oil and gas

ISHARES FTSE/XINHUA CHINA 25 INDEX FUND $32.17 (New York symbol FXI; buy or sell through brokers) is an ETF that aims to track the FTSE/Xinhua China 25 Index, which is made up of the 25 largest and most liquid Chinese stocks. All of the stocks in the index trade on the Hong Kong exchange. Some also trade as American Depositary Receipts (ADRs) on the New York exchange.

The fund’s top holdings are China Mobile, 10.3%; China Construction Bank, 8.4%; Industrial & Commercial Bank, 7.6%; CNOOC, 7.0%; Bank of China, 5.9%; China Telecom, 4.8%; China Unicom (Hong Kong), 4.6%; China Life Insurance, 4.6%; China Shenhua, 4.3%; and China Petroleum and Chemical, 4.0%.

The fund’s holdings give it the following industry breakdown: Financials, 53.1%; Telecommunications, 19.7%; Oil and Gas, 14.6%; Basic Materials, 9.8%; and Industrials, 1.9%. Its expense ratio is 0.72%.

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VANGUARD EMERGING MARKETS ETF $39.71 (New York symbol VWO; buy or sell through brokers) aims to track the MSCI Emerging Markets Index, which is made up of common stocks of companies located in developing countries around the world. The fund has an MER of just 0.20%.

Vanguard Emerging Markets ETF’s top holdings include Samsung Electronics Co. (South Korea), China Mobile (China: wireless), Petroleo Brasileiro SA (Brazil: oil and gas), Taiwan Semiconductor (Taiwan: computer chips), Vale SA (Brazil: mining), America Movil SAB de CV (Latin America: wireless), Gazprom (Russia: gas utility), China Construction Bank, Itau Unibanco Holding SA (Brazil: banking), Industrial & Commercial Bank of China, CNOOC Ltd. (China: oil and gas) and China Life Insurance.

The $65.7-billion fund’s breakdown by country is as follows: China (17.4%), South Korea (15.2%), Brazil (15.1%), Taiwan (10.9%), South Africa (7.4%), India (7.3%), Russia (7.1%), Mexico (4.4%), Malaysia (3.2%), Indonesia (2.8%), Thailand (1.9%), Poland (1.7%), Chile (1.6%), Turkey (1.3%) and Other (2.7%).

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IMPERIAL OIL $46.36 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $39.3 billion; TSINetwork Rating: Average; Dividend yield: 1.0%; www.imperialoil.ca) is a major integrated oil company with oil sands projects in Alberta, and conventional oil and gas operations in Western Canada. It also owns four refineries and operates 1,850 Esso gas stations.

In the three months ended June 30, 2012, Imperial’s earnings fell 12.5%, to $635 million, or $0.75 a share, on lower oil and gas prices. A year earlier, it earned $726 million, or $0.85 a share. Revenue fell 3.3%, to $7.5 billion from $7.8 billion. However, cash flow per share rose 0.9%, to $1.09 from $1.08.

Imperial’s production is set to keep rising thanks to its new oil sands operations, including the $10.9-billion Kearl project, which is more than 94% complete. Imperial owns 71% of Kearl. ExxonMobil (New York symbol XOM) owns the remaining 29%. Exxon also holds a 69.6% interest in Imperial.

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This summer, natural gas prices dropped below $2 U.S.per thousand cubic feet, a 10-year low. That’s mainly because of new shale gas discoveries. Prices are now around $2.84, still well below last year’s high of almost $5. Oil prices have weakened, as well. They are now down 16%, from $109 a barrel in February to $92 today. Oil prices will continue to vary, while gas prices will likely recover. The key for this tech stock that serves the energy industry is that prices remain high enough to generate increased drilling for both oil and gas....

