imperial oil

ENCANA CORP., $31.37, Toronto symbol ECA, fell 8% this week, mainly because the company announced a plan to double its natural-gas production over five years. This announcement pushed down EnCana’s share price because the weak economy has hurt gas demand and depressed prices. Investors worry that adding to existing natural-gas inventories could push prices down further. However, EnCana’s new drilling and extracting technologies are lowering its production costs. That should give it an advantage over its competitors. The company is particularly interested in producing more gas at its Haynesville shale-gas property in Louisiana. (Shale gas is natural gas that is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the natural gas.)...

FINNING INTERNATIONAL INC. $18 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 170.9 million; Market cap: $3.1 billion; Price-to-sales ratio: 0.7; Dividend yield: 2.4%; SI Rating: Above Average) sells, rents and repairs tractors, bulldozers, trucks and other heavy equipment made by Caterpillar Inc. Finning’s major customers are mainly in the western Canadian mining, forest-products and construction industries. It also operates in the U.K. and South America. Many of Finning’s customers have cut or delayed spending on new equipment because of the weak global economy. In response, Finning has cut 750 of its 12,000 employees since the third quarter of 2008. The layoffs should lower the company’s annual costs by $200 million by the end of 2010. In 2009, Finning’s revenue fell 20.9%, to $4.7 billion from $6.0 billion in 2008. Earnings rose 36.3%, to $130.8 million, or $0.77 a share, from $96.0 million, or $0.55 a share. However, if you exclude severance costs and other unusual items, earnings per share fell 44.4%, to $0.85 from $1.53....

We generally focus on market leaders when analyzing stocks in the more volatile Manufacturing & Industry sector. That’s because they have spent decades building large client bases. That cuts their risk, since long-time customers are unlikely to switch to unproven suppliers. Their strong reputations also help them attract new customers. These four industrial companies’ earnings should rebound with the overall economy. However, only three are buys right now. SNC-LAVALIN GROUP INC. $52 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 151.2 million; Market cap: $7.9 billion; Price-to-sales ratio: 1.3; Dividend yield: 1.3%; SI Rating: Average) is a leading Canadian engineering and construction company. SNC designs and builds large-scale public-works projects, such as roads, bridges, transit systems and water-treatment plants. It also builds mines, chemical plants and electrical-power systems. The company gets 55% of its revenue from North America....

BCE INC., $28.60, Toronto symbol BCE, is starting to see the benefits of its restructuring plan, which began in July 2008. The plan included cutting jobs, relocating employees and selling extra real estate. The restructuring should save the company $400 million a year by the end of this year. In 2009, BCE’s earnings rose 6.5%, to $1.9 billion from $1.8 billion in the prior year. Per-share earnings rose 11.1%, to $2.50 from $2.25, on fewer shares outstanding. These figures exclude restructuring costs and other unusual items. The latest earnings beat the $2.49 a share that analysts were expecting. Revenue rose 0.4%, to $17.74 billion from $17.66 billion. BCE continues to lose residential phone customers to cable and wireless providers. The company now has 6.9 million local telephone subscribers, down 6.1% from the previous year. However, some of these customers are switching to the company’s own wireless service. BCE had 6.8 million wireless subscribers at the end of 2009. That’s a gain of 5.2% over the previous year....

OPTI Canada Inc., $2.10, symbol OPC on Toronto (Shares outstanding: 281.8 million; Market cap: $591.7 million), owns 35% of the Long Lake oil-sands project in Alberta. Long Lake has more than 2 billion barrels of recoverable reserves. That gives the project a life of over 40 years. Long Lake began operating in 2008. It uses steam-assisted gravity drainage (SAGD) to bring tar-like bitumen to the surface. In January 2009, Nexen increased its stake in Long Lake from 50% to 65%. It paid OPTI $757 million for the additional 15%. Nexen’s majority share makes it the operator of the project....

CANADIAN PACIFIC RAILWAY LTD. $56.14 (Toronto symbol CP; Shares outstanding: 168.3 million; Market cap: $9.4 billion; SI Rating: Average; Dividend yield: 1.8%) is contributing $500 million to its employee defined-benefit pension plan. The company hopes the voluntary payment to the plan will make its future pension obligations easier to manage. As of September 30, 2009, CP held cash of $615.9 million, or $3.66 a share, so it can comfortably afford this payment. The move will have little impact on CP’s earnings. The company now estimates that its 2010 pension obligation will be between $150 million and $200 million. That’s down from its earlier range of $250 million to $300 million....

BANK OF NOVA SCOTIA, $47.51, Toronto symbol BNS, fell 3% this week, despite reporting higher earnings and revenue in its latest fiscal year. The bank earned $3.5 billion in the year ended October 31, 2009. That’s up 13.0% from $3.1 billion in the prior year. Earnings per share rose 8.5%, to $3.31 from $3.05, on more shares outstanding. If you exclude writedowns of securities, the bank would have earned $3.70 a share. That beat the $3.69 a share that analysts were expecting. The bank’s loan-loss provisions remained high because of the weak economy: it set aside $1.7 billion to cover bad loans in the latest fiscal year, up 176.8% from $630 million in the prior year. This figure will probably stay high until the second half of fiscal 2010....

Husky Energy Inc., $27.17, symbol HSE on Toronto (Shares outstanding: 849.9 million; Market cap: $23.1 billion), is an integrated oil and gas company. Hong Kong-based billionaire Li Ka-Shing owns 70.6% of Husky’s shares. Husky produces conventional oil and gas across western Canada, as well as heavy oil (a heavy, black viscous oil) at Lloydminster, Saskatchewan, and from the oil sands at Tucker, Alberta. Husky also has major holdings in eastern Canada, including interests in Newfoundland’s Terra Nova and White Rose offshore oil fields. Apart from its exploration and production activities, Husky owns a number of refineries, including a light-oil refinery at Prince George, B.C., and an asphalt refinery at Lloydminster, where it also has a heavy-oil upgrader. (Heavy-oil upgraders take heavy oil and process it into high-quality conventional crude oil.) Husky also has about 500 Husky and Mohawk gas stations in western Canada and Ontario....

BMO DIVIDEND FUND $41.10 (BMO Mutual Funds, 77 King Street West, Suite 4200, Royal Trust Tower, Toronto, Ont., M5K 1J5, Tel: 1-800-665-7700; Web site: www.bmo.com. No load — deal directly with the bank) (CWA Rating: Conservative) holds about 48.5% of its portfolio in the Finance sector. The fund’s next-largest sectors are Energy (23.4%), Consumer Discretionary (5.9%) and Materials (5.0%). The $3.9-billion BMO Dividend Fund’s largest stock holdings are Bank of Nova Scotia, CIBC, Royal Bank, Suncor Energy, Manulife Financial, Toronto-Dominion Bank, TransCanada Corporation, EnCana Corporation, Enbridge and Goldcorp. The fund’s MER is 1.71%....

A high short position is no longer a particularly telling indicator, since traders and hedge funds often combine a short sale with some other transaction in stock options. Rather than having to buy the stock back in the market, for instance, short sellers may hold call options that they can exercise; that way, they buy the stock from the option seller. The short sale may say more about options trading than it does about the company’s fundamentals. Stocks like Great-West Lifeco, $23.75, symbol GWO on Toronto (Shares outstanding: 944.7 million; Market cap: $22.4 billion), and Imperial Oil, $40.84, symbol IMO on Toronto (Shares outstanding: 847.6 million; Market cap: $34.6 billion), are bound to have high short positions; they are highly liquid stocks, and there are plenty of shares available to borrow from the many institutions that own them....