oil prices

ENCANA CORP. $54 (Toronto symbol ECA; Conservative Growth Portfolio; Resources sector; SI Rating: Average) aims to expand production at its oil sands projects in Alberta 10-fold in the next decade. As part of this strategy, EnCana is now thinking about building its own upgrading facility in Western Canada that would refine the tar-like oil sands output into various petroleum products. That makes sense, since EnCana would earn higher profits processing oil than simply selling the unrefined product. EnCana would like to cut its risk by bringing in partners. However, falling oil prices and rising costs for labour and equipment could hurt the feasibility of this project, and make it difficult to attract new investors....

The U.S. economy has slowed since the start of this year. Gasoline prices hit new highs in early August. And the once-soaring U.S. housing sector has cooled. A number of factors this year have contributed to the slowdowns. Interest rate hikes increased borrowing costs for consumers, and dampened housing markets. As well, rising energy and gasoline costs have left consumers with less money to spend. All this raises fears of a recession, or two consecutive quarters of negative economic growth....

Uncertainty over interest rates, oil prices and the Mideast situation has hurt world equity markets in the past few months. However, we feel that this is a temporary setback, and not the start of a protracted bear market. These three investment firms earn much of their income based on the value of the securities they manage. Consequently, the recent downturn has hurt their short-term earnings growth and stock prices. Our view is that their earnings will probably rebound with the markets, particularly as we get closer to the two-year period before the next Presidential election. In the meantime, we see them as worthwhile holds....

When we last featured CAE on our front page in November, 2004, we said the stock could soar as airlines revived following 9/11. CAE went on to rise as much as 80%, even though it faced a couple of major negatives. First, the rise in oil prices strained the budgets of the world’s airlines, who buy the company’s flight simulators. Second, the rise in the Canadian dollar undermined the value of the company’s sales in foreign markets (and foreign customers provide 91% of CAE’s revenues). The stock could remain sluggish, along with the rest of the market, in the next few months. But over the next couple of years and beyond, after the impact of oil prices and the Canadian dollar has run its course, we expect further big gains from CAE....

IMPERIAL OIL LTD. $39 (Toronto symbol IMO; Conservative Growth Portfolio, Resources sector; SI Rating: Average) gets about 80% of its oil production from its oil sands projects, mostly its 100%-owned Cold Lake facility. Imperial also owns 25% of the Syncrude Canada Ltd. oil sands project, which recently had to cut production due to problems with some new equipment. The company is currently working on its new Kearl Lake oil sands project, which could begin production in 2010. While oil sands developments have great long-term potential, they often cost much more than originally planned. That adds to Imperial’s risk, particularly if oil prices move down....

ALCAN INC. $53 (Toronto symbol AL; Conservative Growth Portfolio, Resources sector; SI Rating: Average) is the world’s second-largest producer of aluminum, after U.S.-based Alcoa Inc. High oil prices will put more pressure on automobile manufacturers to offer more fuel-efficient vehicles. One of the easiest ways for carmakers to cut fuel consumption is to replace more steel parts with aluminum products. Aerospace companies are also using more aluminum to cut the weight of new planes....

When your choose investments from the Resources sector, it’s a mistake to zero in on any one commodity, such as oil. Far better to give yourself exposure to several different commodities. Diversification within the sector cuts your risk without hurting your profit potential. In addition, remember that you can profit from the ongoing Resources boom by investing in companies that sell to businesses in the sector. Here are five top buys for exposure to the boom in Resources....

Oil is currently trading at around $71 U.S. a barrel, not far from the record high of $75.35 it reached in April this year. Despite high inventory levels in the U.S., the world’s largest oil consumer, oil prices remain high. That’s largely due to fears of supply disruptions centered around Iran’s nuclear ambitions, violence in Nigeria, and political pressure on foreign companies in Venezuela. Natural gas prices, on the other hand, are now at around $6 U.S. per thousand cubic feet. That’s well down from the record high of $15.71 U.S. reached in December, 2005 in the wake of hurricane Katrina. An unusually mild winter led to lower withdrawals of gas from storage, leaving very high levels of inventory at the end of the heating season. It’s the highest level of inventories in the spring in Canada and the U.S. since 2003. High production levels brought on by continued record drilling activity have also pushed prices down. A number of natural gas weighted trusts have cut distributions — including Shiningbank Energy Income Fund. Royalty trusts weighted toward oil have kept their distributions high....

UNITED TECHNOLOGIES LTD. $62 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) operates in two main fields. Its aerospace businesses include Pratt & Whitney (aircraft engines), Sikorsky (helicopters) and Hamilton Sundstrand (aircraft electronics). These operations supply about 40% of the company’s revenue, and 45% of its profit. It also supplies building equipment and services, which include Carrier (heating and air conditioning), Otis (elevators) and UTC Fire & Security (which provides sprinkler systems, intruder alarms and security services under the Chubb and Kidde banners)....

After a market rise like the one we’ve had in the past few years, investors often wonder, “When should I sell?” The answer depends as much on the stocks you hold as on the market outlook. Some stocks are made to be traded. That includes many of the more speculative stocks we analyze in Stock Pickers Digest, our affiliated publication which focuses on riskier, more aggressive investments than we do here in Wall Street Stock Forecaster. United Technologies (see below) has more than doubled for us since we first recommended buying it in April 2000 (we called it a “dull industrial with exciting prospects”). That alone may spur some investors to sell. But United has many of the earmarks of a well-established company with great long-term potential — one that is worth hanging on to through a market setback....