oil and gas

These two resource stocks have strong potential as the global economy recovers. But they’re more volatile than our favourites in the resource sector, such as Teck and Imperial Oil (see box), so they should only make up a small part of your holdings.

PRECISION DRILLING CORP....

STANTEC INC. $43.25 (Toronto symbol STN; TSINetwork Rating: Extra Risk) (780-917-7288; www.stantec.com; Shares outstanding: 46.0 million; Market cap: $2.0 billion; Dividend yield: 1.5%) sells a range of consulting, project delivery, design and technology services. Stantec’s clients operate in a variety of industries, including transportation, construction and oil and gas.

In the three months ended December 31, 2012, Stantec’s revenue rose 13.3%, to $483.9 million from $432.0 million a year earlier. Acquisitions were one reason for the increase. Stantec is also working on several new projects. Earnings rose 28.0%, to $31.1 million, or $0.67 a share, from $24.3 million, or $0.53.

Stantec continues to grow by acquisition, including purchases of seven companies in 2012. Its most recent addition was Landmark Survey and Mapping, a 24- person firm specializing in surveying and mapping for pipelines. Stantec sees major growth potential in the oil and gas and mining industries.
...

CIMAREX ENERGY $74.03 (New York symbol XEC; TSINetwork Rating: Extra Risk) (303-295-3995; www.cimarex.com; Shares outstanding: 86.4 million; Market cap: $6.2 billion; Dividend yield: 0.8%) produces and explores for oil and natural gas. Gas makes up 49% of its output.

Cimarex’s properties are in the Mid-Continent region of the U.S., which includes Oklahoma, Kansas and Texas (52% of production); the Permian Basin of western Texas and southeastern New Mexico (43%); and the Texas Gulf Coast (5%).

In the three months ended December 31, 2012, Cimarex’s production averaged 676.7 million cubic feet of natural gas equivalent per day (including oil). That’s up 12.5%, from 601.4 million cubic feet a year earlier. Thanks to the higher production, Cimarex’s cash flow per share fell just 4.2%, to $3.46 from $3.61, despite lower oil and gas prices.
...

DEVON ENERGY CORP. $55.69 (New York symbol DVN; TSINetwork Rating: Speculative) (405-235- 3611; www.dvn.com; Shares outstanding: 406.0 million; Market cap: $22.7 billion; Dividend yield: 1.6%) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 61% gas and 39% oil.

In 2011, Devon sold all of its international and Gulf of Mexico properties, which it saw as risky and expensive to develop. The company is now focused on its North American projects, which include conventional production, shale oil in Texas and oil sands in Alberta.

Devon has formed joint ventures to cut the risk of its big development projects. Last year, it sold a onethird stake in five shale oil and gas fields to giant Chinese state-owned petroleum and chemical company Sinopec for $2.2 billion. As well, Japan’s Sumitomo Corp. bought 30% of the Cline and Wolfcamp shales in Texas for $1.4 billion.
...

Newalta Corp., $14.40, symbol NAL on Toronto (Shares outstanding: 54.4 million; Market cap: $786.2 million; www.newalta.com), manages waste and provides environmental services in North America. The company’s services include waste processing, recycling and product recovery, onsite and drill-site service (for resource companies), and collection, transport and disposal. Last week, Newalta’s shares fell from over $16 to their current level after the company reported that its earnings, excluding one-time items, fell 10.5% in the three months ended December 31, 2012, to $0.17 a share from $0.19 a year earlier. The latest earnings also fell short of the consensus estimate of $0.26 a share....

AASTRA TECHNOLOGIES, $19.82, symbol AAH on Toronto, develops and markets products and systems for accessing communication networks, including the Internet. Its technology is centred around business telephone systems and includes products that integrate land lines and mobile phones. In the three months ended December 31, 2012, the company’s sales fell 12.3%, to $175.2 million from $199.7 million a year earlier. Sales declined in all regions, including Western Europe, where Aastra gets the majority of its revenue. Excluding the impact of foreign exchange rates, sales declined 7.1% from a year earlier. Earnings per share rose sharply, to $2.42 from $1.30, due to a number of one-time items, including income-tax recoveries. Without those items, Aastra would have earned $1.15 a share in the latest quarter....

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

We advise against overindulging in any one sector....

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific investment advice on a wide range of topics, including strategies for international stock markets. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away. Today’s tip: “Foreign investments can strengthen your portfolio and here are 3 ways you can do it with less risk.”...

Canadian Natural Resources, $30.19, symbol CNQ on Toronto (Shares outstanding: 1.1 billion; Market cap: $33.2 billion; www.cnrl.com), produces oil (70%) and natural gas (30%) in western Canada, the North Sea and off the coast of West Africa. The company started up its 100%-owned, $9.4-billion Horizon Oil Sands Project in 2009. Horizon now produces about 99,000 barrels of oil per day, or about 15% of the company’s total output. Canadian Natural’s conventional North American oil and gas properties are in B.C., Alberta and Saskatchewan. It also has heavy oil operations in Alberta’s Athabasca region, at Pelican Lake, Primrose and Kirby. In all, Canadian Natural’s North American operations supply about 92% of its output....

FIRSTSERVICE CORP., $32.12, symbol FSV on Toronto, serves the following areas of the real estate market: commercial real estate, residential property management and property improvement. In the three months ended December 31, 2012, the company’s revenue rose 6.3%, to $632.5 million from $594.9 million a year earlier (all figures except share prices in U.S. dollars). Excluding one-time items, earnings per share jumped 30.8%, to $0.68 from $0.52. Revenue rose at two of FirstService’s three divisions: commercial real estate (up 23%) and residential property management (up 10%)....