oil prices

Recently a portfolio management client asked our advice on the outlook for the U.S./Canada exchange rate. He plans to sell his Florida condo, and he wants to maximize his Canadian-dollar proceeds from the sale. It’s an interesting question, and more complicated than it sounds. The Canada/U.S. exchange rate seems like the most important factor in the decision. But that rate will come under the sway of at least two more major, unpredictable factors, and possibly others, in the next year or two. The first of these factors is political. Canada faces a federal election this October. The U.S. faces a Presidential election a little over a year later. Government policies always play a big role in foreign-exchange values. In this case, sizeable changes may take place on both sides of the border....

CANADIAN TIRE CORP., $133.55, Toronto symbol CTC.A, recently sold 20% of its financial services division to Bank of Nova Scotia (Toronto symbol BNS) for $500 million. That’s the main reason why the company’s earnings fell 3.0% in the quarter ended April 4, 2015, to $68.5 million from $70.6 million a year earlier. Per-share profits were unchanged at $0.88 on fewer shares outstanding, but that beat the consensus estimate of $0.87. Overall sales fell 2.3%, to $2.5 billion from $2.6 billion, mainly because lower gasoline prices hurt revenue at Canadian Tire’s gas stations. But if you exclude fuel-station revenue, the company’s overall sales gained 2.2%....

Imperial Oil and Suncor (see box) continue to expand their oil sands projects in the face of low oil prices. Alberta’s new NDP government could also increase royalties or impose new environmental regulations. However, these projects should last decades. As well, both Suncor and Imperial also operate refineries, which are seeing higher profits thanks to the oil-price drop. IMPERIAL OIL LTD. $49 (Toronto symbol IMO; Conservative Growth and Income Portfolios; Resources sector; Shares outstanding: 848.0 million; Market cap: $41.6 billion; Price-to-sales ratio: 1.3; Dividend yield: 1.1%; TSINetwork Rating: Average; www.imperialoil.ca) produced an average of 333,000 barrels of oil equivalent a day (93% oil and 7% natural gas) in the first quarter of 2015, up 0.9% from a year earlier....

SUNCOR ENERGY INC. $36 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.5 billion; Market cap: $54.0 billion; Price-to-sales ratio: 1.4; Dividend yield: 3.1%; TSINetwork Rating: Average; www.suncor.com) has started work on its Fort Hills oil sands project in northern Alberta. Suncor owns 40.8% of Fort Hills; France’s Total SA holds 39.2%, while Teck Resources owns the remaining 20.0%. This $13.5-billion project (Suncor’s share is $5.5 billion) should start up in late 2017, and its reserves should last 50 years. The company produced 602,400 barrels a day in the first quarter of 2015, up 10.5% from 545,300 a year earlier. That’s mainly because shut downs for maintenance hurt last year’s output. However, lower oil prices cut Suncor’s earnings by 90.2%, to $175 million, or $0.12 a share, from $1.8 billion, or $1.22. Cash flow per share fell 48.0%, to $1.02 from $1.96....

“Theme investing” may have a certain appeal, but it can lead investors toward investment fads and away from sound investment strategies.

Bird Construction Inc., $10.81, symbol BDT on Toronto (Shares outstanding: 42.5 million; Market cap: $459.4 million; www.bird.ca), focuses on projects in a number of markets, including industrial, commercial, institutional, civil construction and mining. The company began operating 95 years ago in Medicine Hat, Alberta. Today, it has offices in Toronto, Winnipeg, Calgary, Edmonton, Vancouver and Seattle. Bird’s industrial projects (which supplied 57% of its 2014 revenue) include work in the petrochemical, oil sands, mining, refinery and water- and wastewater-treatment sectors....

DOREL INDUSTRIES INC., $34.25, symbol DII.B on Toronto, makes a range of items, including ready-to-assemble home and office furniture; juvenile products, such as car seats, strollers, high chairs, toddler beds and cribs; and sporting goods, mainly bicycles. In the three months ended March 31, 2015, Dorel’s sales rose 2.7%, to $665.5 million from $647.7 million a year earlier (all figures except share price in U.S. dollars). Sales rose 17.2% at the home furnishing division and 2.0% at the juvenile-products business. These gains offset a 4.8% decline at the sports segment. Earnings fell 53.2%, to $0.36 a share from $0.77, falling well short of the consensus forecast of $0.60. However, Dorel gets half of its sales from outside of the U.S., and the high U.S. dollar cut its earnings by $0.30 a share in the latest quarter. Costs related to its plan to shift manufacturing of juvenile products to Asia from North America and Europe also weighed on its earnings....

A holding company is a company that owns all or a substantial part of a variety of different businesses. These businesses may be private companies, or publically traded. Holding companies may own all, or a majority or a minority, of companies in which they invest. The one thing most holding companies have in common is that they trade for less than the combined value of their holdings. This “holding company discount” is a well-known phenomenon in finance. It represents a special kind of hidden asset and potential profit for investors in holding companies. When holding companies sell assets or break themselves up into their constituent parts, much if not all of the discount may disappear. In other words, holding companies can usually sell their assets for fair market value, rather than at a discount. In addition, fair market value may turn out to be be more than analysts figured they were worth. Even without a break-up, buying a holding company at a discount to its asset value puts more assets to work for you for each dollar you invest....

WESTJET AIRLINES $26.90 (Toronto symbol WJA; TSINetwork Rating: Extra Risk)(1- 877-493-7853; www.westjet.com; Shares outstanding: 127.8 million; Market cap: $3.5 billion; Dividend yield: 1.8%) continues to benefit as lower oil prices cut its fuel costs. Fuel typically accounts for a third of the airline’s operating expenses.

In the three months ended March 31, 2015, WestJet’s earnings per share gained 58.0%, to $1.09 from $0.69. Revenue rose 4.0%, to $1.08 billion from $1.04 billion.

The company’s load factor fell to 81.6% from 83.1% (load factor is the percentage of available seats occupied by paying passengers). However, revenue from other sources jumped 63.9% after WestJet began charging a $25 fee for each checked bag on its domestic and U.S.-bound routes in the fourth quarter of 2014. It also added new planes to its fleet, increasing its capacity by 4.7%.

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BCE INC., $53.88, Toronto symbol BCE, reported higher-than-expected quarterly results this week. In the three months ended March 31, 2015, the company’s overall earnings rose 12.6%, to $705 million from $626 million a year earlier. But per-share profits gained just 3.7%, to $0.84 from $0.81, on more shares outstanding. These figures exclude unusual items, such as costs to integrate BCE’s November 2014 purchase of the 56% of Bell Aliant it didn’t already own. On that basis, the latest earnings beat the consensus estimate of $0.79 a share....