emera

EMERA INC. $21 (Toronto symbol EMA) earned $0.05 a share in the three months ended September 30, 2008, down 86.5% from $0.37 a year earlier. If you disregard a writedown and one-time costs, Emera would have earned $0.22 a share in the most recent quarter. The drop was mainly due to higher fuel costs at its main subsidiary, Nova Scotia Power. Revenue fell 4.7%, to $295.8 million from $310.3 million. However, high power rates should expand revenue in 2009. Buy. TELUS CORP. $37 (Toronto symbol T.A) estimates that it will spend $50 million on restructuring activities in 2008. That’s up from its earlier estimate of $30 million. To put these costs in perspective, Telus earned $0.89 a share (total $285.1 million) in the third quarter of 2008. However, improving its efficiency will help Telus compete with new entrants in the wireless field. Buy. GREAT-WEST LIFECO INC. $27 (Toronto symbol GWO) earned $0.48 a share in the third quarter of 2008, down 5.9% from $0.51 a year earlier. The drop was mainly due to unusual charges at its U.S. mutual fund subsidiary, Putnam Investment Trust. Despite the recent market turmoil, Great-West remains well capitalized. Best Buy.

I still feel that government efforts now underway are likely to solve today’s financial crisis. However, these steps come at a price. My best guess is that we’ll see much higher inflation as a result of all this newly supplied liquidity, probably in the early part of the next decade. My view is that you should keep this inflationary potential in mind, but it’s too early to try to profit from it. That’s partly due to the drawbacks of Resources stocks. They do provide a handy hedge against inflation, and even many of the most pessimistic observers now feel that resource prices are bound to rise in the next few years, as millions of Indian and Chinese workers pole-vault into the middle class. But many pessimists felt the same way following the last great resource and commodity boom, in the 1970s and 1980s. After that boom ended, the sector went into a slump that lasted 15 years or more....

Today’s rebound in the market is reassuring, but I expect stocks to remain highly volatile for a month or more. After that, we could see a six-month rebound in prices. The U.S. bailout of major financial institutions raises inflation risk over the next few years, but it heads off panic. Nobody can predict market bottoms, but I suspect we are much closer to the bottom than the top. NORTEL NETWORKS CORP. $3.25, Toronto symbol NT, fell 50% this week after the company cut its revenue and earnings outlook for 2008. Due to slowing demand for telecommunications equipment, unfavourable foreign exchange rates and delays delivering certain products, Nortel now expects revenue for 2008 will be 2% to 4% lower than in 2007. It had earlier predicted that revenue would rise this year. Due to the lower revenues, Nortel will probably lose $0.39 U.S. a share in 2008. That estimate excludes the costs of a new restructuring plan. Nortel earned $0.37 U.S. a share before unusual items in 2007....

FORTIS INC. $26, through subsidiary Terasen Gas, has formed a joint venture to build an experimental biogas project in West Vancouver. This facility will capture and purify gases from a sewage treatment plant, and then inject the treated gas into Terasen’s gas distribution system. If feasible, Terasen may develop larger facilities to recover gases from agricultural waste. Buy for your income stocks portfolio of income stocks. EMERA INC. $23 earned $0.37 a share in the second quarter of 2008, up 23.3% from $0.30 a share a year earlier. Earnings at its main Nova Scotia Power subsidiary rose about 30% in the latest quarter. If you exclude a one-time tax gain, earnings at this business fell 10%. The company has asked Nova Scotia electricity regulators for permission to increase rates by 11.9% in 2009. That would help it offset rising fuel costs. Buy for your income stocks portfolio of income stocks. TELUS CORP. $39 is Canada’s second-largest provider of wireless services with 28% of the market (market leader Rogers has 37%). Telus’s strong brand and ability to bundle Internet and regular phone services into discounted packages should help it compete with new entrants in the wireless market. Also a Buy....

