commodity

Gold rose from $300 an ounce at the beginning of this decade to over $1,000 in early 2008. It fell below $700 late last year before rebounding back over $1,000 earlier this year. Today, it trades around $954. We feel that gold will eventually surpass its recent highs. That’s mainly because low interest rates and government spending will spur inflation. Still, investors should use caution when investing in gold, and avoid buying gold directly, or certificates that represent an interest in gold. Unlike stocks, commodity investments like these generate no income. Instead, they come with a continuing cash drain for management, insurance and so on....

MAJOR DRILLING $21.93 (Toronto symbol MDI; SI Rating: Speculative) (www.majordrilling.com; 1-866-264-3986; Shares outstanding: 23.7 million; Market cap: $520.1 million) is a large contract-drilling company that mainly serves the mining industry. In the three months ended April 30, 2009, Major Drilling’s revenue fell 60.9%, to $66.4 million from $170 million. It lost $4.6 million, or $0.19 a share, compared to a profit of $25.5 million, or $1.07 a share, a year earlier. The latest quarter’s earnings included a $2.1-million restructuring charge. Cash flow was positive, at $2.8 million, or $0.12 a share. In January, many of Major’s customers delayed or cancelled their exploration plans because of the recession and lower gold and base-metal prices. Drilling remained slow through February, March and April....

Talisman Energy Inc., $17.23, symbol TLM on Toronto (Shares outstanding: 1 billion; Market cap: $17.6 billion), is a large Calgary-based oil and natural-gas producer. Crude oil accounted for 52% of its production in 2008; the remaining 48% was natural gas. Talisman operates in three main areas: North America provided 42% of its 2008 output, followed by the North Sea (32%) and Southeast Asia (21%). Other regions accounted for the remaining 5%. Since Talisman’s formation as an independent company in 1992 (it was originally part of BP Canada), it has relied on acquisitions for growth. In 2008, Talisman changed this strategy and began focusing on developing properties with reliable production and better earnings potential. It then sold $2.5 billion worth of properties over the past year....

Gildan Activewear Inc., $16.36, symbol GIL on Toronto (Shares outstanding: 120.9 million; Market cap: $2.0 billion), makes and sells premium-quality T-shirts, fleece sweatshirts and sweatpants, sport shirts, underwear and socks in a variety of weights, sizes, colours and styles. It sells to customers in Canada, the U.S., Europe and other countries. Gildan makes 100% cotton, blended cotton and polyester products. In the past, the company sold these as blanks without designs or logos. Wholesale clients then silkscreened designs onto them. Gildan also sells directly to mass-market retailers, such as Wal-Mart and Dollar General. The company competes with Fruit of the Loom Inc., Hanesbrands Inc., Delta Apparel Inc. and Anvil Knitwear Inc....

CHILE FUND $15.63 (New York symbol CH) (CWA Rating: Aggressive) is a closed-end fund that invests primarily in Chilean stocks. Prices for copper, a key commodity for Chile, are now at $2.31 U.S. a pound, down from the all-time highs of over $4 U.S. they reached in June, 2008. Chile is a major exporter of copper, particularly to Asia. In fact, it’s the world’s biggest supplier of copper. Chile’s President Michelle Bachelet prudently used high copper prices from 2006 to 2008 to pay off the country’s foreign debt and to save for an economic downturn. As a result, Chile is now able to implement a big economic stimulus plan without taking on debt. This includes public-works projects, tax breaks for businesses and distributing money to its poorest citizens....

Horizons BetaPro NYMEX Crude Oil Bull Plus ETF, $10.20, symbol HOU on Toronto (Shares outstanding: 41.5 million; Market cap: $423.2 million), is an ETF that aims to provide daily investment performance that is double that of the NYMEX crude oil index. It uses options in a way that aims for it to go up twice as much in a day as the underlying index. If the index falls, the ETF will drop by around twice as much. The key point here, however, is that this investment works best if you only hold it for a single day when the price of the underlying index is going up. Otherwise, the costs of using options eat into the value of the ETF. This ETF started trading at around $100 in early 2008. It moved up to $240 by mid-July. By year-end, the price of oil was down below $40, but the ETF was down near $10. You might say the ETF “outperformed oil on the downside” – that it, it fell much faster than oil. That’s because its value was suffering due to the falling price of oil and due to the costs of dealing in options....

Food companies add stability to your portfolio. While they have to deal with changing costs and eating trends, they benefit from continuous, habitual buying by regular customers regardless of the overall economy. The recession has prompted more consumers to switch to cheaper, generic brands. But falling raw-material costs will let these six top food companies lower their prices, maintain their profit margins and keep paying above-average dividends. KRAFT FOODS INC. $26 (New York symbol KFT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.5 billion; Market cap: $39 billion; Price-to-sales ratio: 0.9; WSSF Rating: Above Average) is the world’s second-largest food company after Nestle. Top brands include Kraft (cheese), Maxwell House (coffee), Nabisco (biscuits and cookies) and Oscar Meyer (meats). Kraft faces strong competition from private-label foods, particularly in some of its main product lines, such as cheese, coffee and processed meats. But it has been helped by lower costs for a number of its raw materials, especially dairy products....

CONAGRA FOODS INC. $20 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 447.2 million; Market cap: $8.9 billion; Price-to-sales ratio: 0.7; WSSF Rating: Above Average) makes a number of packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter and Orville Redenbacher popcorn. In its third fiscal quarter, which ended February 22, 2009, ConAgra’s earnings per share rose 17.6%, to $0.40 from $0.34 a year earlier. These figures exclude several non-recurring items, but they include a $0.05-a-share gain on hedging contracts, which ConAgra uses to lock in costs for wheat, corn and other ingredients. As well, ConAgra paid $0.03 a share in legal costs related to a 2007 peanut-butter recall that was caused by a salmonella outbreak. Sales rose 6.1%, to $3.1 billion from $3 billion. ConAgra raised its selling prices because of higher raw-material costs. This offset lower sales volumes....

Lately, a number of readers have been asking me whether it’s worth holding onto their U.S.-stock holdings if the U.S. dollar keeps falling. Some wonder if they should follow their brokers’ suggestions and hedge against the risk of a drop in the U.S. dollar, using options, futures or other investment products. If you knew that the U.S. dollar would keep falling, the best portfolio management 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. The financial industry has a variety of products that can insulate your U.S. investments from a drop in the value of the U.S. dollar. These products obviously cost you money. In addition, they reduce the long-term value of your U.S. investments. After all, you invest in U.S. stocks for two key reasons. One is that the U.S. stock market offers certain types of investment opportunities that are rare or non-existent in Canada, such as giant multi-national consumer companies like Procter & Gamble or McDonalds. The other key reason for U.S. investment is that it gives you currency diversification. That’s crucial to a sound portfolio management strategy....

Many junior resource stocks have rebounded lately, along with commodity prices. As well, it’s getting easier for many juniors to raise funds for exploration and development. Here are four penny stocks that have promising prospects and cash to sustain themselves, whichever way commodity prices go. We think they have a better-than-average chance of long-term success. MIRANDA GOLD $0.40 (Toronto symbol MAD; SI Rating: Start-up) (604-689-1659; www.mirandagold.com; Shares outstanding: 44.9 million; Market cap: $18.0 million) is a gold exploration company mainly focused on Nevada....