oil prices

BANK OF NOVA SCOTIA $33.65, Toronto symbol BNS, recently agreed to buy Sun Life Financial’s 37% stake in CI Financial Income Fund, Canada’s third-largest mutual fund company. The purchase will give the bank about 37.6% of CI’s outstanding units. Bank of Nova Scotia originally agreed to pay $2.3 billion in cash for the CI units. Under a new agreement, the bank will now pay $1.55 billion in cash, $500 million in common shares valued at $34.60 a share and $250 million in preferred shares. This new arrangement helps preserve Bank of Nova Scotia’s strong regulatory capital ratios. The bank aims to complete the purchase next week. Meanwhile, Bank of Nova Scotia’s revenue in its fiscal year ended October 31, 2008 fell 4.9%, to $11.9 billion from $12.5 billion in the prior year. It earned $3.1 billion or $3.05 a share, down 22.4% from $4.05 billion or $4.01 a share. However, if you disregard writedowns of securities, earnings per share would have fallen 3.5% to $3.87....

GENERAL ELECTRIC CO. $17.85, New York symbol GE, moved up this week after the company said it would further scale back the activities of its struggling finance division. GE Capital now accounts for about 50% of GE’s total earnings. Through sales of certain financing businesses, the company now aims to reduce GE Capital’s earnings contribution to 30% by the end of 2009. GE now feels it will earn $0.50 to $0.52 a share in the fourth quarter of 2008. That’s down from its earlier forecast of $0.50 to $0.65 a share. These figures exclude restructuring and other charges of up to $1.4 billion. Even with these charges, GE will still earn over $18 billion in 2008. The company also plans to keep paying its $1.24 dividend (6.9% yield) in 2009. GE is a buy....

AT&T INC. $28 (New York symbol T) earned $0.55 a share in the third quarter of 2008, up 10.0% from $0.50 a year earlier. Most of that gain was due to strong demand for Apple’s iPhone and high-speed Internet services. If you exclude costs related to acquisitions and other unusual items, earnings per share fell 5.6% to $0.67 from $0.71. Revenue grew 4.0%, to $31.3 billion from $30.1 billion. Buy. BUCKEYE PARTNERS L.P. $35 (New York symbol BPL) has raised its quarterly distribution rate by 1.4%, from $0.8625 a unit to $0.875. The new annual rate of $3.50 yields 10.0%. Buckeye’s recent acquisitions of natural gas storage terminals cut its reliance on its traditional gasoline and jet fuel pipelines. The new operations should also help it keep raising its distributions. Buy. NEWELL RUBBERMAID INC. $12 (New York symbol earned $0.36 a share before one-time items in the third quarter of 2008, down 30.8% from $0.52 a year earlier. Most of the drop was due to lower consumer spending on its household products. Sales grew 4.3%, to $1.8 billion from $1.7 billion, due to acquisitions. The company uses oil to make many of its products, so falling oil prices help its profit margins. The $0.84 dividend still seems secure, and yields 7.0%. Buy.

NORDSTROM INC. $12 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 215.4 million; Market cap: $2.6 billion; WSSF Rating: Average) earned $71 million in its third fiscal quarter ended November 1, 2008, down 57.2% from $166 million a year earlier. However, the year-earlier quarter included a $20.9 million after-tax gain on the sale of a division. Per-share earnings fell 51.5%, to $0.33 from $0.68, on fewer shares outstanding. Sales declined 8.4%, to $1.8 billion from $2.0 billion. Same-store sales fell 11.1%. The company currently operates 169 stores, and plans to open about 20 new stores in the next four years. This expansion has pushed up its long-term debt to $2.2 billion, which is now a high 85% of its market cap. That increases its short-term risk, particularly if sales continue to weaken. However, Nordstrom’s focus on affluent shoppers and strong attention to customer service should help it stay profitable during the current slump. As well, sales at Nordstrom’s Internet operations continue to grow strongly. Nordstrom is a buy....

PETRO-CANADA $24 (Toronto symbol PCA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 484.4 million; Market cap: $11.6 billion; SI Rating: Average) owns 60% of the proposed Fort Hills oil sands project. Due to rising raw material and labour costs, the company now estimates that its share of the costs will rise 50% from its earlier estimate to around $17 billion. In light of the recent drop in oil prices and uncertain credit markets, Petro-Canada and its partners will probably focus on the mining portion of this project for now. They will postpone building the more costly upgrader facility, which converts the tar-like heavy oil to refinery-ready crude, until conditions improve. Meanwhile, thanks to sharply higher oil prices, Petro-Canada’s earnings in the three months ended September 30, 2008 jumped to $2.56 a share (total $1.2 billion) from $1.29 a share ($630 million) a year earlier. These figures exclude one-time items. Cash flow per share rose 73.4%, to $4.37 from $2.52. Revenue grew 50.7%, to $8.3 billion from $5.5 billion....

