oil prices

WELLS FARGO & CO., $8.61, New York symbol WFC, has cut its quarterly dividend by 85.3%, to $0.05 a share from $0.34. The new annual rate of $0.20 yields 2.3%. The lower dividend will save the bank $5 billion a year. To put that in context, it earned $2.7 billion, or $0.70 a share, in 2008. (Its 2008 earnings included $9.9 billion of pre-tax writedowns and other charges related to its purchase of financial services company Wachovia on December 31.) The savings should help Wells Fargo cope with higher loan defaults during the recession. Wells Fargo is making good progress integrating Wachovia into its own operations. Wells Fargo’s management still feels the merger will cut the combined company’s annual expenses by $5 billion. Wells Fargo has already written down most of Wachovia’s troubled loans and securities, so any further charges should be manageable. The company has also received $25 billion under the U.S. government’s Troubled Asset Relief Program....

SHERWIN-WILLIAMS CO. $46 (New York symbol SHW; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 116.9 million; Market cap: $5.4 billion; Price-to-sales ratio: 0.7; WSSF Rating: Above Average) is North America’s largest paint producer. It also operates over 3,300 retail paint stores, which supply 60% of its sales. In 2008, Sherwin’s sales fell 0.3%, to $7.98 billion from $8.01 billion in the prior year. Price increases helped offset lower retail sales volumes. However, sales at its international division grew 7.8% in 2008, partly due to acquisitions of smaller paint producers in Europe and Asia. Overseas markets now account for 20% of Sherwin’s sales. Sherwin’s 2008 earnings dropped 22.5%, to $476.9 million from $615.6 million. The company bought back 6% of its shares in 2008, so earnings per share fell 14.9%, to $4.00 from $4.70. If you exclude writedowns of goodwill, per-share earnings fell 9.8%, to $4.31 from $4.78....

The bleak outlook for the U.S. housing industry continues to weigh on Sherwin-Williams and La-Z-Boy. Their cost-control plans and industry-leading brands should help them cope, but both will probably make little progress in the next few months. SHERWIN-WILLIAMS CO. $46 (New York symbol SHW; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 116.9 million; Market cap: $5.4 billion; Price-to-sales ratio: 0.7; WSSF Rating: Above Average) is North America’s largest paint producer. It also operates over 3,300 retail paint stores, which supply 60% of its sales. In 2008, Sherwin’s sales fell 0.3%, to $7.98 billion from $8.01 billion in the prior year. Price increases helped offset lower retail sales volumes. However, sales at its international division grew 7.8% in 2008, partly due to acquisitions of smaller paint producers in Europe and Asia. Overseas markets now account for 20% of Sherwin’s sales....

APACHE CORP. $60 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 334.7 million; Market cap: $20.1 billion; Price-to-sales ratio: 1.7; WSSF Rating: Average) explores for and produces oil and natural gas, mostly in North America. Apache prefers to sell its oil at the current spot price, instead of locking in prices through hedging contracts. This strategy let it take full advantage of rising oil and natural-gas prices in the first half of 2008. Thanks to a 27.5% rise in its average oil prices, and a 25.5% jump in gas prices, Apache’s 2008 earnings rose 30.5%, to $3.8 billion from $2.9 billion in the prior year. Earnings per share climbed 29.6%, to $11.22 from $8.66. The 2008 earnings exclude a $3.6-billion writedown of Apache’s properties that was caused by falling energy prices in the second half of 2008. This is a non-cash accounting adjustment, and had no impact on the company’s cash balances. Apache’s revenue rose 23.9%, to $12.4 billion from $10 billion....

CHEVRON CORP. $64 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2 billion; Market cap: $128 billion; Price-to-sales ratio: 0.7; WSSF Rating: Above Average) is the second-largest integrated oil company in the United States, after ExxonMobil. Oil production supplied 86% of its earnings in 2008; the remaining 14% came from its refineries and retail gas stations. In response to weaker energy prices, Chevron aims to conserve cash by temporarily suspending its sharebuyback program. (In 2008, it repurchased $8 billion of its stock.) It now holds $9.6 billion, or $4.70 a share, in cash, and its total debt of $8.9 billion is a low 7% of its market cap. In 2008, Chevron’s earnings rose 28.1%, to $23.9 billion from $18.7 billion in 2007. Earnings per share rose 33.1%, to $11.67 from $8.77 on fewer shares outstanding. (Chevron’s 2008 earnings included a $600-million gain on the swap of some properties.) Revenue rose 23.6%, to $273 billion from $220.9 billion. Higher oil prices in 2008 offset a 3.4% drop in overall production, mainly due to the disruption caused by hurricanes at its offshore platforms in the Gulf of Mexico....

