oil prices

The Dow’s 11.1% gain on Monday was the fifth-biggest percentage gain on record. The 9.8% gain on Toronto the next day was the biggest ever. Markets remain volatile and have moved down since, but my view is that governments around the world are now taking the kind of steps that will contain the crisis and eventually restore liquidity in the banking system. You can only spot market reversals in hindsight, so it’s too early to declare if we are near a bottom. But even if we are, markets are apt to remain volatile and some stocks are bound to go to lower lows....

TUPPERWARE BRANDS CORP. $28 (New York symbol TUP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 62.1 million; Market cap: $1.7 billion; WSSF Rating: Above average) got as high as $45 in April, 2008, but has moved down since then largely due to the rise in the U.S. dollar. A stronger dollar reduces the profitability of overseas sales for American companies. Tupperware gets over 80% of its revenue from customers outside of the United States. However, the recent drop in oil prices should cut the manufacturing costs of Tupperware’s plastic food containers. As well, it continues to expand in emerging markets. Tupperware should earn $2.70 a share in 2008, and trades at just 10.4 times that estimate. It may also soon raise its $0.88 dividend, which yields 3.1%. Tupperware is a buy.

APACHE CORP. $113 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 334.5 million; Market cap: $37.8 billion; WSSF Rating: Average) explores for and produces oil and gas, mostly in North America. It also has operations in the UK, Argentina, Australia and Egypt. Oil accounts for about 67% of its production. Thanks to record high oil and gas prices, Apache’s earnings in the three months ended June 30, 2008 jumped to $4.28 a share (total $1.4 billion) from $1.89 a share ($632.1 million) a year earlier. Cash flow per share rose 57.0%, to $6.94 from $4.42. Revenue grew 57.7%, to $3.9 billion from $2.5 billion. Apache prefers to sell its oil at spot prices, instead of using supply contracts or hedges to lock in prices. Thanks to this strategy, Apache’s stock shot up to $149 in May, 2008, but has since moved down to its current price on lower oil prices....

CHEVRON CORP. $85 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $178.5 billion; WSSF Rating: Above average) is the secondlargest integrated oil company in the United States after ExxonMobil. Production accounts for about 80% of its earnings. The remaining 20% comes from refineries and retail gas stations. Chevron’s revenue in the second quarter of 2008 rose 47.9%, to $83.0 billion from $56.1 billion a year earlier. However, earnings rose just 15.1%, to $2.90 a share (total $6.0 billion) from $2.52 a share ($5.4 billion). That’s mainly because Chevron’s refineries had to pay about 70% more for crude oil. Due to the combination of lower sales and higher operating costs, the company’s U.S. refineries lost $682 million in the latest quarter. Cash flow per share in the quarter rose 29.4%, to $7.66 from $5.92. The stock hit a new all-time high of $105 in May, 2008, but fell to $78 in September as oil prices fell to about $90 a barrel. However, the stock has moved up to its current price due to the recent surge in oil to $110 a barrel....

Most oil and gas stocks hit record highs earlier this year, but have dropped lately along with energy prices. However, energy prices will undoubtedly rise again over the next few years as developing countries continue to industrialize their economies. As well, wind, solar and other forms of alternative energy sources will likely supply a small fraction of the world’s energy needs for the foreseeable future. We feel investors should focus on well-established oil and gas companies with large reserves and diverse sources of cash flow that help them stay profitable, even if energy prices fall. Here are three top examples, although we see only two as buys right now. CHEVRON CORP. $85 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $178.5 billion; WSSF Rating: Above average) is the secondlargest integrated oil company in the United States after ExxonMobil. Production accounts for about 80% of its earnings. The remaining 20% comes from refineries and retail gas stations....

