oil prices
SHAWCOR LTD. $38 (Toronto symbol SCL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.5 million; Market cap: $2.5 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.6%; TSINetwork Rating: Average; www.shawcor.com) makes sealants and coatings that keep oil and gas pipelines from rusting. It also manufactures industrial products, such as electrical wire and protective sheaths.
Low oil prices are prompting oil and gas producers to delay new drilling projects in the Gulf of Mexico. As a result, ShawCor will write down the value of its pipe-coating facility in Texas. Meanwhile, the devaluation of Venezuela’s currency has prompted the company to write down its 50% joint venture in that country.
These charges will cut ShawCor’s earnings by $80 million in the fourth quarter of 2014. To put that in context, it earned $115.5 million, or $1.90 a share, in the first nine months of the year.
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Low oil prices are prompting oil and gas producers to delay new drilling projects in the Gulf of Mexico. As a result, ShawCor will write down the value of its pipe-coating facility in Texas. Meanwhile, the devaluation of Venezuela’s currency has prompted the company to write down its 50% joint venture in that country.
These charges will cut ShawCor’s earnings by $80 million in the fourth quarter of 2014. To put that in context, it earned $115.5 million, or $1.90 a share, in the first nine months of the year.
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ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $48 and ACO.Y [class II voting] $48; Income Portfolio, Utilities sector; Shares outstanding: 115.1 million; Market cap: $5.5 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.1%; TSINetwork Rating: Above Average; www.atco.com) holds 53.2% of Canadian Utilities (see left). It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction and energy exploration firms; Canadian Utilities owns the remaining 24.5%.
The drop in oil prices is hurting growth at the structures business. As a result, ATCO likely earned $3.02 a share in 2014, down 10.9% from 2013. But higher earnings from Canadian Utilities should raise its 2015 earnings to $3.39 a share, and the stock trades at 14.2 times that estimate. The $0.99 dividend yields 1.8%.
Based on current prices, you can buy an ATCO share for $48 and get roughly $51 worth of Canadian Utilities. That means you get ATCO’s structures business, which provides around 25% of its earnings, for free.
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The drop in oil prices is hurting growth at the structures business. As a result, ATCO likely earned $3.02 a share in 2014, down 10.9% from 2013. But higher earnings from Canadian Utilities should raise its 2015 earnings to $3.39 a share, and the stock trades at 14.2 times that estimate. The $0.99 dividend yields 1.8%.
Based on current prices, you can buy an ATCO share for $48 and get roughly $51 worth of Canadian Utilities. That means you get ATCO’s structures business, which provides around 25% of its earnings, for free.
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CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $42 and CU.X [class B voting] $42; Income Portfolio, Utilities sector; Shares outstanding: 263.3 million; Market cap: $11.1 billion; Price-to-sales ratio: 3.1; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.canadianutilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. owns 53.2% of the company.
Alberta power regulators recently selected Canadian Utilities to build and operate a new 500- kilometre transmission line between Edmonton and Fort Mc- Murray, an area where power demand could double in the next 10 years.
The company will own 80% of a joint venture that will build this project. Quanta Services (New York symbol PWR) will own the remaining 20%. Canadian Utilities’ share of the $1.43-billion cost is $1.14 billion. Construction will begin in 2017, and the new line should start up in 2019.
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Alberta power regulators recently selected Canadian Utilities to build and operate a new 500- kilometre transmission line between Edmonton and Fort Mc- Murray, an area where power demand could double in the next 10 years.
The company will own 80% of a joint venture that will build this project. Quanta Services (New York symbol PWR) will own the remaining 20%. Canadian Utilities’ share of the $1.43-billion cost is $1.14 billion. Construction will begin in 2017, and the new line should start up in 2019.
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TRANSCANADA CORP. $53 (Toronto symbol TRP; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 708.6 million; Market cap: $37.6 billion; Price-to-sales ratio: 3.8; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.transcanada.com) could get a boost if it receives approval for two major pipelines that would pump crude oil from Alberta’s oil sands to the U.S. Gulf Coast (Keystone XL) and to refineries in Eastern Canada (Energy East).
Even if it has to abandon these projects, TransCanada’s crude volumes should remain steady, despite lower oil prices.
As well, the company could unlock some of its value by transferring assets to partly controlled affiliates. These transactions, called “drop downs,” help the parent company free up cash for new projects. Activist investors could also pressure TransCanada to spin off its electrical-power operations as a separate firm.
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Even if it has to abandon these projects, TransCanada’s crude volumes should remain steady, despite lower oil prices.
As well, the company could unlock some of its value by transferring assets to partly controlled affiliates. These transactions, called “drop downs,” help the parent company free up cash for new projects. Activist investors could also pressure TransCanada to spin off its electrical-power operations as a separate firm.
