U.K. (13%).

Lower prices for copper and other commodities have weakened equipment demand, particularly in South America and the U.K. However, Canadian sales remain strong. Weak commodity prices are also prompting Finning’s customers to rent more equipment and buy used machinery. As well, they are spending more to make their current gear last longer.
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SHERRITT INTERNATIONAL $3.02 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704- 6698; www.sherritt.com; Shares outstanding: 297.3 million; Market cap: $900.8 million; Dividend yield: 5.7%) is a diversified natural resource company that produces nickel, cobalt, thermal coal, oil and gas....

Stocks in the Resource and Manufacturing & Industry sectors tend to be more volatile than those in the Finance, Utilities and Consumer sectors. That’s because demand for their products moves up and down with the economy.

To cut your risk in the Manufacturing sector, it’s best to stick with well-established firms like the three we analyze below.

All three are leaders in their niche markets, which helps them stay profitable during downturns and thrive when the economy recovers....

SHERRITT INTERNATIONAL $3.02 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704- 6698; www.sherritt.com; Shares outstanding: 297.3 million; Market cap: $900.8 million; Dividend yield: 5.7%) is a diversified natural resource company that produces nickel, cobalt, thermal coal, oil and gas. It also manages 356 megawatts of power generation capacity in Cuba, with an additional 150 megawatts starting up soon.

The company is a major nickel producer, with operations in Cuba and Canada. As well, it has started up its 40%-owned Ambatovy mine on the island nation of Madagascar, off Africa’s east coast. Sherritt also produces oil and gas in Cuba, Spain and Pakistan and is Canada’s largest thermal coal producer.

In the three months ended September 30, 2013, Sherritt’s revenue fell 16.2%, to $286.2 million from $341.5 million a year earlier. Lower nickel and coal prices were the main reasons for the drop. Cash flow per share declined 33.3%, to $0.20 from $0.30.
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