Today’s rebound in the market is reassuring, but I expect stocks to remain highly volatile for a month or more. After that, we could see a six-month rebound in prices. The U.S. bailout of major financial institutions raises inflation risk over the next few years, but it heads off panic. Nobody can predict market bottoms, but I suspect we are much closer to the bottom than the top. BANK OF AMERICA CORP. $37.48, New York symbol BAC, has agreed to acquire troubled brokerage firm Merrill Lynch & Co., Inc. (New York symbol MER). Based on current prices, Bank of America will pay about $49 billion in stock. That’s equal to 29% of its market cap of $170.9 billion. The addition of Merrill will greatly expand Bank of America’s retail brokerage and wealth management operations. Including Merrill’s 16,000 brokers, the merged company will be the world’s largest brokerage firm, with 20,000 brokers and $2.5 trillion in assets under management. Bank of America will probably keep the Merrill Lynch brand, and operate it as a separate division....

TRANSCONTINENTAL INC. $13.85, Toronto symbol TCL.A, earned $30.3 million in its third fiscal quarter ended July 31, 2008, up 6.7% from $28.4 million a year earlier. Per-share earnings rose 11.8%, to $0.38 from $0.34 on fewer shares outstanding. These figures exclude unusual items. Revenue rose 6.1%, to $584.9 million from $551.1 million. If you exclude the negative impact of the higher Canadian dollar on Transcontinental’s U.S. and Mexican operations, revenue in the quarter would have grown 8%. Transcontinental’s recent investments in new printing presses should continue to keep its costs low. The company’s expertise and flexibility is also helping it win new printing contracts. For example, it recently started to print flyers for Shoppers Drug Mart in a deal worth $25 million a year. Transcontinental is a buy....

Royalty trusts with natural gas exposure are mostly down lately, as higher North American production and lower oil prices have prompted natural gas prices to move down from their highs of $13.50 per million British thermal units in July, to $8.18 U.S. today. These three royalty trusts are cheap in relation to cash flow, based on the latest quarter. If natural gas and oil prices remain low, it would lower cash flow among royalty trusts — but these royalty trusts still have good value, even at lower cash flow levels. Moreover, all three royalty trusts pay out a relatively small percentage of their cash flow to unitholders, so the risk of a distribution cut is low if oil and gas prices drop further. ZARGON ENERGY TRUST $21.75 (Toronto symbol ZAR.UN; SI Rating: Speculative) (403-264- 9992; www.zargon.ca; Shares outstanding: 18.2 million; Market cap: $395.6 million) has oil and gas production assets in Alberta, Manitoba, Saskatchewan and North Dakota. Output is weighted 54% toward gas and 46% to oil....

IMPERIAL OIL LTD. $49 (Toronto symbol IMO; Conservative Growth Portfolio, Resource stocks sector; Shares outstanding: 882.1 million; Market cap: $43.2 billion; SI Rating: Average) is a leader in resource stocks, producing roughly 6% of Canada’s oil and gas. The company also operates oil refineries, plus around 1,900 retail gas stations under the ‘Esso’ banner. ExxonMobil Corp. owns 69.6% of Imperial’s stock. Imperial currently gets over 60% of its production from Alberta’s oil sands. It owns 25% of the massive Syncrude project, whose reserves should last 28 years at current production rates. Imperial also owns 100% of the Cold Lake oil sands project. Cold Lake should last 13 more years. ...

THE BOEING CO. $65.56, New York symbol BA, has asked the U.S. Air Force for more time to prepare a new bid for a major contract to build refueling tanker planes. The company had previously lost this contract to a joint venture formed by Northrop Grumman Corp. and Europe’s Airbus. However, Boeing claimed the Air Force made mistakes in evaluating the original offers, and got it to re-open the bidding. Meanwhile, Boeing’s military operations continue to win new orders, including a $4.3 billion, multi-year contract to build 191 Chinook helicopters for the U.S. Army. To put that in perspective, Boeing’s annual revenue is roughly $67 billion. As well, demand for its new 787 Dreamliner commercial jet remains strong despite production delays....