oil prices

The markets rattled many investors this week with steep one-day drops. At times like this, it’s good to remember that even when a further decline lies ahead, high volatility generally signals that it’s “a good time to buy”, rather than “a good time to sell”. It’s also encouraging to see that despite the steep one-day drops, most major market indexes are still at or above the lows they hit in January. UNITED TECHNOLOGIES INC. $67.49, New York symbol UTX, has launched a hostile offer to buy DIEBOLD INC. $37.51, New York symbol DBD. United Technologies is offering $40.00 a share in cash, or roughly $3 billion in total. United had cash flow of $5.1 billion ($5.16 a share) in 2007, so it can comfortably afford this purchase. Diebold’s building security operations would be good fit with United Technologies elevator, ventilation and fire alarm businesses. Diebold also gets 60% of its revenue from automated teller machines (ATMs). While big writedowns of mortgages at banks have hurt demand for new ATMs, United Technologies feels its large international operations will help it expand ATM sales in fast-growing countries such as China and Russia....

ARC ENERGY TRUST $24.39 (Toronto symbol AET.UN; SI Rating: Speculative) produces oil and gas in western Canada. In the three months ended December 31, 2007, ARC’s revenue rose 15.6%, to $338 million from $292.5 million. Cash flow per unit rose 6.5%, to $0.82 from $0.77. The rise in cash flow came largely from higher oil prices. ARC’s average daily production of 63,989 barrels of oil per day equivalent is weighted 51% toward oil and 49% natural gas....

TERANET INCOME FUND $10 (Toronto symbol TF.UN; Aggressive Growth Portfolio: Manufacturing & Industry sector; Units outstanding: 155.0 million; Market cap: $1.6 billion; SI Rating: Speculative) has won a contract from the City of Toronto to collect a new tax on land transfers. Teranet will also process rebates for eligible home buyers. Teranet did not reveal the value of this deal, but it’s a good fit with its electronic land registry and information services. It could also lead to similar deals with other municipalities. Teranet is a buy....

BAFFINLAND IRON MINES, $3.65, symbol BIM on Toronto, reached as high as $4.40 this week after it reported a near tripling of mineral reserves at its 100%-owned Mary River iron deposits on Baffin Island in Nunavut. Results from the latest exploration program now indicate total proven and probable reserves of 365 million tons, up from 120 million tons. The high grades of this deposit should let the mine achieve production grades of 66% to 67% iron for at least the first five years of its estimated 25-year life. Baffinland is still a buy for aggressive investors. CELTIC MINERALS $0.50, symbol CME on Toronto, has begun a 2,000-meter diamond drilling program at its 100%-owned Muscocho nickel-copper-cobalt-platinum property in eastern Quebec. In the 1950s, a Noranda drilling program revealed promising nickel-copper showings on this property. Results from preliminary fieldwork completed by Celtic in December, 2007 confirmed high grades of copper-nickel-cobalt mineralization....

CHEVRON CORP. $81 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $170.1 billion; WSSF Rating: Above average) is the secondlargest oil company in the United States after ExxonMobil Corp. Internationally, it has operations in over 175 countries. Chevron hasn’t fully benefited from the recent rise in oil prices. Its refineries have had to pay more for crude oil, which has hurt profits at this division. Shutdowns for maintenance at some of its operations, as well as the partial nationalization of its assets in Venezuela, have also cut total output. As well, many countries have increased drilling and other taxes on foreign oil companies. In the three months ended September 30, 2007, earnings fell 23.6%, to $1.75 a share (total $3.7 billion) from $2.29 a share ($5.0 billion) a year earlier. However, revenue rose 1.8%, to $55.2 billion from $54.2 billion....

Oil prices recently climbed to over $100 a barrel, but have moved down along with market indexes due to fears of a recession. We feel it’s a good idea to focus on well-established oil and gas stocks that can withstand the inevitable price setbacks, and prosper anew when prices rebound. Here is our analysis of three of our long-term favorites. However, only two are buys at current prices. We also analyze two of our favorite non-oil resource stocks on Page 15. CHEVRON CORP. $81 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $170.1 billion; WSSF Rating: Above average) is the second-largest oil company in the United States after ExxonMobil Corp. Internationally, it has operations in over 175 countries....

PETRO-CANADA $55 (Toronto symbol PCA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 485.2 million; Market cap: $26.7 billion; SI Rating: Average) plans to increase capital spending in 2008 to $5.3 billion, up 28% from 2007. About two-thirds of this will go to growth projects, such as its Fort Hills oil sands project and the expansion of its Libyan operations. The remaining third will go to replacing reserves in core areas and enhancing existing assets. These investments should expand Petro-Canada’s daily oil production, from 390,000 barrels in 2007 to 420,000 barrels in 2008, and help it take advantage of rising oil prices. The company’s recent repurchase of hedging contracts covering production at the 29.9%-owned Buzzard oil platform in the North Sea should also spur earnings....

BCE INC. $36.29, Toronto symbol BCE, is trading nearly 15% below the $42.75-a-share takeover offer it accepted in July 2007. This is partly because several institutional holders of BCE bonds have launched a class-action lawsuit to oppose it. BCE’s plan to take on more debt has hurt the value of their holdings. If the suit succeeds and forces BCE to compensate the bondholders for their losses, the Ontario Teachers’ Pension and its partners may decide to abandon the takeover. Liquidity problems in the debt markets could also scuttle the takeover, since that could hurt the ability of the takeover consortium to issue new bonds. This group has also lined up loans from several banks, but recent writedowns of U.S. subprime mortgages have raised fears that these banks may withdraw or cut their involvement. However, lower interest rates will cut the buyers’ costs. The drop in BCE suggests that the takeover is unlikely to go through. But at the current reduced price, BCE is once again an attractive buy for income and growth....

INTEL CORP. $22.67, Nasdaq symbol INTC, fell 15% this week on fears that rising loan writedowns at major banks would hurt sales of new computers. Banks are large buyers of computer technology. A slowing economy could also hurt new computer demand at other big corporations. However, Intel’s recent restructuring will help it stay profitable even if sales weaken. The launch of new, faster chips in the second half of 2008 should also expand its lead over rival chipmaker Advanced Micro Devices, particularly in the corporate server segment. Intel is a buy. NEWMONT MINING CORP. $52.42, New York symbol NEM, gained $4 this week as gold surged to a new record of $869.05 an ounce, surpassing the old peak of $850 reached in 1980....

FEDEX CORP. $95 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 309.3 million; Market cap: $29.4 billion; WSSF Rating: Average) provides door-to-door delivery of packages and documents in the United States and 220 other countries. It operates a fleet of over 75,000 ground vehicles, and 669 aircraft. The spread of free trade and rising industrialization has spurred strong demand for FedEx’s delivery services in overseas markets. In the past few months, FedEx has spent $700 million on acquisitions in China, India and the UK. International businesses now supply 25% of its revenue. The company has high hopes for China. It currently serves over 200 Chinese cities, and aims to add 100 more over the next few years. FedEx is now building a new $150 million hub in southern China, which will help it expand throughout Asia....