oil and gas

LOBLAW COMPANIES LTD., $61.78, Toronto symbol L, operates around 1,140 supermarkets across Canada, mainly under the Loblaw, Provigo, Real Canadian Superstore and No Frills banners. In March 2014, it purchased Shoppers Drug Mart, which operates 1,300 drugstores. This week, the company announced that it would build 50 new stores and renovate 100 others in 2015. In addition, it continues to expand its e-commerce operations. In all, Loblaw expects to spend $1.2 billion on these projects. That’s equal to the $1.2 billion, or $3.22 a share, it earned in 2014, excluding costs to integrate Shoppers....

Canada’s big five banks have fallen out of favour in the past few weeks, for two main reasons. First, the Bank of Canada unexpectedly cut its benchmark interest rate. While lower rates should spur loan demand, banks will earn less interest income on these new loans. Moreover, the banks may have to increase the rate they pay to attract depositors, which would squeeze their profit margins. In addition, investors fear that lower oil prices could force oil producers to default on their loans. Layoffs in the sector could also lead to higher credit losses in Alberta....

SNC-LAVALIN GROUP INC. $38 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 152.5 million; Market cap: $5.8 billion; Price-to-sales ratio: 0.7; Dividend yield: 2.6%; TSINetwork Rating: Average; www.snclavalin.com) earned $106.7 million in the fourth quarter of 2014, up 0.6% from $106.1 million a year earlier. Earnings per share were unchanged at $0.70. These figures exclude a gain on the sale of AltaLink, which operates power lines in Alberta. Revenue jumped 32.7%, to $2.8 billion from $2.1 billion, due to the recent acquisition of U.K.-based Kentz, which provides engineering and construction services to the oil and gas industry. The stock has suffered lately, mainly due to formal charges against the company for using bribes to win construction contracts in Libya between 2001 and 2011. These are the same allegations that prompted SNC to replace its senior executives in 2012 and bring in a new program to enforce ethical practices....

Here’s the text of the quarterly letter I recently sent to our Portfolio Management clients: “A client of mine, Dr. J., recently said, “Pat, you advise investors to spread their money out across most if not all of the five main economic sectors. Why not just leave out the resource sector?” I think that’s a bad idea. It disregards the one key contribution that resource stocks make to a sound portfolio, as you’ll see below. But I’m sure many investors agree with Dr. J. After all, the weak performance of the resource sector goes back much further than the recent plunge in the price of oil (from $110 U.S. a barrel last July to a recent low near $45 U.S.)....

ALCOA INC. $13 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.2 billion; Market cap: $15.6 billion; Price-to-sales ratio: 0.7; Dividend yield: 0.9%; TSINetwork Rating: Average; www.alcoa.com) has agreed to buy RTI International Metals (New York symbol RTI), which makes titanium components for airplanes, armoured vehicles, oil and gas machinery and other industrial products.

RTI’s investors will exchange their holdings for Alcoa common shares. If you include RTI’s cash balances and debt, the deal is worth $1.5 billion. Alcoa expects to close it in the next six months.

Alcoa is a buy.

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GENERAL ELECTRIC CO. $25 (New York symbol GE; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 10.1 billion; Market cap: $252.5 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.ge.com) makes machinery for power generation and distribution (such as turbines) and other products, like jet engines, medical equipment, appliances, lighting and locomotives.

The company continues to shrink GE Capital, which mainly provides loans to GE’s clients. In 2014, this business supplied 42% of the company’s operating earnings, but it aims to cut that to 25% by 2016.

As part of this plan, GE recently agreed to sell GE Capital’s consumer-lending operations in Australia and New Zealand for $6.3 billion. The proceeds will help cover the cost of the company’s recent alliance with France’s Alstom SA, a leading maker of parts for power plants and transmission gear.

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MITEL NETWORKS CORP., $12.24, symbol MNW on Toronto, has agreed to buy Mavenir Systems (symbol MVNR on New York) for $560 million U.S. in cash and stock. Right now, Mitel mainly offers communication services to businesses over land-line phones. Mavenir will help Mitel move into the market for voice-over long-term evolution, or VoLTE. This technology repackages voice calls as data and transmits them over wireless networks. It’s quickly becoming the standard for high-speed wireless communications. Users of Mavenir’s networking software include T-Mobile and Verizon Communications. In all, the company serves 130 telecom firms, including 15 of the world’s 20 largest mobile carriers....

ENCANA CORP., $14.66, Toronto symbol ECA, fell 10% this week after the company issued 85.6 million common shares to a group of underwriters for $14.60 each. The company plans to use the $1.25 billion of proceeds to redeem $1.6 billion worth of notes. As of December 31, 2014, Encana’s long-term debt was $7.3 billion U.S., or a high 84% of its $10.9 billion (Canadian) market cap. If the underwriters exercise their option to buy an additional 12.8 million shares, Encana would receive $1.44 billion. Including this option, the extra shares would increase the total outstanding by roughly 13%....

ARC RESOURCES $24.16 (Toronto symbol ARX; Shares outstanding: 335.0 million; Market cap: $8.2 billion; TSINetwork Rating: Speculative; Dividend yield: 5.1%; www.arcresources.com) produces oil and natural gas in Western Canada. Its average daily output of 117,986 barrels of oil equivalent is 61% gas and 39% oil. In the quarter ended December 31, 2014, ARC’s cash flow per share rose 3.9%, to $0.79 from $0.76 a year earlier. Realized oil prices fell 12.5%, to $72.49 a barrel from $82.85, but ARC’s production gained 17.0%, and its realized gas prices rose 15.0%. Like many oil and gas producers, ARC plans to cut back on exploration and development spending. This year, the company will devote $750.0 million to this purpose, down from $945.5 million in 2014....

We think conservative investors could hold up to 10% of their portfolios in foreign stocks. One way to do that is to buy carefully chosen exchange traded funds (ETFs) that have an overseas focus. The best ETFs offer very low management fees and well-diversified, tax-efficient portfolios of highquality stocks. Here’s a look at six international ETFs:...