commodity

Last year’s big run up in oil prices increased the operating costs of most industrial companies. But those that supply equipment and services to exploration firms have been among the biggest gainers in the past few months. Here are three industrial stocks that should continue to profit from high oil prices. However, only two are buys right now. SHAWCOR LTD. $25 (Toronto symbol SCL.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; SI Rating: Average) makes sealants that protect oil and natural gas pipelines from rust and other forms of corrosion. The company also inspects and repairs pipelines, and makes specialty cables and wires....

Beer sales have slowed down in the past decade, as many baby boomers drink less as they get older. Many boomers are also switching to premium wines and spirits. This has led to a consolidation trend in the brewing industry. Bigger breweries can afford to spend more on advertising to improve their market share. Their size also makes it easier for them to cut costs, and pass along higher commodity and packaging prices to customers. The merger of Molson and Coors two years ago gave both companies the size they needed to survive. Now that the merged company has finished the bulk of its restructuring, it is beginning to realize the benefits of the merger....

CANADIAN NATIONAL RAILWAY CO. $47 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Average) operates a 19,200-mile rail system in Canada and 16 Midwestern U.S. states. Goods shipped include oil, coal, grain, forest products and manufactured goods. This wide product base cuts CN’s reliance on any one commodity. CN’s revenue rose from $5.7 billion in 2001 to $6.1 billion in 2002, partly due to the acquisition of two American railways. Revenue fell to $5.9 billion in 2003, but more acquisitions pushed revenue up to $7.2 billion in 2005. Expanding through acquisition is always risky, but these new railways broadened CN’s geographic reach. Restructuring costs cut CN’s profits from $1.21 a share (total $727 million) in 2001 to $0.91 a share ($553 million) in 2002. But profits rose steadily to $2.77 a share ($1.6 billion) in 2005....

WESTSHORE TERMINAL INCOME FUND $10.60 (Toronto symbol WTE.UN; SI Rating: Speculative) operates a coal storage and loading terminal at Roberts Bank, B.C. The trust yields 10.2%. Coal shipped from the mines owned by the Elk Valley Coal Partnership accounts for 90% of Westshore’s revenues....

Income trusts as a group are more speculative than most investors realize. They carry a lot of hidden risk, due to the way they are organized as investments, and to the way they are valued by investors. Share prices of many companies rise in price when they announce plans to convert into income trusts. But that leaves a lot of room for share prices to fall when business conditions weaken. Income trusts are generally set up to hand out most of their cash flow to their investors. However, that often leaves them with no reserves to carry them through a period of slow sales and falling asset values....

FINNING INTERNATIONAL INC. $38 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Above average) profits from rising oil and mineral prices, since it sells, rents and services Caterpillar brand heavy equipment to energy exploration and mining companies. Finning earned $0.63 a share (total $56.9 million) in the first quarter of 2006, up 50% from $0.42 a share ($37.4 million) a year earlier. If you exclude gains on the sale of assets, it would have earned $0.53 a share in the most recent quarter, up 26.2%. Revenue rose 7.8%, to $1.24 billion from $1.15 billion. Finning gets half its revenues from its UK and South American operations, and the rising Canadian dollar cut its revenue growth in the quarter by $88 million....

When your choose investments from the Resources sector, it’s a mistake to zero in on any one commodity, such as oil. Far better to give yourself exposure to several different commodities. Diversification within the sector cuts your risk without hurting your profit potential. In addition, remember that you can profit from the ongoing Resources boom by investing in companies that sell to businesses in the sector. Here are five top buys for exposure to the boom in Resources....

The Canadian dollar remains high, in part due to rising commodity prices. Unlike many industrialized countries, Canada is a major exporter of commodities, particularly oil and metals. Hopes that the new Conservative government of Prime Minister Harper will cut taxes and improve productivity have also raised demand for Canadian dollars on foreign exchange markets. The Bank of Canada has raised interest rates for seven consecutive months, largely in response to rising inflation. This pushes up the value of the Canadian dollar, as foreign capital moves into Canada to take advantage of higher yields....

Today many investors take it for granted that rapid industrialization in China and India has spurred the sharp increases in energy and metal prices of the past few years. They overlook the fact that hedge funds have poured investor money into the commodity markets these past few years — directly, and by investing in junior resource companies. As hedge funds and other traders try to sell their holdings, commodities could become even more volatile than usual. Prices could slump deeply over the next six months to a year. But rapid growth in China, India and elsewhere ensures that commodity prices will fluctuate in a much higher range in the next 10 years than in the last 10. That’s why we recommend that you hold some Resources issues in your portfolio. But it pays to stick with well-established companies, and limit your exposure to 25% or less of your overall portfolio. That way, you avoid the heavier risk of more aggressive stocks, but you still profit from growth in worldwide demand....

When the Resources sector is booming, as it is now, it’s easy to think we’ve entered a new era of eversoaring prices. That’s a common belief today, due to growing demand for resources in China, India and other developing countries. However, as the saying goes, “The best cure for high prices is high prices.” For instance, copper prices have risen nearly five-fold from lows of a few years ago. You can bet that copper users are looking for ways to use less copper, with product re-design or by switching to cheaper materials....