imperial oil

Oil prices fell from their July 2008 peak of $148 U.S. a barrel to just under $40 U.S. in February 2009. Prices have roughly doubled since then, but it’s unlikely they will soon surpass last year’s highs. Still, oil is a good hedge against inflation. We feel that the best way to cut your risk in the volatile resource sector is through well-established oil producers like these three. Their large reserves should last decades. Moreover, they focus on politically stable North America. SUNCOR ENERGY INC. $37 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.6 billion; Market cap: $59.2 billion; Price-to-sales ratio: 1.7; SI Rating: Average) is Canada’s largest oil producer following its purchase of Petro-Canada on August 1, 2009. Petro-Canada shareholders received 1.28 Suncor common shares for each Petro-Canada share they held....

AGRIUM INC., $53.94, Toronto symbol AGU, has raised its takeover offer for U.S.-based fertilizer maker CF Industries Holdings Inc. (New York symbol CF). CF shareholders will still receive one Agrium common share for each CF share they own. But they will also get $45.00 in cash, up from $40.00 under the old bid (all amounts except Agrium’s share price in U.S. dollars). This new offer expires November 18. Using current prices, Agrium’s offer is worth $95.50 per CF share (or a total of $4.6 billion). However, CF is trading at $79.02, or 17.3% below Agrium’s offer....

These four resource stocks are more risky than, say, Imperial Oil or EnCana. Still, we feel that their large reserves and low-cost operations put them in a good position to take advantage of rising demand for commodities as the global economy recovers. However, only three are buys right now. POTASH CORP. OF SASKATCHEWAN $96 (Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 295.6 million; Market cap: $28.4 billion; Price-to-sales ratio: 3.6; SI Rating: Average) is the world’s largest fertilizer producer. The company operates six potash mines in Saskatchewan and one in New Brunswick. The reserves of five of these mines should last between 60 and 97 years. The other two mines have minimal or undetermined reserves. The stock hit an all-time high of $246 in June 2008, but fell to $62 last December. The drop was caused by lower prices for crops, which hurt demand for fertilizers like potash. As well, farmers in North America and Australia are seeing better-than-expected crop yields this year, even though they applied less fertilizer. This is mainly because of good weather and large amounts of residual fertilizer in the soil from last year....

IMPERIAL OIL $40.75 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $34.5 billion; SI Rating: Average) is Canada’s largest integrated oil company. Imperial earned $0.25 a share in the three months ended June 30, 2009. That was down 80.5% from $1.28 a share a year earlier. Falling oil and natural-gas prices were the main reason for the drop. As well, Imperial’s Cold Lake and 25%-owned Syncrude oil-sands projects were closed for maintenance during the quarter. Revenue fell 40.1%, to $5.3 billion from $8.6 billion. The company’s production is set to rise in the long term, thanks to its new oil-sands projects, including the 70%-owned Kearl Lake project. As well, the outlook for Imperial’s refining business is strong, mainly because there is little competition. Moreover, Imperial is spending $400 million this year to upgrade its refineries....

Imperial Oil has 25 years worth of oil and gas reserves. But it also owns four refineries, which convert crude oil into gasoline and other fuels. These operations profit when oil prices fall because they pay less for the crude they refine. Imperial also operates 1,900 Esso gas stations. This diversification helps shield the company from volatile oil and gas prices. It also makes Imperial Oil an ideal resource stock for safety-conscious investors. IMPERIAL OIL $40.75 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $34.5 billion; SI Rating: Average) is Canada’s largest integrated oil company. Imperial earned $0.25 a share in the three months ended June 30, 2009. That was down 80.5% from $1.28 a share a year earlier. Falling oil and natural-gas prices were the main reason for the drop. As well, Imperial’s Cold Lake and 25%-owned Syncrude oil-sands projects were closed for maintenance during the quarter. Revenue fell 40.1%, to $5.3 billion from $8.6 billion....

We currently recommend a number of oil stocks. Our favourite integrated-oil companies (or companies that produce and refine oil, as well as operate gas stations) include Imperial Oil, $41.34, symbol IMO on Toronto (Shares outstanding: 847.6 million; Market cap: $35.0 billion), and Suncor, $38.63, symbol SU on Toronto (Shares outstanding: 1.6 billion; Market cap: $60.2 billion). We also recommend Crescent Point Energy Corp., $37.20, symbol CPG on Toronto (Shares outstanding: 166.0 million; Market cap: $6.2 billion), as an oil-weighted producer....

CANADIAN IMPERIAL BANK OF COMMERCE, $64.11, Toronto symbol CM, set aside roughly $3 billion in August 2005 to settle a class-action lawsuit related to its involvement with failed energy company Enron Corp. In its 2008 fourth quarter, which ended October 31, 2008, the bank recorded a $486-million tax benefit related to this settlement. The Canadian Revenue Agency is now challenging this deduction, and may take CIBC to court. If CIBC wins, it will recognize a further tax gain of $214 million. If it loses, it will have to pay $826 million. To put these figures in context, CIBC earned $434 million, of $1.02 a share, in the three months ended July 31, 2009. That’s a big improvement over the $71 million, or $0.11 a share, it earned a year earlier. However, if you exclude several unusual items, such as writedowns of securities, earnings per share fell 21.9%, to $1.29 from $1.65. On that basis, analysts were expecting $1.41 a share....

Husky Energy, $30.95, symbol HSE on Toronto (Shares outstanding: 849.9 million; Market cap: $26.3 billion), is an integrated oil and gas company. Hong Kong-based billionaire Li Ka-Shing owns 70.6% of the company’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 oil fields. Overseas, Husky produces light oil and natural-gas liquids in the South China Sea, and has exploration properties off the coast of Indonesia. These holdings include 100% of the huge Liwan natural-gas discovery, and an offshore field southeast of Hong Kong that could contain as much as six trillion cubic feet of natural gas. Husky also owns part of the Wenchang oil field in the South China Sea and the Madura BD gas development in Indonesia’s Madura Strait....

IMPERIAL OIL LTD. $40 earned $0.25 a share in the three months ended June 30, 2009. That’s down 80.5% from $1.28 a year earlier. The drop was mainly caused by falling crude-oil and natural-gas prices. As well, its Cold Lake and 25%-owned Syncrude oil-sands projects were closed for maintenance during...

BMO DIVIDEND FUND $37.58 (BMO Mutual Funds, 77 King Street West, Suite 4200, Royal Trust Tower, Toronto, Ont., M5K 1J5, 1-800-665-7700; Web site: www.bmo.com. No load — deal directly with the bank) (CWA Rating: Conservative) currently holds about 43.3% of its portfolio in the Financial services industry. Its next-largest holding is Energy at 23.1%. The $3.7 billion BMO Dividend Fund’s largest holdings are Bank of Nova Scotia, CIBC, Royal Bank, Canadian National Railway, Manulife Financial, TD Bank, TransCanada Corporation, EnCana Corporation, Enbridge and Goldcorp. The fund’s MER is 1.71%. Over the five years to May 31, 2009, the fund posted a 3.7% annual rate of return. The S&P/TSX index returned 6.9% annually. The index gained from the big run up in resources prices that lasted until early in 2008. The S&P/TSX index holds a high 46% or so of its holdings in Resources stocks....