oil prices

3M COMPANY $71 earned $1.20 a share in the three months ended June 30, 2009, down 13.7% from $1.39 a year earlier. These figures exclude costs related to 3M’s cost-control plan, including layoffs and early-retirement offers. 3M makes over 50,000 industrial and consumer products, and the recession caused sales to fall by 15.1%, to $5.7 billion from $6.7 billion. Despite this, 3M’s restructuring let it increase its gross profit margin (gross profits as a percentage of sales) to 22.6% from 22.1% a year earlier. Buy. QUAKER CHEMICAL CORP. $23 cut 10% of its workforce earlier this year due to slowing demand for its lubricants. But thanks to these savings, its gross profit margin rose to 35.2% in the second quarter of 2009 from 28.3% a year earlier. Quaker uses oil to make its products, so it also gained from lower oil prices. Because of its lower costs, Quaker should be able to keep paying quarterly dividends of $0.23 a share, for an annual yield of 4.0%. Buy. BUCKEYE PARTNERS L.P. $46 continues to increase its quarterly distributions. It will pay $0.9125 a unit in the third quarter of 2009, up 1.4% from the second quarter. The new annual rate of $3.65 yields 7.9%. Savings from Buckeye’s plan to streamline its pipeline system, which pumps gasoline and other fuels, should give it more cash flow, which it may use for further distribution increases. Best Buy.

Husky Energy, $30.95, symbol HSE on Toronto (Shares outstanding: 849.9 million; Market cap: $26.3 billion), is an integrated oil and gas company. Hong Kong-based billionaire Li Ka-Shing owns 70.6% of the company’s shares. Husky produces conventional oil and gas across western Canada, as well as heavy oil (a heavy, black viscous oil) at Lloydminster, Saskatchewan, and from the oil sands at Tucker, Alberta. Husky also has major holdings in eastern Canada, including interests in Newfoundland’s Terra Nova and White Rose oil fields. Overseas, Husky produces light oil and natural-gas liquids in the South China Sea, and has exploration properties off the coast of Indonesia. These holdings include 100% of the huge Liwan natural-gas discovery, and an offshore field southeast of Hong Kong that could contain as much as six trillion cubic feet of natural gas. Husky also owns part of the Wenchang oil field in the South China Sea and the Madura BD gas development in Indonesia’s Madura Strait....

SHAWCOR LTD. $24 (Toronto symbol SCL.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 70.4 million; Market cap: $1.7 billion; Price-to-sales ratio: 1.2; SI Rating: Average) makes sealants and coatings that protect onshore and offshore oil and natural-gas pipelines from corrosion. This business supplies 90% of its revenue. The remaining 10% comes from making industrial equipment, such as electrical wire and protective sheaths. In the three months ended June 30, 2009, ShawCor’s revenue rose 6.0%, to $312.8 million from $295.1 million a year earlier. Overseas customers account for 75% of its revenue, so the company benefitted from a lower Canadian dollar. As well, it prices most of its contracts in U.S. dollars. As a result of these two factors, favourable foreign-exchange rates added $25.1 million to ShawCor’s revenue in the latest quarter. Earnings in the quarter jumped 92.7%, to $34.3 million, or $0.49 a share, from $17.8 million, or $0.25 a share, a year earlier. ShawCor has upgraded its plants over the past few years, and these improvements have lowered its operating costs. Falling prices for raw materials, such as plastic resins, steel and copper, have also helped ShawCor increase its earnings....

IMPERIAL OIL LTD. $40 earned $0.25 a share in the three months ended June 30, 2009. That’s down 80.5% from $1.28 a year earlier. The drop was mainly caused by falling crude-oil and natural-gas prices. As well, its Cold Lake and 25%-owned Syncrude oil-sands projects were closed for maintenance during...

Holly Corp., $22.39, symbol HOC on New York (Shares outstanding: 50.1 million; Market cap: $1.1 billion), is a refiner and marketer of petroleum products. The company operates a 100,000 barrel-per-day refinery in Artesia, New Mexico, an 85,000 barrel-per-day refinery in Tulsa, Oklahoma, and a 31,000 barrel-per-day refinery in Woods Cross, Utah. Holly also owns a 41% interest in Holly Energy Partners, L.P. (symbol HEP on New York), which, through subsidiaries, owns or leases roughly 2,500 miles of petroleum pipelines in Texas, New Mexico and Oklahoma, plus petroleum-product terminals in several southwestern and Rocky Mountain states. The recession has driven down demand for gasoline. This, in turn, has hurt the company’s revenue. However, falling oil prices mean that it is paying less for crude. This is lifting the profit margins it gets from gasoline....