PASON SYSTEMS $15.76 (Toronto symbol PSI; TSINetwork Rating: Speculative) (403-301-3400; www.pason.com; Shares outstanding: 82.0 million; Market cap: $1.3 billion; Dividend yield: 2.8%) rents equipment for monitoring and managing oil and gas rigs. It also sells communication systems, such as its satellite system, which companies use to remotely collect data from their drilling operations. Pason serves oil and gas producers and drilling contractors throughout Canada, the U.S., Mexico, Argentina and Australia. In the three months ended June 30, 2012, Pason’s revenue rose 29.8%, to $81.1 million from $62.4 million a year earlier. Cash flow rose 31.5%, to $30.1 million, or $0.37 a share, from $22.9 million, or $0.28. Even with declining oil prices and continued low gas prices, drilling activity rose 6% in Canada and the U.S. in the latest quarter, with a combined 188,291 active days and a rig count of 2,069, compared to 177,791 days and 1,954 rigs a year earlier....

GOODYEAR TIRE & RUBBER CO. $13.48 (NewYork symbol GT; TSINetwork Rating: Extra Risk) (330-796-2122; www.goodyear.com; Shares outstanding: 244.7 million; Market cap: $3.3 billion; No dividends paid) is the world’s largest tire maker, with over 60 plants in 25 countries. In the three months ended June 30, 2012, the company’s sales fell 8.4%, to $5.15 billion from $5.62 billion a year earlier. North American sales rose 1.7%, to $2.5 billion from $2.4 billion, but weak economic growth cut sales by 21.4% in Latin America; 17.9% in Europe, the Middle East and Africa; and 4.2% in Asia. Unfavourable foreign currency moves also lowered Goodyear’s overall sales by 6%....

Here’s the text of the quarterly letter I sent to our Portfolio Management clients in late August: “Some of my long-time readers may recall an analysis I wrote in late 1991, for the front page of Investor’s Digest of Canada, entitled “The great bull market of the roaring nineties.” In it, I revealed that I was “more bullish than anybody I know.” I added that I was “as bullish as I’ve ever been.” My optimism back then was partly due to my view that the downfall of the Soviet Union was likely to lead to a big increase in the number of countries that were switching, or would soon switch, to some form of North American free enterprise and away from Soviet-style central planning. The former economic system has always proven way more productive than the latter. The outcome seemed obvious—more productive economies were likely to lead to higher corporate earnings and rising stock prices....

ALARMFORCE INDUSTRIES, $11.65, symbol AF on Toronto, reports that it attracted more customers and increased its revenue in the latest quarter. However, its earnings fell as it continued to expand its business. In the three months ended July 31, 2012, the company’s sales rose 10.9%, to $11.4 million from $10.3 million a year earlier. Even so, AlarmForce lost $6,589, or nil per share, compared to a profit of $831,342, or $0.07 a share. AlarmForce’s earnings fell because it increased its advertising spending as it expanded into Florida. It also invested more in its VideoRelay system, which it launched in October 2011. VideoRelay lets subscribers watch their homes through their computers and smartphones....

Melcor Developments, $15.61, symbol MRD on Toronto (Shares outstanding: 30.2 million; Market cap: $471.4 million; www.melcor.ca), is an Alberta-based real estate development company. Melcor buys, services and markets land for planned urban communities. It then sells single- and multi-family residential lots to homebuilders in these areas. In addition, the company develops commercial and industrial lots from its holdings of undeveloped land in Kelowna, B.C., and the Alberta cities of Edmonton, Calgary, Red Deer and Lethbridge. It then constructs and sells buildings on these properties. As well, Melcor sells commercial and industrial lots to developers in the city of Regina, Saskatchewan, and the province of British Columbia....

RUSSEL METALS $27.96 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 60.1 million; Market cap: $1.7 billion; Dividend yield: 5.0%) is one of North America’s largest metal distributors. The company serves its roughly 33,000 customers through a network of 51 locations in Canada and 12 in the U.S.

In the three months ended June 30, 2012, Russel’s revenue rose 16.2%, to $718.7 million from $618.6 million a year earlier. All three of the company’s divisions saw gains: higher sales volumes pushed up revenue by 11% at both the steel-distribution and metalservices businesses. And revenue jumped 32% at the energy tubular products division, which supplies pipes for oil and gas firms, thanks to an increase in drilling activity.

Without one-time items, earnings per share fell 13.5%, to $0.45 from $0.52 a year earlier. The company’s earnings fell despite the higher revenue because steel prices declined in the latest quarter. That cuts Russel’s profit margins and causes it to suffer losses on its current inventory.

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