PENGROWTH ENERGY TRUST $11 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 254.9 million; Market cap: $2.8 billion; SI Rating: Average) produces oil and natural gas from, mainly from properties in Alberta and British Columbia. It also owns 8.4% of the Sable Offshore Energy project, which extracts natural gas from several offshore fields south of Nova Scotia. Natural gas accounts for 60% of its production, while oil supplies the remaining 40%. Pengrowth is down lately, along with most other oil and gas producers, due to falling energy prices. However, Pengrowth’s cash flow seems sufficient to let it keep paying monthly distributions of $0.225 a unit. That gives it a high current yield of 24.5%. Pengrowth paid out 62% of its cash flow as distributions in the latest quarter, down from 79% a year earlier. In the three months ended September 30, 2008, Pengrowth’s earnings soared to $1.69 a unit (total $422.4 million) from $0.66 a unit ($161.5 million) a year earlier. Most of the increase came from unrealized gains on oil and natural gas hedging contracts. Cash flow per unit rose 23.6%, to a record $1.10 from $0.89. Revenue grew 23.3%, to $518.7 million from $420.7 million. A 27% rise in realized energy prices more than offset a 5% drop in average daily production....

PRECISION DRILLING TRUST $11 (Toronto symbol PD.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 125.8 million; Market cap: $1.4 billion; SI Rating: Extra risk) is Canada’s largest provider of contract drilling and related services to the oil and natural gas exploration industry. Precision currently operates 249 drilling rigs, mainly in Canada. However, many of its Canadian customers suspend exploration during the winter. Precision now aims to expand its operations in the United States with its upcoming purchase of Grey Wolf Inc., which operates 122 drilling rigs in the U.S. Gulf Coast and Midwest regions. The purchase will make Precision one of the largest providers of drilling services in North America....

We recommend few income trusts. That’s because most trusts involve substantial risk, such as focusing on a single commodity or geographic area. Here are four trusts we do see as buys. Despite Ottawa’s plan to start taxing trust distributions in 2011, they should continue to pay above-average yields for years to come. These four trusts should also appeal to BCE investors seeking new sources of income, assuming that the BCE privatization goes through as planned (see box this page). However, you should continue to limit income trusts to no more than, say, 15% of your total portfolio....

BANK OF NOVA SCOTIA $31.25, Toronto symbol BNS, expects to record charges totaling $595 million (after taxes) for its fourth fiscal quarter ended October 31, 2008. These charges include $370 million in writedowns of illiquid securities, $115 million of losses related to the bankruptcy of U.S. brokerage firm Lehman Brothers, and $110 million in writedowns of interest rate hedging contracts. The bank also still holds $348 million U.S. worth of securities that it may have to write down if conditions worsen. These charges are manageable considering that Bank of Nova Scotia earned $1.0 billion or $0.98 a share in the third quarter of fiscal 2008. Its main businesses are still profitable, and the bank is taking advantage of the turmoil in the financial markets to strengthen its domestic and international operations with acquisitions. Bank of Nova Scotia is a buy....

RUSSEL METALS, $20.30, symbol RUS on Toronto, is acquiring Norton Metal Products, a privately held Fort Worth, Texas-based metals service center in an all-stock purchase (no terms were disclosed). Norton has annual revenues of about $70 million. That’s small in relation to Russel’s annual revenues of over $2.6 billion. However, Norton is a known brand name in its local region, and will help Russel continue to expand in the southern U.S. market. Russel reported record quarterly earnings in the three months ended September 30, 2008. Profits more than tripled, to $91.5 million or $1.45 a share from $27.9 million or $0.44 a share a year earlier. Revenues rose 53%, to $954.9 million from $624.3 million. In the latest quarter, 34% higher steel prices boosted sales at its metals service centers by 50%. The metals service centers account for 53% of Russel’s revenues and 47% of its profits. Strong U.S. energy operations and growing Alberta oil sands business helped push up sales of energy tubular products by 86%....