commodity

Finning and SNC-Lavalin sell equipment and services to clients in the resource industry. Both companies have seen their shares fall over the past few months in light of dropping oil and metals prices. Both also stand to gain from increasing government spending on infrastructure. We continue to have a high opinion of both, but we prefer Finning because of its lower p/e ratio and higher dividend yield. FINNING INTERNATIONAL INC. $11 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 170.5 million; Market cap: $1.9 billion; Price-to-sales ratio: 0.3; SI Rating: Above Average) sells, rents and repairs heavy equipment made by Caterpillar Inc. It has major customers in the mining, forest products and construction industries. Finning’s revenue rose 5.8% in 2008, to $6 billion from $5.7 billion in 2007. Finning’s clients ordered more heavy equipment in the first half of the year as a result of high commodity prices. Finning’s operations in the U.K. and South America account for roughly 45% of its sales, and the drop in the Canadian dollar in the last quarter of 2008 increased the contribution from these divisions....

CANADIAN PACIFIC RAILWAY LTD. $36 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 167.7 million; Market cap: $6 billion; Price-to-sales ratio: 1.2; SI Rating: Above Average) ships freight over a 25,000-kilometre rail network between Montreal and Vancouver. In the United States, its subsidiaries connect its Canadian lines to major hubs in the midwest and northeast. Alliances with other railways extend CP’s reach to Mexico. CP made 29% of its 2008 revenues hauling shipping containers loaded with a variety of goods. Grain accounted for 20% of its revenues, followed by industrial products (16%), coal (13%), fertilizers (10%), automotive products (7%) and forest products (5%). CP’s many revenue sources cut its reliance on any single commodity or industry. Thanks largely to expanding trade with Asia, CP’s revenue rose 20.6%, from $3.9 billion in 2004 to $4.7 billion in 2007. Earnings rose 87.1%, from $359.5 million in 2004 to $672.8 million in 2007. Earnings per share rose 91.2%, from $2.26 to $4.32 on fewer shares outstanding....

CP’s shares soared to a high of $90 in July 2007. They have since fallen 60%, to $36. The stock was probably overpriced at $90 and 21 times earnings. But it now trades at 9.1 times this year’s forecast earnings, and it yields 2.8%. This well-established company is a mainstay of the Canadian economy. It’s a rare low-risk treat to be able to buy it at today’s bargain level. CANADIAN PACIFIC RAILWAY LTD. $36 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 167.7 million; Market cap: $6 billion; Price-to-sales ratio: 1.2; SI Rating: Above Average) ships freight over a 25,000-kilometre rail network between Montreal and Vancouver. In the United States, its subsidiaries connect its Canadian lines to major hubs in the midwest and northeast. Alliances with other railways extend CP’s reach to Mexico....

Energy Savings Income Fund, $10.40, symbol SIF.UN on Toronto (Shares outstanding: 106 million; Market cap: $1.1 billion), sells natural gas to homeowners, small to mid-sized businesses and small industrial customers under long-term, fixed-price contracts. The income trust sells gas in Ontario, Quebec, B.C., Alberta and Manitoba, as well as Illinois and Indiana. Energy Savings started up in 1997, and began trading on Toronto in April 2001. The trust first sold units to the public at $10. Energy Savings also markets electricity in Ontario, Alberta, New York and Texas....

Sherritt International, $2.03, symbol S on Toronto (Shares outstanding: 293.1 million; Market cap: $595 million), is a diversified natural-resource company that produces nickel, cobalt, thermal coal (which is burned for electricity generation), potash, oil and gas. Sherritt also manages 376 megawatts of electricity-generation capacity in Cuba. The company also licenses its proprietary mining technologies to other metals companies. With nine open-pit mines, Sherritt is Canada’s largest thermal coal producer. It is also developing Canada’s first coal gasification project. (Coal gasification is a process for converting coal partially or totally into gases. Like coal, the gases can then be burned to create heat, but they burn much cleaner and generate fewer harmful emissions.) Sherritt also produces about 31,189 barrels of oil equivalent per day from properties in Cuba, Spain and Pakistan. Coal accounts for 53% of Sherritt’s revenues, metals (nickel and cobalt) account for about 25%, oil and gas, 12%, power generation, 8% and other, 2%....

