commodity

Copper continues to attract a lot of attention from investors in commodity stocks. That’s because the metal recently hit an all-time high of $4.62 U.S. a pound. That’s up sharply from its low of $1.25 U.S. in late 2008. Right now, copper trades at around $4.47 U.S. a pound. Traditionally, investors have bought copper as a way to profit from general economic growth. That’s because, unlike gold, silver and many other precious metals, copper has a wide range of industrial uses. For example, it’s a key element in electrical wire and pipe.

Higher copper will brighten this commodity stock’s prospects

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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....

Prices for oil, copper and other commodities continue to rise as the global economy recovers. That has pushed up the share prices of most resource companies, including the three oil producers we analyze in this issue. Another way to profit from surging commodity prices is by investing in companies that sell equipment and services to the resources industry. Finning is a top example. The stock has nearly doubled from its recent low of $16 in June 2010. Even so, it still trades at a reasonable multiple to earnings. FINNING INTERNATIONAL INC. $29 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.2 million; Market cap: $5.0 billion; Price-to-sales ratio: 1.1; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.finning.com) sells, rents and repairs heavy equipment, such as tractors, bulldozers and trucks, made by Caterpillar Inc....

Archer Daniels Midland Co., New York symbol ADM, processes corn, wheat, soybeans, canola, flaxseed, peanuts, cocoa and other crops into a wide variety of food ingredients, such as flour, oils and sweeteners. It mainly sells its products to firms that make and process food for both humans and animals. The company is also the largest maker of ethanol from corn in the U.S. Ethanol is a gasoline additive that lowers harmful emissions. Archer Daniels has more than 270 plants worldwide. The company is one of the commodity investments we analyze in our Wall Street Stock Forecaster newsletter. In its 2011 second quarter, which ended December 31, 2010, the commodity investment’s revenue rose 31.6% to $20.9 billion from $15.9 billion a year earlier. That beat the consensus revenue forecast of $17.2 billion. Earnings rose 29.1%, to $732.0 million, or $1.14 a share, from $567.0 million, or $0.88 a share. The latest earnings beat the consensus estimate of $0.78 a share....

Potash Corp. of Saskatchewan, symbol POT on Toronto, produces potash, phosphate and nitrogen for use in fertilizers. Saskatchewan has the world’s largest deposits of potash. The company also partly owns potash-related companies in Jordan, Israel and Chile. Potash Corp. is one of the 5 agricultural investments we analyze in our free report, Commodity Investments: Fertilizer Stocks and Potash Stocks That Will Profit from Rising Food Demand. In 2010, the potash stock’s revenue rose 64.4% to $6.5 billion from $4.0 billion in 2009 (all amounts except share price in U.S. dollars). The company earned $1.8 billion, or $5.95 a share, up 84.2% from $980.7 million, or $3.23 a share....

CGI GROUP INC., $19.17, Toronto symbol GIB.A, is Canada’s largest provider of computer-outsourcing services. The company’s services help its customers 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 first quarter, which ended December 31, 2010, CGI earned $126.6 million. That’s up 13.8% from $111.2 million a year earlier. The company paid $81.0 million to buy back shares during the quarter. Due to fewer shares outstanding, earnings per share rose 21.6%, to $0.45 from $0.37. That easily beat the consensus earnings estimate of $0.34 a share. As a result, the stock gained 5% this week. Revenue rose 22.7%, to $1.1 billion from $913.0 million a year earlier. If you exclude the negative impact of exchange rates, revenue would have risen 25.9%. Canadian revenue rose 0.5%, but U.S. revenue jumped 77.1%, because the company won a number of new federal government contracts. The U.S. gain also reflects the contribution of Stanley Inc., which CGI bought last year. Stanley provides computer-outsourcing services to military and civilian agencies of the U.S. government....

Canadian National Railway Co. (Toronto symbol CNR) operates Canada’s largest freight rail network, and serves 16 U.S. states. CN is one of the Canadian stock picks we analyze in our Successful Investor newsletter. In 2010, CN earned $2.1 billion, or $4.48 a share. That’s up 13.5% from $1.8 billion, or $3.92 a share, in 2009. Excluding one-time items in both years, such as an after-tax gain of $131 million on the sale of a southern Ontario rail line, the company earned $1.9 billion, up 28.7% from $1.5 billion in 2009. Earnings per share rose 29.6%, to $4.20 from $3.24, on fewer shares outstanding. Revenue rose 12.6% to $8.3 billion from $7.4 billion in 2009. Sharply higher freight volumes were the main reason for the revenue increase. The company also raised its fuel surcharges and shipping rates....

SHERRITT INTERNATIONAL CORP. $8.76 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704-6698; www.sherritt.com; Shares outstanding: 294.3 million; Market cap: $2.6 billion; Dividend yield: 1.7%) is a diversified natural-resource company that produces nickel, cobalt, thermal coal, oil and gas. It also licenses its own mining technologies to other metals companies, and manages 376 megawatts of power-generation capacity in Cuba. Toronto-based Sherritt is a major nickel producer, with operations in Cuba and Canada. It is also close to completing a mine at its 40%-owned Ambatovy project on the island nation of Madagascar, off the east coast of Africa. As well, Sherritt produces oil and gas in Cuba, Spain and Pakistan....

PLEASE NOTE: This is our last Hotline for 2010. Our next Hotline will go out on Friday, January 7, 2011. BANK OF MONTREAL, $58.00, Toronto symbol BMO, fell 6% on Friday after it agreed to buy Marshall & Ilsley Corp. (New York symbol MI), which provides banking and financial services through 374 branches in Wisconsin, Indiana, Missouri, Minnesota, Kansas, Arizona and Florida. The purchase doubles the size of Bank of Montreal’s U.S. retail-banking division. The bank is paying roughly $4.1 billion U.S. in stock for Marshall & Ilsley. That’s equal to 12% of Bank of Montreal’s $32.9-billion market cap. It aims to complete the purchase by July 31, 2011....

Commodities like gold and copper provide a hedge against inflation. But even if inflation stays low, commodity prices are likely to keep rising as rapid economic growth in Asia and South America spurs new construction and car sales. That will help BHP, Newmont and Alcoa. All three are high-quality, well-established resource stocks that have jumped lately. Still, we see only two as buys right now. BHP BILLITON LTD. ADRs $89 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $249.2 billion; Price-to-sales ratio: 4.7; Dividend yield: 2.0%; TSINetwork Rating: Average; www.bhpbilliton.com) is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium. Regulators in Australia and Canada have recently forced the company to cancel two big deals....