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Pat McKeough responds to many personal questions about investing in stocks and other topics on investment and the economy from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week, Pat received a question from an Inner Circle member about a stock that provides a different approach to excavating for the petroleum and utility industries. Pat assesses the company’s unique arrangement with its operating partners and whether or not it can continue to improve its results in a recovering economy....

Badger Daylighting, $35.50, symbol BAD on Toronto (Shares outstanding: 12.3 million; Market cap: $436.7 million; www.badgerinc.com), is a North American provider of excavating services that are less destructive than methods that use heavy equipment, such as backhoes. Most of Badger’s customers are in the utility and petroleum industries. Badger makes the truck-mounted Badger Hydrovac, which is its main product. The Badger Hydrovac is mainly used for digging in challenging conditions, such as congested areas. The system uses a pressurized water stream to liquefy the soil cover. A powerful vacuum then removes the soil and stores it in a tank. The company operates through what it calls operating partners in the U.S. and Canada. Badger provides the expertise, trucks and marketing and administration support. The partners deliver the service by operating the equipment and building relationships with customers in their areas. There are currently 289 Badger Hydrovac units operating in Canada and 311 in the U.S....

Weak natural gas prices have hurt oil and gas producers with a high gas component. In June 2012, the price of gas dropped below $2 U.S. per million British thermal units (BTUs). That was the lowest price in over 10 years, and down 87% from an all-time high of $15.40 in December 2005. High inventories and record-warm temperatures were the main reasons for the price decline. Gas has since risen to around $3.37. The long-term outlook for natural gas is positive, although in the short term, shale gas discoveries continue to rapidly increase supply. That’s keeping prices low. 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....

The long-term outlook for natural gas is positive, although in the short term, shale gas discoveries continue to rapidly increase supply. That’s keeping prices low—and pushing down shares of natural-gas weighted producers.

We advise against going overboard in any one sector....

PENGROWTH ENERGY $4.49 (Toronto symbol PGF; Shares outstanding: 509.0 million; Market cap: $2.3 billion; TSINetwork Rating: Average; Dividend yield: 10.7%; www.pengrowth.com) plans to spend $770 million on upgrades to its oil and natural gas properties in 2013....

PLEASE NOTE: Next week, Wall Street Stock Forecaster, our newsletter that focuses on the U.S. stock markets, will reveal its #1 pick for 2013. SHAWCOR LTD., $40.88, Toronto symbol SCL.A, plans to convert its class A subordinate voting (one vote per share) and class B multiple voting (10 votes per share) shares into a single class of common shares (one vote per share). The company makes sealants and coatings that keep oil and gas pipelines from rusting. It also manufactures industrial products, such as electrical wire and protective sheaths....

AMAZON.COM $268.93 (Nasdaq symbol AMZN; TSINetwork Rating: Extra Risk) (206-266-1000; www.amazon.com; Shares outstanding: 453.0 million; Market cap: $121.8 billion; No dividends paid) and ADOBE SYSTEMS $37.88 (Nasdaq symbol ADBE; TSINetwork Rating: Average) (408-536-6000; www.adobe.com; Shares outstanding: 495.1 million; Market cap: $18.8 billion; No dividends paid) are part of a 12-company consortium that is buying bankrupt Eastman Kodak’s 1,100 digital-imaging patents for $525 million U.S.

Other members of the consortium include Apple, Google, Samsung, Research in Motion, Microsoft, China’s Huawei, Facebook and Fujifilm.

Under the deal, each of the 12 companies in the consortium will pay a portion of the total cost and then have access to all the patents.

Patents are increasingly important to technology firms like Amazon.com and Adobe because they let them protect their market shares from rivals....

CARFINCO FINANCIAL GROUP $10.95 (Toronto symbol CFN; TSINetwork Rating: Speculative) (1-888- 486-4356; www.carfinco.com; Shares outstanding: 24.6 million; Market cap: $269.4 million; Dividend yield: 4.4%) raised its monthly dividend by 14.3%, to $0.04 from $0.035, starting with the October 2012 payment. This was the fourth dividend increase since the start of 2011. The higher payout gives the stock a 4.4% yield.

The company also added a $0.05-a-share special cash dividend to the regular dividend of $0.04 a share it paid in December 2012.

Carfinco is still a buy for aggressive investors.
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Last week, we examined Precision Drilling (Toronto symbol PD) which, in the wake of the long slump in natural gas prices, has 84% of its rigs drilling for oil (view the article here). Today we look at an oil and gas producer that has also cut back on natural gas, although it still has a third of its production in gas. ZARGON OIL & GAS (Toronto symbol ZAR; www.zargon.ca ) produces natural gas and oil in Alberta, Manitoba, Saskatchewan and North Dakota. Its production is 67% oil and 33% gas....

ZARGON OIL & GAS $7.76 (Toronto symbol ZAR; TSINetwork Rating: Speculative) (403-264-9992; www.zargon.ca; Shares outstanding: 29.8 million; Market cap: $231.2 million; Dividend yield: 9.3%) produces natural gas and oil in Alberta, Manitoba, Saskatchewan and North Dakota. Its production is 67% oil and 33% gas. In the three months ended September 30, 2012, Zargon produced 7,634 barrels of oil equivalent per day, down 15.3% from 9,014 barrels a year earlier. That’s because the company sold some less important properties and cut back on natural gas drilling in light of low gas prices. The production drop pushed down Zargon’s cash flow per share by 4.0%, to $0.48 from $0.50 a year earlier. The company continues to successfully drill horizontal wells in the Alberta Plains North area. Horizontal drilling involves drilling development wells sideways or at an angle to reach isolated pockets of gas or to follow a reservoir spread out in a narrow layer. Horizontal drilling can work well in places where conventional drilling is impossible or too expensive....