A Quartet of New Recommendations

Husky Energy (TSK-HSE, $35.12). An integrated Canadian energy stocks major, 70 per cent controlled by Hutchinson Whampao of Hong Kong, that was included in my Canadian Stocks Dozen for 2014 in the $29-30 range.

Gaining fresh momentum under enterprising new management and assorted exciting major projects:

* the imminent start-up of its immense Liwan gas project in the South China sea in partnership with CNOOC

* the first phase of its Sunrise oilsands joint venture with BP to connect with BP’s refinery in Toledo, Ohio

* the go-ahead on its two Saskatchewan heavy oil projects as part of its plan to boost thermal oil production

* the promising Bay du Nord, Nfld. offshore oil venture in partnership with Statoil ASA (Norway’s biggest energy company)

* the million-barrel test sale (with the coming Energy East pipeline in mind) to a major Indian refiner from its Whiterose oilfield in Atlantic Canada

* consideration of a world-class east coast LNG project to export to Europe or even Asia.

Bringing these projects to successful completion must remain the biggest risk. Meanwhile, a cash flow in excess of $5.00 per share and a dividend at the $1.20 per share level provide underlying protection as the potential builds for what could be a quantum Canadian oil patch jump in both production and cash flow.

Baytex Energy Corp. (TSX-BTE, $45.15). Go figure, a Canadian oil and gas explorer-producer in Western Canada, and the Bakken Williston Basin in North Dakota mounting a friendly $1.8 billion acquisition of an Australian-based company with extensive acreage in the promising Eagle Ford light oil play in Texas! And undertaking to raise its monthly dividend to 24 cents a share (an annual $2.88) once the merger with Aurora Oil & Gas is completed. Baytex might just have hit on a real gem in Texas. Sufficiently intriguing for me to have participated in the latest Subscription Receipts offering and to want to sit tight with fingers crossed.

Bombardier Inc. (TSX-BBD.B, $4.12). An iconic international aerospace and transportation company, with headquarters in Montréal. It’s traded on the Toronto Stock Exchange (BBD) and listed on the Dow Jones Sustainability World and North America Indices.

Seldom is there a month without the procurement of another worldwide contract to build and supply trains, buses, subways.

Also a leader in business jets with its renowned Challenger series. But all these positives are outweighed by the repeated delays in testing the new commuter 110-to-160-seat C Series. The same holds true for its new Learjet 85. The single-minded focus in the impressive annual report for 2013 is on driving up the bottom line. It all depends on the C Series successfully taking to the sky – in which case the stock would take off too.

Sherritt International Corp. (TSX–S, $4.20). A previous recommendation that hasn’t worked well for reasons an activist group will be disputing the upcoming AGM. Management counters it has a clear strategy to pay down debt, cut costs, ramp up production and concentrate on core areas like the 40 per cent owned Ambatovy mine in Madagascar, the world’s largest finished nickel and cobalt operation, at last coming into full production.

The annual report for 2013 and the rebuttal of the activists make for encouraging reading. There’s also the comfort of cash flow at $0.50 per share and a more affordable dividend at $.04 a share. Shareholders’ equity in excess of $7.00, working capital at 2-to-1, and long-term debt below 40 per cent of assets provide further underpinning. There can be no doubt of the shake-up at a company capable of generating lots of catch-up value.

Michael Graham

 

The MoneyLetter, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

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