commodity

Junior resources stocks have been particularly hard hit lately, not just by falling commodity prices, but also by investor fears that they won’t be able to continue to raise financing for exploration and development. Here are four penny stocks that all have promising prospects, as well as cash to sustain their operations. We think they have a better-than-average chance of long-term success. MIRANDA GOLD $0.23 (Toronto symbol MAD; SI Rating: Start up) (604-689-1659; www.mirandagold.com; Shares outstanding: 44.9 million; Market cap: $10.1 million) is a gold exploration company focused mostly in Nevada....

FINNING INTERNATIONAL INC. $14 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.4 million; Market cap: $2.4 billion; SI Rating: Above average) sells and rents heavy equipment made by Caterpillar Inc. Products include tractors, bulldozers, pavers and trucks. Finning’s shares have moved down from their peak of $31 in April, 2008. That’s mainly because falling commodity prices have forced mining and energy exploration firms to suspend or scale back work on new developments. The credit crisis has made it harder for customers to borrow money for new equipment. Finning now plans to improve the profitability of its Canadian operations with a new restructuring plan, mostly by cutting its back office staff by 4%. The company did not reveal how much this plan would cost, but it should save it $10 million a year....

Oil prices have dropped from $148 U.S. a barrel in July, 2008 to its current price of around $44 U.S. That has prompted oil companies to delay big investments in Alberta’s oil sands until conditions improve. Still, oil sands projects have huge long-term potential, and will provide decades of growth for Imperial Oil, EnCana and Petro-Canada. Companies such as Finning International that supply equipment and services to oil sands operators should also see huge gains. All four of these companies have moved down lately, but we still see them as buys for long-term gains....

WACHOVIA CORP. $5.66, New York symbol WB, has settled a class-action lawsuit that aimed to block its upcoming takeover by WELLS FARGO & CO. $29.36, New York symbol WFC. The settlement of this lawsuit increases the likelihood that the takeover will proceed as planned. Wachovia stockholders will vote on the deal on December 23, 2008. If approved, they will receive 0.1991 of a Wells Fargo common share for each Wachovia share they currently hold. Wachovia investors should tender their shares to the Wells Fargo offer....

TECK COMINCO LTD. $6.65 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 449.4 million; Market cap: $3.0 billion; SI Rating: Extra risk) has completed its purchase of Fording Canadian Coal Trust. Teck is now one of the world’s largest producers of metallurgical coal, a key ingredient in steelmaking. Teck paid roughly $15 billion U.S. in cash and class B subordinate voting shares for Fording. However, Teck expects to receive a $1 billion (Canadian) tax refund on the transaction. The company had to borrow $9.8 billion U.S. to finance the purchase. That included a $5.8 billion U.S. loan due in less than a year. Teck’s shares have dropped over 80% in the past three months. That’s mainly because lower prices for zinc, copper and gold could hurt Teck’s ability to quickly repay the new debt. Falling commodity prices could also prompt Teck to sell some of its operations, issue new shares or cut its $1.00 dividend (15.0% yield)....

We recommend few income trusts. That’s because most trusts involve substantial risk, such as focusing on a single commodity or geographic area. Here are four trusts we do see as buys. Despite Ottawa’s plan to start taxing trust distributions in 2011, they should continue to pay above-average yields for years to come. These four trusts should also appeal to BCE investors seeking new sources of income, assuming that the BCE privatization goes through as planned (see box this page). However, you should continue to limit income trusts to no more than, say, 15% of your total portfolio....

One of the brightest signs in today’s market is that many great stocks now trade below 10 times earnings. That’s especially true of high-quality technology issues, since they spend so heavily on research, which gets written off against earnings like a routine expense. Low p/e ratios are also particularly appealing at times when interest rates are low, as they are now. Of course, earnings could drop next year and push up those p/e ratios. Stock prices could move lower, for a variety of reasons. But that’s always a risk. To profit best, you need to invest mainly in well-established companies that are likely to recover from the economic downturn and go on to produce still higher earnings in the future. CAMPBELL SOUP CO. $31.88, New York symbol CPB, earned $260 million in its first fiscal quarter ended November 2, 2008, down 3.0% from $268 million a year earlier. However, earnings per share rose 2.9%, to $0.71 from $0.69, on fewer shares outstanding. If you disregard restructuring costs and losses on commodity hedging contracts, earnings per share in the latest quarter would have grown 11.6% to $0.77. Sales grew 3.0%, to $2.25 billion from $2.19 billion, mostly due to a 7% rise in prices for the company’s products....

CALIAN TECHNOLOGIES, $8.50, symbol CTY on Toronto, operates in two areas. The BTS division (Business and Technology Services) provides engineering, healthcare and other skilled professional personnel to clients on a contract basis. The SED division (Systems Engineering) offers a full range of hardware and software systems for testing, operating and managing satellite and other communications systems. In the three months ended September 30, 2008, Calian’s earnings rose 27.1%, to $2.7 million $0.33 a share from $2.1 million or $0.26 a share a year earlier. Cash flow per share rose 15.2%, to $0.38 from $0.33. Revenues rose 7%, to $48.9 million from $45.7 million. In the latest quarter, Business and Technology Services revenues rose 7.4%, to $33.7 million from $35.3 million. Systems Engineering revenues rose 6.1%, to $15.2 million from $14.3 million. Stronger demand for Calian’s products and services combined with more efficient project...

You hear a lot of comparisons these days between the current market downturn and the 1929 stock market crash. That’s mainly due to a lack of comparables. The 2007-2008 (assuming it ends this fall) market downturn is the worst since World War Two. However, nothing since then comes close to the 1929 stock market crash that lasted into the 1930s. When investors ask, “How bad can it get?”, we need to qualify our answer. If governments around the world were doing nothing to counter the crisis – or, worse, doing all the wrong things as governments did in the 1930s in the wake of the 1929 stock market crash – then the crisis could get a lot worse. However, our view is that they are taking the kind of steps that will contain the crisis and eventually restore liquidity in the banking system. That didn’t happen after the 1929 stock market crash....

The performance of these five large funds — one from each of Canada’s big-five banks — has suffered over the last year. That’s because they held high weightings in Financial services and Resources stocks. Financial services have dropped due to turmoil in credit markets. Resources have fallen along with commodity prices on fears that an economic slowdown will cut demand for resources. We still feel that the best way to profit in the stock market is to stick with high-quality, well-established companies, and to diversify among the five sectors, and within each sector. However, you won’t go too far wrong with these five funds. They continue to stick with high-quality issues with sound fundamentals, so their concentrations in certain sectors doesn’t add a lot of risk over the long term. Each has its quirks, but overall they are well positioned for low-risk returns....