oil prices

Many investors fear that today’s artificially low interest rates and high government budget deficits will spur a huge rise in inflation. These fears are prompting many investors to devote more of their money to investing in gold and gold investments, because they believe gold will provide them with additional security. That helps explain why the price of gold has risen more than 50% since the fall of 2008. We agree that a huge burst of inflation is a possibility in the next few years. But it’s a mistake to assume that vastly higher inflation is a certainty, as many who are investing in gold do today....

ENCANA CORP., $28.26, Toronto symbol ECA, fell 7% this week after the company reported lower-than-expected earnings. In the three months ended September 30, 2010, Encana earned $98 million, or $0.13 a share (all amounts except share price in U.S. dollars). These figures exclude a $331-million gain on hedging contracts that the company uses to lock in selling prices for its natural gas, and a $140-million foreign-exchange gain. On this basis, the latest earnings fell well short of the consensus estimate of $0.19 a share. They were also down 74.1% from the company’s year-earlier earnings of $378 million, or $0.50 a share. Cash flow per share fell 9.4%, to $1.54 from $1.70. (Note: The year-earlier figures assume that the breakup of the old EnCana Corp. into the new Encana and Cenovus Energy Inc. took place at the start of 2009 instead of December 1, 2009.)...

Inter Pipeline Fund, $13.67, symbol IPL.UN on Toronto (Units outstanding: 256.9 million; Market cap: $3.5 billion), transports, stores, markets and processes oil and natural gas. The fund has three divisions: pipelines (conventional and oil sands), extraction (natural gas liquids from natural gas) and storage (under the Simon Storage and TLG banners). In the three months ended June 30, 2010, Inter Pipeline’s revenue rose 22.4%, to $241.4 million from $197.3 million. Cash flow per unit rose 13.3%, to $0.34 from $0.30. The fund paid out 65% of its cash flow as distributions in the latest quarter. Inter Pipeline Fund’s outlook generally rises and falls with oil prices. Lower oil prices cut drilling activity and production levels, and encourage producers to close or abandon producing wells. That lowers the amount of oil and gas that Inter Pipeline Fund handles, and cuts its revenue. Inter Pipeline Fund’s concentration in Alberta also adds risk. However, the addition of its Corridor Pipeline expansion should add to the fund’s cash flow and provide future growth potential....

iShares MSCI Israel Capped Investable Market Index Fund, $56.35, symbol EIS on New York (Shares outstanding: 2.4 million; Market cap: $135.2 million), is an exchange-traded fund that aims to track the MSCI Israel Capped Investable Market Index. The weight of any one company is capped at 24% of the index’s market capitalization. iShares MSCI Israel Capped Investable Market Index Fund’s top holdings are Teva Pharmaceutical, 21.3%; Israel Chemicals, 9.6%; Bank Leumi Le-Israel, 8.3%; Bezeq Israeli Telecom, 6.3%; Bank Hapoalim, 5.3%; Nice Systems, 3.1%; The Israel Corp., 2.9%; Partner Communications, 2.9%; Cellcom Israel, 2.3%; and Elbit Systems, 2.3%. The fund’s industry breakdown is as follows: Financials, 27.3%; Health Care, 22%; Materials, 15.2%; Telecommunication Services, 11.8%; Industrials, 8.3%; Information Technology, 6.9%; Energy, 3.4%; Consumer Staples, 3.4%; and Consumer Discretionary, 1.5%....

CENOVUS ENERGY INC. $29 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 751.8 million; Market cap: $21.8 billion; Price-to-sales ratio: 1.7; Dividend yield: 2.8%; SI Rating: Extra Risk) operates three oil-sands properties in Alberta, and one in Saskatchewan. Cenovus ships the heavy bitumen from these projects to refineries in Illinois and Texas. ConocoPhillips (New York symbol COP) owns 50% of these refineries, as well as 50% of Cenovus’ two main oil-sands projects. Cenovus also owns conventional oil and natural-gas properties. Cenovus’ proved oil and gas reserves will last 14.7 years. These large reserves mean that Cenovus does not need to spend heavily on exploration. That cuts its risk. Moreover, its steam-assisted gravity draining drilling technology should spur its long-term earnings. That’s because this process makes it easier to extract more heavy oil. ...