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TORONTO-DOMINION BANK $51 (Toronto symbol TD; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 1.9 billion; Market cap: $96.9 billion; Priceto- sales ratio: 3.4; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.td.com) also stands to gain from an improving North American economy, particularly in the U.S., where it now has more branches than in Canada.
At the same time, the low Canadian dollar will enhance the bank’s U.S. profits. TD’s strong emphasis on customer service will also help it hang on to depositors if interest rates rise. As well, lower oil prices should give consumers more cash to repay their loans, cutting TD’s loan losses.
TD Bank is a buy.
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At the same time, the low Canadian dollar will enhance the bank’s U.S. profits. TD’s strong emphasis on customer service will also help it hang on to depositors if interest rates rise. As well, lower oil prices should give consumers more cash to repay their loans, cutting TD’s loan losses.
TD Bank is a buy.
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TECK RESOURCES LTD. $14 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 566.8 million; Market cap: $7.9 billion; Price-to-sales ratio: 1.0; Dividend yield: 6.4%; TSINetwork Rating: Average; www.teck.com) is down 62.2% since we made it our #1 pick for 2013.
That’s mainly because slowing industrial activity, mainly in Asia, has hurt demand for Teck’s metallurgical coal, a key ingredient in steelmaking. Lower oil prices have also dampened the outlook for its 20.0%-owned Fort Hills oil sands project in Alberta, which is scheduled to start up in late 2017.
The company has a long history of controlling its costs, which should help it stay profitable until coal and oil prices improve. It has also pledged to maintain its annual $0.90-a-share dividend, which yields 6.4%.
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That’s mainly because slowing industrial activity, mainly in Asia, has hurt demand for Teck’s metallurgical coal, a key ingredient in steelmaking. Lower oil prices have also dampened the outlook for its 20.0%-owned Fort Hills oil sands project in Alberta, which is scheduled to start up in late 2017.
The company has a long history of controlling its costs, which should help it stay profitable until coal and oil prices improve. It has also pledged to maintain its annual $0.90-a-share dividend, which yields 6.4%.
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CAE INC., $14.64, Toronto symbol CAE, is our Stock of the Year for 2015. The stock has gained 3.8% since we made CAE our Stock of the Year for 2014. We feel it’s just getting started and has many years of growth ahead. That’s because the company is in a strong position to profit from several trends that are just beginning to take shape. For one, airlines will have to hire more pilots in the next few years as existing ones retire. As well, global air travel volumes should rise 5% annually for the next 20 years. Both of these developments should boost demand for new pilots and increase enrolment at CAE’s flight schools....
CAE is poised to gain from several trends that are just beginning to take shape. For one, airlines will have to hire more pilots in the next few years as existing ones retire. As well, global air travel volumes should rise 5% a year for the next 20 years. Both of these developments should boost demand for new pilots and increase enrolment at CAE’s flight schools. Meanwhile, airlines continue to replace aging planes: Boeing, Airbus and other manufacturers have orders for a record 13,600 aircraft, which will fuel demand for CAE’s pilot-training flight simulators. CAE also gains from the plunge in oil prices, because it gives airlines a lot more cash to spend on its products and services....
TECK RESOURCES LTD. $14 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 566.8 million; Market cap: $7.9 billion; Price-to-sales ratio: 1.0; Dividend yield: 6.4%; TSINetwork Rating: Average; www.teck.com) is down 62.2% since we made it our #1 pick for 2013. That’s mainly because slowing industrial activity, mainly in Asia, has hurt demand for Teck’s metallurgical coal, a key ingredient in steelmaking. Lower oil prices have also dampened the outlook for its 20.0%-owned Fort Hills oil sands project in Alberta, which is scheduled to start up in late 2017. The company has a long history of controlling its costs, which should help it stay profitable until coal and oil prices improve. It has also pledged to maintain its annual $0.90-a-share dividend, which yields 6.4%....
We looked at a wide range of stocks before settling on CAE as our #1 pick for 2015. Here are the top three runners-up. All are highly attractive buys, but we feel CAE offers a better mix of long-term potential and low risk. CANADIAN NATIONAL RAILWAY CO. $78 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 809.3 million; Market cap: $63.1 billion; Price-to-sales ratio: 5.5; Dividend yield: 1.3%; TSINetwork Rating: Above Average; www.cn.ca) has several key advantages that put it in a strong position to profit from an improving North American economy. For example, it’s the only railway that accesses all three coasts: Atlantic, Pacific and the Gulf of Mexico. As well, CN owns an exclusive line that lets it avoid major bottlenecks in the Chicago area....