PEPSICO INC., $57.74, New York symbol PEP, increased its offer to buy its two main bottlers: Pepsi Bottling Group Inc. (New York symbol PBG) and PepsiAmericas, Inc. (New York symbol PAS). Both have now accepted PepsiCo’s offer, which is worth $7.8 billion. To put this in context, PepsiCo earned $1.7 billion, or $1.06 a share, in the second quarter of 2009. PepsiCo already owns 33% of Pepsi Bottling Group and 43% of PepsiAmericas. The company first offered to buy these bottlers last April for a total of $6 billion in cash and shares, but they rejected this amount as insufficient. In response, PepsiCo launched the new bid, which is a 30% increase over its first offer. The deal should close later this year, or in early 2010, and will give PepsiCo control over 80% of its North American beverage volumes. By consolidating plants and administrative functions, the company feels it can lower its annual costs by $300 million by 2012. That should add $0.15 a share to its annual earnings. Owning these bottlers will also make it easier for PepsiCo to launch new products, and react more quickly to changing consumer tastes in different regions....

CANADIAN PACIFIC RAILWAY LTD., $47.90, Toronto symbol CP, reported higher profits for its latest quarter, as a gain on the sale of an investment helped it overcome a 24% drop in freight volumes caused by the recession. In the three months ended June 30, 2009, CP’s earnings rose 1.7%, to $157.3 million from $154.7 million a year earlier. Earnings per share fell 7.0%, to $0.93 from $1.00, on more outstanding shares. (In February, CP sold 13.9 million shares at $36.75 each. That increased the total outstanding by about 9%). The latest earnings included a $68.7-million gain on CP’s sale of part of its stake in the Detroit River Tunnel Partnership, which operates a rail tunnel between Detroit and Windsor, Ontario. CP now owns 16.5% of this business, down from 50%. The sale freed up cash that CP used to pay down debt, while preserving its right to keep operating the tunnel. CP’s $4-billion long-term debt is now a manageable 49% of its $8.2 billion market cap....

Talisman Energy Inc., $17.23, symbol TLM on Toronto (Shares outstanding: 1 billion; Market cap: $17.6 billion), is a large Calgary-based oil and natural-gas producer. Crude oil accounted for 52% of its production in 2008; the remaining 48% was natural gas. Talisman operates in three main areas: North America provided 42% of its 2008 output, followed by the North Sea (32%) and Southeast Asia (21%). Other regions accounted for the remaining 5%. Since Talisman’s formation as an independent company in 1992 (it was originally part of BP Canada), it has relied on acquisitions for growth. In 2008, Talisman changed this strategy and began focusing on developing properties with reliable production and better earnings potential. It then sold $2.5 billion worth of properties over the past year....

Canadian REIT and Pembina Pipeline Income Fund are both recommendations of our Canadian Wealth Advisor newsletter. We see them both as buys. Crescent Point Energy Trust recently converted itself into a conventional corporation. Its new name is Crescent Point Energy Corp. (symbol CPG on Toronto). Crescent Point Energy Corp. is still a buy recommendation of Canadian Wealth Advisor. Canadian Oil Sands Trust, $25.34, symbol COS.UN on Toronto (Units outstanding: 484.4 million; Market cap: $12.3 billion), has a 36.74% interest in Syncrude Canada Ltd. Canadian Oil Sands’ share of Syncrude’s oil production is about 109,500 barrels per day. The trust’s focus on high-cost oil-sands production exposes it to more uncertainty than other high-quality oil companies, and leaves it with more to lose when oil prices fall. Moreover, oil-sands developments may become subject to increasingly strict environmental regulations. The units yield 2.4%. Canadian Oil Sands Trust is okay to hold. Labrador Iron Ore Royalty Income Fund, $31.50, symbol LIF.UN on Toronto (Units outstanding: 32 million; Market cap: $1 billion), has been hurt by weaker iron-ore markets, and will delay its expansion plans in order to conserve cash. It is possible that government infrastructure spending will increase steel production. This, in turn, may help increase demand. Labrador Iron Ore Income Fund has seen higher demand from Asia lately, but it needs an overall recovery in global steel production to see rising sales and cash flow. The units yield 6.4%. Labrador Iron Ore Royalty Income Fund is okay to hold....

CAE INC. $6.68 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 255.1 million; Market cap: $1.7 billion; Price-to-sales ratio: 1.0; SI Rating: Average) stands to gain from both developments. CAE makes flight simulators and operates pilot-training facilities. Lower fuel prices leave its airline customers with more cash to spend on new simulators and training. Falling oil prices cut consumer costs, leaving more funds for travel. In addition, CAE gets 90% of its revenue from customers outside of Canada. A low Canadian dollar increases the value of these sales....