It’s been nearly a year since the old EnCana Corp. split itself into two separate companies: one that focuses on unconventional natural gas (Encana), and one that specializes in oil-sands projects (Cenvous Energy). Shareholders received one share in each of the two new firms for every old EnCana share they held. The new Encana has suffered, mostly because of a recent drop in natural gas prices. As well, Cenovus has faced pressure from environmentalists who are opposed to oil-sands development. But the breakup helped unlock hidden value. As a result, both stocks should produce above-average results in the next few years. ENCANA CORP. $30 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.2 million; Market cap: $22.1 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.8%; SI Rating: Average) is one of North America’s largest natural-gas producers....

Petroleo Brasileiro S.A. ADRs, $33.08, symbol PBR on New York (Shares outstanding: 2.5 billion; Market cap: $83.9 billion), commonly known as Petrobras, is an integrated petroleum company that operates in Brazil and other parts of South America. It’s now expanding into North America and Europe. The Brazilian government established Petrobras as a state-owned petroleum monopoly in 1953. Since then, deregulation and privatization have lowered the government’s control of the industry. However, the state still owns 55.6% of Petrobras. In August 2000, the government sold American Depositary Receipts (ADRs) on the New York exchange for $6 each (adjusted for a 2-for-1 split in May 2008); each ADR represents two Petrobras common shares. Petrobras has four business segments: exploration and production, downstream, gas and energy, and international. At the end of 2009, Petrobras’ average daily production was 2.5 million barrels of oil equivalent. Its production consisted of 84% oil and 16% natural gas. The company also owns and operates 15 refineries that are capable of processing a total of 2.2 million barrels per day. In addition to its production assets, Petrobras operates 8,000 service stations in Brazil, and 990 abroad....

Newell Rubbermaid took its present form in 1999, when Newell Companies bought Rubbermaid Inc. That doubled the size of the old Newell, which felt it needed to get bigger to improve its negotiating position with big retailers like Wal-Mart. Even now, Wal-Mart still accounts for 12% of the company’s sales. The combined company went on to buy several other businesses over the next few years. These acquisitions included Gillette’s stationery operations, and the maker of Vise-Grip hand tools. However, big purchases like these rarely go as smoothly as expected. That’s been the case with Newell, which continues to streamline its operations. Recently, it closed plants and got out of low-margin businesses, particularly plastic-resin products that expose it to volatile oil prices. The company is also expanding into more-profitable products, such as children’s car seats and strollers....

Small-cap stocks, generally thought of as those with a market capitalization under $1 billion, have not performed as well as larger companies during the recent market volatility. Over the past year, the Russell 3000 Index, which has median market cap of $807 million, has gained 5.0%, compared to 7.4% for the Dow Jones Industrial Average. That’s because most investors prefer larger companies with steady earnings and dividends in times of economic uncertainty. Like many small caps, the four industrial stocks below have been volatile lately. However, we feel they are suitable for most portfolios. That’s because all four are leaders in their industries, which gives them a competitive advantage. They are also cutting costs. However, only two are buys right now. TENNANT CORP. $32 (New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 19.0 million; Market cap: $608.0 million; Price-to-sales ratio: 1.0; Dividend yield: 1.8%; WSSF Rating: Average) makes industrial floor-cleaning equipment, including scrubbers, sweepers and polishers. It also makes cleaning equipment for garages, stadiums, parking lots and city streets. Tennant’s clients are mainly municipal governments and businesses....

Canadian Oil Sands Trust, $25.51, symbol COS.UN on Toronto (Units outstanding: 484.4 million: Market cap: $12.4 billion), has a 36.74% interest in Syncrude Canada Ltd. Canadian Oil Sands’ share of Syncrude’s current oil production is about 118,569 barrels per day. Syncrude is the largest producing oil-sands project in the world, and Canadian Oil Sands Trust is Syncrude’s biggest stakeholder. Other partners in the Syncrude Canada venture include Imperial Oil (25%); Suncor Energy (12%); ConocoPhillips (9.03%); Nexen Oil Sands Partnership (7.23%); Mocal Energy (5%); and Murphy Oil (5%). ConocoPhillips recently agreed to sell its 9.03% stake in Syncrude to China’s Sinopec for $4.65 billion U.S. Based on that price, Canadian Oil Sands’ 36.74% interest in Syncrude is potentially worth $18.9 billion U.S. That’s 28.6% more than the trust’s current market cap. The sale should close in the third quarter of 2010....