oil prices

IMPERIAL OIL $47.96 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $41.2 billion; TSINetwork Rating: Average; Dividend yield: 1.1%; www.imperialoil.ca) expects to spend $4.0 billion on capital projects in 2015, down 29.8% from $5.7 billion in 2014. Most of that will go toward expanding its 71%-owned Kearl oil sands project, as well as its Cold Lake oil sands property. These two projects will last decades, so the recent drop in oil prices will have little impact on their long-term prospects. Imperial Oil is a buy.

SASOL LTD. (ADR), $32.04, symbol SSL on New York, has developed a technology to convert coal and natural gas into motor fuels. The company is the world’s largest producer of fuel from coal at its Secunda, South Africa, facility. It also makes synthetic fuels from natural gas at plants in Qatar and Nigeria. As well, Sasol produces chemicals, oil and gas in Africa. It’s also South Africa’s third-largest coal producer. In its fiscal 2015 first half, which ended December 31, 2014, Sasol’s revenue rose 1.6%, to 99.8 billion South African rand (1 rand = $0.1099 U.S.) from 98.2 billion rand a year earlier. Earnings per ADR gained 6.0%, to 32.00 rand from 30.19 rand. The U.S. dollar rose against the rand, increasing the value of Sasol’s sales outside South Africa. That offset a 19% decline in realized oil prices....

UNITED TECHNOLOGIES CORP., $118.74, New York symbol UTX, announced this week that it’s considering selling or spinning off its Sikorsky helicopter division. The company expects to make a final decision by the end of 2015. Sikorsky supplied 11% of United Technologies’ 2014 revenue but just 2% of its profits. That’s mainly due to a one-time charge after it renegotiated a contract to build helicopters for the Canadian government. The helicopter business has little in common with United Technologies’ larger divisions (Otis elevators, Carrier heating and air conditioning, Pratt & Whitney jet engines, and aircraft controls), so spinning it off makes sense....

LOBLAW COMPANIES LTD., $61.78, Toronto symbol L, operates around 1,140 supermarkets across Canada, mainly under the Loblaw, Provigo, Real Canadian Superstore and No Frills banners. In March 2014, it purchased Shoppers Drug Mart, which operates 1,300 drugstores. This week, the company announced that it would build 50 new stores and renovate 100 others in 2015. In addition, it continues to expand its e-commerce operations. In all, Loblaw expects to spend $1.2 billion on these projects. That’s equal to the $1.2 billion, or $3.22 a share, it earned in 2014, excluding costs to integrate Shoppers....

Canada’s big five banks have fallen out of favour in the past few weeks, for two main reasons. First, the Bank of Canada unexpectedly cut its benchmark interest rate. While lower rates should spur loan demand, banks will earn less interest income on these new loans. Moreover, the banks may have to increase the rate they pay to attract depositors, which would squeeze their profit margins. In addition, investors fear that lower oil prices could force oil producers to default on their loans. Layoffs in the sector could also lead to higher credit losses in Alberta....

PRECISION DRILLING CORP. $7.69 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 292.8 million; Market cap: $2.3 billion; Price-to-sales ratio: 0.9; Dividend yield: 3.6%; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) plans to spend $467.0 million on capital upgrades in 2015, down 38.1% from $754.9 million in 2014. That’s because lower oil prices have prompted producers to curtail drilling, hurting demand for new rigs. Even with the lower capital spending, Precision expects to deliver 17 new rigs in 2015 (13 for the U.S., three for Canada and one for Kuwait), up from 15 in 2014. The company has already signed agreements with drillers to operate these rigs, which cuts the risk of these projects. Due to the drop in oil prices and drilling activity, Precision will probably earn just $0.11 a share in 2015. The stock trades at 69.9 times that depressed estimate. However, Precision’s earnings could recover to $0.25 a share in 2016, and it trades at a more reasonable 30.8 times that forecast....

BCE INC. $53 (Toronto symbol BCE; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 840.5 million; Market cap: $44.5 billion; Price-to-sales ratio: 2.1; Dividend yield: 4.9%; TSINetwork Rating: Above Average; www.bce.ca) has signed a new deal with Sun Life Financial (Toronto symbol SLF) that will cut some of the risk in its Bell Canada employees’ pension plan. Retired employees currently receive a monthly payment for the rest of their lives. However, many of these pensioners are living longer than expected, which is increasing BCE’s pension obligations. Under this new deal, BCE will pay monthly premiums to Sun Life, which will then make monthly payments into the plan for the lifetime of existing pensioners....

Here’s the text of the quarterly letter I recently sent to our Portfolio Management clients: “A client of mine, Dr. J., recently said, “Pat, you advise investors to spread their money out across most if not all of the five main economic sectors. Why not just leave out the resource sector?” I think that’s a bad idea. It disregards the one key contribution that resource stocks make to a sound portfolio, as you’ll see below. But I’m sure many investors agree with Dr. J. After all, the weak performance of the resource sector goes back much further than the recent plunge in the price of oil (from $110 U.S. a barrel last July to a recent low near $45 U.S.)....

FEDEX CORP. $165 (New York symbol FDX; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 283.8 million; Market cap: $46.8 billion; Price-to-sales ratio: 1.0; Dividend yield: 0.5%; TSINetwork Rating: Average; www.fedex.com) began offering air-delivery services in 1973, under the Federal Express banner. It’s now one the world’s largest shipping firms.

The company has four divisions:

FedEx Express (59% of 2014 revenue, 34% of earnings) offers air-delivery services to over 220 countries. This business has 650 aircraft and 55,000 ground vehicles.

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ARC RESOURCES $24.16 (Toronto symbol ARX; Shares outstanding: 335.0 million; Market cap: $8.2 billion; TSINetwork Rating: Speculative; Dividend yield: 5.1%; www.arcresources.com) produces oil and natural gas in Western Canada. Its average daily output of 117,986 barrels of oil equivalent is 61% gas and 39% oil. In the quarter ended December 31, 2014, ARC’s cash flow per share rose 3.9%, to $0.79 from $0.76 a year earlier. Realized oil prices fell 12.5%, to $72.49 a barrel from $82.85, but ARC’s production gained 17.0%, and its realized gas prices rose 15.0%. Like many oil and gas producers, ARC plans to cut back on exploration and development spending. This year, the company will devote $750.0 million to this purpose, down from $945.5 million in 2014....