encana

ENCANA CORP. $49 (Toronto symbol ECA; SI Rating: Average) has agreed to sell its natural gas storage operations for $1.5 billion (all amounts except share price in U.S. dollars). The sale will generate an after-tax gain of about $850 million. That’s roughly two-thirds of the $1.3 billion or $1.46 a share that EnCana earned before non-recurring items in the fourth quarter of 2005. This sale is the latest part of EnCana’s plan to sell non-core assets, and focus on projects with greater long-term growth potential, such as early stage natural gas fields and oil sands developments. Recent asset sales, including the gas storage business, should give EnCana $3.3 billion in cash. It plans to use the cash to pay down its long-term debt of $6.7 billion (42% of shareholders’ equity) and buy back more stock. Strong demand for drilling equipment and labour has driven up EnCana’s operating costs. Gas prices are also coming down from their 2005 peaks. Consequently, EnCana will spend about 12% less on capital upgrades this year than last, and concentrate its efforts on its most promising projects....

FIDELITY TRUE NORTH FUND $26.61 (CWA Rating: Conservative) (Fidelity Investments Canada, 483 Bay St., Suite 200, Toronto, Ont. M5G 2N7. 1-800-263-4077; Web site: www.fidelity.ca. Load fund — available from brokers) uses a “bottom-up” approach (using fundamentals such as earnings, cash flow and low debt) to identify undervalued companies. Fidelity True North Fund’s top holdings include high-quality stocks such as Manulife Financial, EnCana, TD Bank, Sun Life, CN Railway, Canadian Natural Resources, Bank of Nova Scotia, Telus Corp. and Talisman Energy. The fund’s breakdown by economic sector is: 31.2% in Financials, 21.5% in Energy, 14.7% in Materials, 8.2% in Industrials, 7.2% in Telecom, 6.5% in Information technology and 4.3% in Consumer discretionary....

FAIRMONT HOTELS & RESORTS INC. $50.06 (Toronto symbol FHR; SI Rating: Average) has accepted a $45.00 U.S. a share takeover offer from a private group that includes a U.S.-based hotel operator and a Saudi prince. The new offer tops a $40.00 U.S. a share bid for 51% of Fairmont from American billionaire Carl Icahn. However, Icahn has also agreed to sell his Fairmont shares to this group, and will let his takeover bid lapse. Canadian Pacific, our long-time safety-conscious favourite, split into five companies in 2001 (CP Railways, CP Ships, EnCana, Fording and Fairmont Hotels). We maintained a high opinion of all five parts. All five have performed well for us, including CP Ships, which was acquired at a premium by TUI AG late last year. Fairmont investors should tender their shares to the new offer, to get the full $45.00 U.S. without paying brokerage fees.

ENCANA CORP. $53 (Toronto symbol ECA; SI Rating: Average) is one of North America’s largest independent natural gas producers. In the past two years, EnCana has sold most of its conventional properties to focus on early-stage assets, particularly natural gas deposits. These properties are usually located in remote, mountainous areas of North America, which makes them more expensive to operate. However, these new deposits are much larger than conventional gas fields. EnCana feels that these assets will last decades longer than its older properties. That extra cash flow should more than offset the higher costs, particularly as production from conventional sources of gas starts to fall....

Oil prices have more than doubled in the past couple of years, due to various factors like growing Chinese demand, the Iraq war and a particularly vicious hurricane season this past year. Oil prices could keep rising and we continue to advise you to hold some oil and gas investments. However, energy prices are inherently volatile. After a rise like this, it’s a good idea to focus on well-established oil and gas stocks that can withstand the inevitable price setbacks. Here is our updated analysis of three of our long-time favourites. IMPERIAL OIL LTD. $119 (Toronto symbol IMO; SI Rating: Average) is Canada’s biggest producer of oil and natural gas. It also operates a nationwide chain of retail gasoline stations under the “Esso” banner. U.S.-based ExxonMobil Corp. owns 69.9% of Imperial. Production at many of Imperial’s mature properties in Western Canada is dropping, so it’s investing heavily in new sources of oil. It owns 25% of the massive Syncrude oil sands joint venture in Northern Alberta. Syncrude is now expanding and it’s hard to predict costs in complex projects like this. For instance, Syncrude’s latest upgrades will cost twice their original forecast....

RBC CANADIAN EQUITY FUND $24.09 (CWA Rating: Conservative)(RBC Funds, P.O. Box 7500, Station A, Toronto, Ontario. M5W 1P9. 1-800-463-3863; Web site: www.royalbank.com. No load — deal directly with the bank) invests mostly in larger-capitalization stocks, but also looks for opportunities in small and mid-cap stocks. The fund’s 10 largest holdings are TD Bank, Manulife Financial, Bank of Montreal, Bank of Nova Scotia, Royal Bank, EnCana Corporation, Petro- Canada, CN Railway, Suncor Energy and Manulife Financial. The $4.1 billion fund is reasonably well-balanced by industry sector. But it does hold a relatively high 31.7% of its holdings in Financial stocks. These stocks will benefit as the economy continues to recover, and it’s hard to match the big-five banks’ record of consistent earnings and dividend growth. But if you hold this fund, remember to adjust your overall portfolio to reflect the addition of a large Financial services component....

TD CANADIAN EQUITY FUND $29.13 (CWA Rating: Conservative) (TD Asset Management, P.O. Box 7500, Station A, Toronto, Ontario. M5W 1P9. 1-800-463-3863; Web site: www.tdcanadatrust.ca. No load — deal directly with the bank) uses a “bottom-up” approach (using fundamentals such as earnings, cash flow and low debt) to identify undervalued companies with strong growth potential.

TD Canadian Equity Fund’s 10 largest holdings are Manulife Financial, Suncor Energy, Royal Bank, EnCana, TD Bank, Petro-Canada, Rogers Communications, Bank of Nova Scotia, Falconbridge and Valero Energy.

The $2.4 billion fund currently holds about 31.8% of its portfolio in Financial services shares....

Many bank-run funds share common faults: they are run by committees and anonymous bank employees who produce mediocre results, yet they charge high fees. Here, however, are two big funds run by individual managers that hold the kind of conservative, well-balanced portfolios of high quality stocks we like. Each has its quirks, but overall they are well positioned for low-risk returns. TD CANADIAN EQUITY FUND $29.13 (CWA Rating: Conservative) (TD Asset Management, P.O. Box 7500, Station A, Toronto, Ontario. M5W 1P9. 1-800-463-3863; Web site: www.tdcanadatrust.ca. No load — deal directly with the bank) uses a “bottom-up” approach (using fundamentals such as earnings, cash flow and low debt) to identify undervalued companies with strong growth potential. TD Canadian Equity Fund’s 10 largest holdings are Manulife Financial, Suncor Energy, Royal Bank, EnCana, TD Bank, Petro-Canada, Rogers Communications, Bank of Nova Scotia, Falconbridge and Valero Energy....