BHP BILLITON LTD. ADRs $37 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $103.6 billion; Price-to-sales ratio: 1.7; WSSF Rating: Average) is the world’s largest mining company. It has major operations in Australia, Chile, South Africa and the U.K. The company took its current form through the 2001 merger of Australia’s BHP Ltd. and U.K.-based Billiton plc. BHP has nine main segments: iron ore, which generates 20% of BHP’s revenues, metallurgical coal, used for making steel (17%), petroleum (15%), thermal coal, used for power generation (15%), base metals (11%), aluminum (9%), manganese (7%), stainless steel (4%) and diamonds and titanium (2%).

Acquisitions help fuel strong growth

Thanks to acquisitions and higher mineral prices, BHP’s revenue jumped by 159.9%, from $22.9 billion in 2004 to $59.5 billion in 2008 (its fiscal year ends June 30)....

RUSSEL METALS, $11.48, symbol RUS on Toronto, fell over 28% this week, even though it reported improved results in the fourth quarter of 2008. Investors mainly sold the stock because the slowing global economy drove demand for steel down by approximately 40% during the first two months of 2009. Russel is now working to cut costs and save cash. In the three months ended December 31, 2008, Russel’s earnings per share (excluding one-time items) more than doubled, to $0.87 from $0.37 a year earlier. Its revenues rose 40.8%, to $842.7 million from $598.4 million. In response to falling steel demand, Russel plans to cut 500 jobs (or 16.7% of its workforce), lower executive pay by 10% and reduce its remaining employees’ working hours. The company expects these moves to lower its annual costs by as much as $70 million....

Bunge Ltd., $47.41, symbol BG on New York (Shares outstanding: 121.6 million; Market cap: $5.8 billion), is an agribusiness, fertilizer and food-products company. Bunge (pronounced BUN-gee) mainly operates in North and South America. It is the largest soybean processor in the Americas, and one of the largest soybean-product exporters (soybean products include vegetable oil and margarine). Bunge is also the world’s leading oilseed processor and seller of bottled vegetable oil. The company first sold shares to the public at $16, and began trading on New York in August 2001. Bunge has three main segments: i) Agribusiness, which accounts for 71% of Bunge’s total sales, buys grains and oilseeds from farmers and stores, blends and sells them to customers like animal feed and food manufacturers. Through its agribusiness segment, Bunge handles soybeans, rapeseed, sunflower seed, canola, wheat and corn. It also manages a network of 275 country elevators in North and South America and Europe, and processes oilseeds into meal, oil and other by-products....

A: BHP Billiton Ltd., $44.04, symbol BHP on New York (Shares outstanding: 1.7 billion; Market cap: $73.9 billion), is the world’s largest mining company. It produces copper, thermal coal, iron ore, nickel, manganese, metallurgical coal, oil and gas and uranium, as well as gold, zinc, lead, silver, diamonds, aluminum and alumina (a material for the smelting of aluminum metal; it also serves as the raw material for a range of ceramic products and as an active agent in chemical processing). BHP has nine main segments: iron ore, which generates 20% of BHP’s revenues, metallurgical coal, used for making steel (16%), petroleum (14%), thermal coal, used for power generation (15%), base metals (11%), aluminum (8%), manganese (6%), stainless steel (4%) and diamonds and titanium (2%). In November 2007, BHP launched a hostile bid for London-based Rio Tinto (symbol RTP on New York), but abandoned its $66-billion takeover due to European anti-competition regulations and a deteriorating economy. The deal would have required BHP to take on a lot of debt and sell off assets to raise funds....

ALIMENTATION COUCHE-TARD, $13.20, symbol ATD.B on Toronto, is the largest convenience store operator in Canada, with over 2,000 outlets. The company has agreed to buy 13 convenience stores/gas stations in central Quebec from privately held Group Therrien for an undisclosed price. All 13 stores sell gas under either the Petro-T or Esso brands. Four of the stores have fast-food outlets (two A&W and two Subway), and three have car washes. Couche-Tard will lease the land and buildings at market value for 40 years and buy the stores’ equipment and inventory. The stores will continue to sell Esso and Petro-T gas, but will operate under the Alimentation Couche-Tard banner. Aside from its extensive network of stores in Canada, Alimentation Couche-Tard has more than 3,000 U.S. stores in 28 states. The Canadian stores operate under the Couche-Tard and Mac’s banners, while the U.S. stores mainly use the Circle K banner. The company sells fuel at 66% of its stores....