EMERA INC. $23 (Toronto symbol EMA; Income Portfolio, Utilities sector; Shares outstanding: 111.6 million; Market cap: $2.6 billion; SI Rating: Average) generates and distributes electricity to over 600,000 customers in Nova Scotia and Bangor, Maine. Emera uses coal to generate nearly 70% of its electricity. Oil and natural gas supply 15% of its output, while wind and power purchased from other suppliers provides the remaining 15%. Power regulators in Nova Scotia recently approved a new fuel adjustment formula that will make it easier for Emera to cover its rising fuel costs....

These three leading electricity producers use coal, natural gas or oil to generate power, so they’re vulnerable to rising prices for these commodities. Rate hikes should help them offset the higher costs. However, it can take several months before the higher rates have an impact on earnings. To cut risk and enhance growth, all three of these electric utilities are now successfully diversifying into other businesses, such as natural gas pipelines and wind farms. These new projects also give them more cash to fund capital upgrades, and maintain their above-average dividends. We see all three as buys, particularly for income-seeking investors....

EMERA INC. $21 (Toronto symbol EMA; Income Portfolio, Utilities sector, Shares outstanding: 111.4 million; Market cap: $2.3 billion; SI Rating: Average) is the main supplier of electricity in Nova Scotia. It has 475,000 residential, commercial and industrial customers. Emera also distributes power to 110,000 customers in Bangor, Maine. Emera is now investing heavily in several new growth projects. For example, it plans to spend $350 million building the Brunswick Pipeline, which will move natural gas from a proposed liquefied natural gas (LNG) terminal in Saint John, New Brunswick to markets in the Northeastern United States. Emera has a 25-year deal with the owners of the LNG facility, which cuts the risk of this investment. The company also paid $46 million U.S. for 50% of the new Bear Swamp hydro-electric facility in northern Massachusetts, plus $22 million U.S. for 19% of the main electrical utility on the Caribbean island of St. Lucia....

Falling interest rates have rekindled investor interest in high-yielding utility stocks, such as these five. All of them have a long history of increasing dividends. Unlike interest payments on bonds, dividends qualify for the dividend tax credit. As well, stocks offer you open-ended returns, so they can give you protection against inflation. Bonds can’t provide this protection, because they are fixed-return investments. We see all five of these utilities as buys for long-term gains and income. TRANSCANADA CORP. $39 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 540 million; Market cap: $21.1 billion; SI Rating: Above average) operates a 59,000-km network of natural gas pipelines in Canada and the United States. This business supplies 70% of its profit. The remaining 30% comes from its electrical power operations. TransCanada aims to cut its reliance on its regulated pipeline business with new growth projects. These include the Keystone pipeline, which will transport crude oil from Alberta’s oil sands to the U.S. Midwest. Initial deliveries should begin in late 2009....

NORTEL NETWORKS CORP. $8.48, Toronto symbol NT, fell over 20% this week after it reported growing losses and a new restructuring plan. In 2007, Nortel lost $957 million or $1.98 a share (all amounts except share price in U.S. dollars). That figure included a $1.1 billion (pre-tax) non-cash writedown of a deferred tax asset. Excluding all one-time items, Nortel earned an estimated $0.23 a share in 2007. The company earned $28 million or $0.06 a share in 2006. Revenue fell 4.4%, to $10.9 billion from $11.4 billion, as it shifts from traditional telephone networking equipment to higher-margin wireless products and other technologies. The new restructuring plan will cut Nortel’s workforce by 6%, and shift more operations overseas. It will cost roughly $525 million, but should cut annual expenses by $300 million....

It was an unsettling week, but the market ended up in the middle of the range it has stayed in since its January 21 plunge. No one can predict these things consistently, but I still think we are much closer to a bottom than a top. To put it another way, if I had to choose between “buy” and ”sell”, I would definitely say “buy”. BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $28.28, Toronto symbol BA.UN, is beginning to realize the benefits of its plan to expand the availability and capacity of its high-speed Internet service. Internet subscribers grew 17.1% in the fourth quarter of 2007. This extra capacity has also helped Bell Aliant attract more business customers. Consequently, Bell Aliant’s earnings per share in 2007 rose 18.8%, to $2.53 a share from $2.13 in 2006. Overall revenue grew just 3.0%, to $3.4 billion from $3.3 billion, due to lower local and long distance revenue....