oil prices

Every Thursday we bring you “Best U.S. Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You will read about stocks making moves you should know about, from coverage in our newsletter on U.S. investing, Wall Street Stock Forecaster.

Tennant has risen steadily over the past few years. But even though it fell back slightly during the recent market slump, the outlook remains very positive for its environmentally friendly products.

TENNANT CO. (New York symbol TNC; www.tennantco.com) makes industrial floor-cleaning equipment, including scrubbers, sweepers and polishers. It also manufactures cleaning gear for garages, stadiums, parking lots and city streets.

In 2008, the company started selling equipment featuring its ec-H20 technology, which uses electricity to turn tap water into a chemical-free cleaning solution. This helps cut the machine’s operating costs.

Strong demand for this equipment increased the company’s sales by 9.4% in the three months ended June 30, 2014, to a record $219.1 million from $200.2 million a year earlier. Sales of ec-H2O gear rose 7.6% and account for about 20% of Tennant’s overall revenue.

...

DEVON ENERGY CORP. $55.14 (New York symbol DVN; TSINetwork Rating: Speculative) (405-235- 3611; www.dvn.com; Shares outstanding: 409.1 million; Market cap: $22.6 billion; Dividend yield: 1.7%) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 48% gas and 52% oil. In 2011, Devon sold all of its international and Gulf of Mexico properties, which it saw as risky and expensive to develop. The company narrowed its focus even further with the July 2014 sale of some of its properties to Linn Energy for $2.3 billion. The sale included Devon’s holdings in the Rockies, the onshore Gulf Coast and the Mid-Continent region (which includes Oklahoma, Kansas and Texas)....

SYMANTEC CORP., $21.94, symbol SYMC on Nasdaq, plans to break itself into two publicly traded companies. One will keep the Symantec name and focus on antivirus and security software and services. This business had $4.2 billion of revenue in Symantec’s 2014 fiscal year, which ended March 28, 2014. The other company will consist of Symantec’s information management (IM) operations, which include data backup and recovery software. It had $2.5 billion of revenue in fiscal 2014....

PEYTO EXPLORATION & DEVELOPMENT CORP. $34.95 (Toronto symbol PEY; Shares outstanding: 153.7 million; Market cap: $5.4 billion; TSINetwork Rating: Extra Risk; Dividend yield: 3.4%; www.peyto.com) produces and explores for oil and natural gas in Alberta. Its average daily production of 72,302 barrels of oil equivalent is 90% gas and 10% oil. In the quarter ended June 30, 2014, Peyto’s cash flow rose 41.9%, to $1.05 a share from $0.74 a year earlier. That’s because the company raised its production by 26.1%. Gas prices also gained 17.5%, to an average of $4.37 per thousand cubic feet from $3.72, while oil prices rose 14.0%, to $77.30 a barrel from $67.82. Peyto plans to spend $625 million on exploration and development in all of 2014, which will let it drill 110 to 125 wells. To put that in context, the company spent $578 million to drill 99 wells in 2013. This year’s spending should let it finish 2014 with production of over 81,500 barrels a day. The stock trades at 7.4 times Peyto’s forecast 2014 cash flow of $4.73 a share. The company’s long-term debt of $825 million is a low 15.3% of its $5.4-billion market cap....

DEVON ENERGY CORP. $55.14 (New York symbol DVN; TSINetwork Rating: Speculative) (405-235- 3611; www.dvn.com; Shares outstanding: 409.1 million; Market cap: $22.6 billion; Dividend yield: 1.7%) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 48% gas and 52% oil.

In 2011, Devon sold all of its international and Gulf of Mexico properties, which it saw as risky and expensive to develop.

The company narrowed its focus even further with the July 2014 sale of some of its properties to Linn Energy for $2.3 billion. The sale included Devon’s holdings in the Rockies, the onshore Gulf Coast and the Mid-Continent region (which includes Oklahoma, Kansas and Texas).

...

SASOL LTD. (ADR), $56.09, 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 2014 fiscal year, which ended June 30, 2014, Sasol’s revenue rose 19.3%, to 202.7 billion South African rand (1 rand = $0.1039 U.S.) from 169.9 billion rand in fiscal 2013. Earnings per ADR rose 14.3%, to a record 60.16 rand from 52.62 rand. Oil prices were relatively flat, and chemical prices were higher. The U.S. dollar also rose against the rand, increasing the value of Sasol’s sales outside South Africa....

One of the ways a company can try to unlock its own hidden value is by creating a separate company out of a subsidiary. The parent company can either sell stock in the new company to the public, or spin it off—hand the stock out to its own investors. In the past few years, it has become common to do both. The parent company starts by selling a portion of the new company to the public, to establish a market and a following among investors. That way, by the time of the spin-off, stock in the new company may be liquid enough to be sold relatively easily, or retained with some confidence as a worthwhile investment. In our experience, and in most academic studies of the subject, this helps the parent and the spin-off. Both generally do better than comparable companies for at least several years after the spin-off takes place....

Oil prices have held steady at around $100 a barrel, even as the U.S. shale boom has increased that country’s production by 70% in the past five years. That’s mainly due to fears that unrest in the Middle East and Ukraine could threaten world oil supplies. We feel the best way to invest in the cyclical oil and gas industry is through well-established producers like these four. Their high-quality operations give them plenty of cash flow to replenish their reserves and pay for share buybacks and dividends. However, not all are buys right now. CHEVRON CORP. $129 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.9 billion; Market cap: $245.1 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.chevron.com) is the second-largest integrated oil company in the U.S. by revenue, after ExxonMobil (New York symbol XOM)....

From time to time a novel investment idea comes along. It may or may not have any lasting value. But it may still attract a following and gradually rise to its height of popularity. Often, it seems to hit that popularity peak just when it can do the most harm to its believers. One recent example: peak oil theory. This theory, which got its start in the 1950s, is based on observations of the cycle of production and depletion of existing oilfields. It says that global oil production will inevitably hit a peak (if it hasn’t already), then head relentlessly downward. Peak oil theory became widely known and commonplace in the first decade of this millennium, along with rising acceptance of predictions that the world was running out of oil. Best-selling authors trumpeted the idea that we were headed for oil prices of $250 a barrel or higher. This was supposed to have all sorts of terrible repercussions, from the collapse of the intercontinental air travel industry, to the end of New Zealand’s exports of frozen lamb....

IMPERIAL OIL $54.20 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $45.9 billion; TSINetwork Rating: Average; Div. yield: 1.0%; www.imperialoil.ca) recently opened the first phase of its massive Kearl oil sands project in Alberta, and the second phase should start up next year. This project will help the company double its production, to 600,000 barrels a day, by 2020.

Oil sands projects are harder to operate than conventional properties, and they need high oil prices to earn a profit. However, Imperial’s refineries help shield it from a drop in oil prices because they pay less for the crude they need.

The stock trades at a moderate 12.2 times Imperial’s likely 2014 earnings of $4.45 a share.

...