This year, global oil consumption will probably fall for the first time since the early 1980s. We feel now is a good time to buy well-established oil companies that can take advantage of low oil prices. The three listed below are good examples; all have low debt and plenty of cash, which puts them in a good position to buy new properties or smaller producers, possibly at bargain prices. CHEVRON CORP. $64 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2 billion; Market cap: $128 billion; Price-to-sales ratio: 0.7; WSSF Rating: Above Average) is the second-largest integrated oil company in the United States, after ExxonMobil. Oil production supplied 86% of its earnings in 2008; the remaining 14% came from its refineries and retail gas stations. In response to weaker energy prices, Chevron aims to conserve cash by temporarily suspending its share buyback program. (In 2008, it repurchased $8 billion of its stock.) It now holds $9.6 billion, or $4.70 a share, in cash, and its total debt of $8.9 billion is a low 7% of its market cap....

Canadian Oil Sands Trust, $19.32, symbol COS.UN on Toronto (Shares outstanding: 481.5 million: Market cap: $9.3 billion), has a 36.74% interest in Syncrude Canada Ltd. Canadian Oil Sands’ share of Syncrude’s current oil production is about 115,800 barrels per day. Syncrude is the largest producing oil-sands project in the world, and Canadian Oil Sands Trust is the biggest stakeholder. Other partners in the Syncrude Canada venture include Imperial Oil (25%); Petro-Canada (12%); Conoco-Phillips Oil Sands Partnership II (9.03%); Nexen Oil Sands Partnership (7.23%); Mocal Energy (5%); and Murphy Oil (5%). Syncrude Canada mines oil sands and operates power-generation plants, bitumen-extraction plants and an upgrading complex that processes bitumen (or a heavy black viscous oil) into regular crude oil, which can be used by refineries to produce gasoline and diesel fuels. Syncrude’s oil-sands project is located 40 kilometres north of Fort McMurray, Alberta; its production is pumped to Edmonton-area refineries, which then send it via pipeline to refineries in Canada and the United States. Syncrude has enough reserves to produce 500,000 barrels per day for more than 50 years. To put this into perspective, Syncrude’s current overall production capacity is about 350,000 barrels of sweet crude oil per day....

TOROMONT INDUSTRIES LTD. $20.51 (Toronto symbol TIH; SI Rating: Extra Risk) (416-667-5511; www.toromont.com; Shares outstanding: 64.6 million; Market cap: $1.3 billion) operates in two business segments: the equipment group and the compression group. The equipment group’s Caterpillar dealership, which covers Ontario, Manitoba, Newfoundland, and most of Labrador and Nunavut, is one of the world’s largest. It also includes rental operations. Also part of this group is Toromont Energy, which supplies, builds and operates high-efficiency power plants. Toromont’s compression group designs, engineers, builds and installs compression systems for natural gas, fuel gas and carbon dioxide, as well as industrial and recreational refrigeration systems....

BANK OF AMERICA CORP., $3.79, New York symbol BAC, continues to see its share price fall (down 25% this week) partly on fears that the U.S. government may be forced to take over some banks. Like many other financial institutions, Bank of America has received assistance from the U.S. Treasury under the Troubled Asset Relief Program. The Treasury has also agreed to cover a portion of the potential losses on securities held by brokerage firm Merrill Lynch, which Bank of America bought on January 1 of this year. We feel that the nationalization of Bank of America is possible, but unlikely. While it looks like it will take longer for Bank of America to see any benefits from its acquisition of Merrill, the company is still profitable and has enough capital to operate. Bank of America is still a buy....

IMPERIAL OIL LTD. $39 (Toronto symbol IMO) plans to increase capital spending by 60% in 2009. Most of the extra spending is for its proposed Kearl Lake oil-sands project in northern Alberta. Imperial owns 70% of Kearl, while parent company ExxonMobil Corp. owns the rest. Kearl’s reserves should last 40 years, and moving ahead with it makes sense for Imperial despite low oil prices, as the economic downturn has cut the cost of labour and materials. Best Buy. ANDREW PELLER LTD. $7.40 (Toronto symbol ADW.A) reported that sales in its third fiscal quarter, ended December 31, 2008, rose 10.4%, to $72.9 million from $66.1 million a year earlier. The gain was largely due to acquisitions, new products and strong demand for its premium wine brands. The company lost $0.13 a share, compared to a profit of $0.35 a share in the year-earlier quarter. If you disregard unusual items, earnings would have increased 1.6%. Buy. PENGROWTH ENERGY TRUST $10 (Toronto symbol PGF.UN) recently cut its monthly distributions by 24% to conserve cash in light of low oil and natural gas prices. However, it plans to spend 47% less on capital projects in 2009, which should help it maintain the current payout rate. Buy.