It's unnerving when stocks fall for no apparent reason. But in the case of Canada's energy exploration and production (E&P) companies, while fundamentals can vary from firm to firm, all are ultimately dependent on the prices the market dictates for the commodities they produce.
Accordingly, the recent performance of their stocks has largely mirrored the declines in oil and natural gas. Most of the E&Ps we hold in the Canadian Edge Aggressive Portfolio hit their 52-week highs in late June and have fallen an average of 14.7 percent since then.
Assuming an eventual rebound in energy prices, that gives investors who don't already own these securities the opportunity to establish new positions while they still trade at compelling valuations.
Almost as important, these stocks aren't just growth plays: The six buy-rated E&Ps that we hold currently yield an average of nearly 5 percent.
Most of these Portfolio names hit their 52-week highs on June 16. So let's use that date as the starting point to measure the performance of various energy commodities since then.
Over the ensuing period, Brent Crude, the global benchmark for oil prices, has fallen 13.6 percent, the North American benchmark West Texas Intermediate (WTI) crude dropped nearly 13 percent, and natural gas is down 16.9 percent (all based on pricing for the generic front-month contract according to Bloomberg).
Interestingly, Western Canada Select (WCS), which is the benchmark price for the heavier grade of crude produced from Canada's oil sands, has only fallen by 8.5 percent over that same period.
WCS typically trades at a discount to WTI, but lately that differential has been narrowing, from a high of USD42.00 last November to a low of USD12.95 earlier this week.
According to analysts with National Bank Financial (NBF), prices for WCS held up better than other benchmarks due to improved access to ! key markets where there had formerly been bottlenecks, investment in several oil sands maintenance projects, and further weakness in the Canadian dollar.
NBF believes prices for WCS will likely average CAD87 per barrel in 2014, up 13 percent year over year.
Baytex Energy Corp (TSX: BTE, NYSE: BTE) is among the heavy crude-oriented E&Ps to which the firm recommends increased exposure.
Although Baytex has risen 9.8 percent over the trailing 12-month period, the stock is down about 14 percent from its mid-June high. Nevertheless, analyst sentiment remains firmly bullish, at 18 "buys," three "holds," and one "sell."
The consensus 12-month target price is CAD53.13, which suggests potential appreciation of 22.6 percent above the current share price.
Analysts forecast full-year 2014 revenue will jump 36 percent, to CAD1.9 billion, while adjusted earnings per share are projected to surge 110 percent.
The CAD7.2 billion company's CAD2.5 billion acquisition of Aurora Oil & Gas Ltd in June gives the company a premier position in Texas' Eagle Ford Formation, one of the most prolific US shale plays.
Baytex pays a monthly dividend of CAD0.24, or CAD2.88 annualized, for a forward yield of 6.6 percent. The company has grown its payout 6.7 percent annually over the past five years.
Meanwhile, analysts with Bank of Montreal (BMO) believe downward pressure on E&P share prices offers a buying opportunity for high-quality companies such as Vermilion Energy Inc (TSX: VET, NYSE: VET).
Although Vermilion's shares have risen 21.6 percent over the trailing 12-month period, the stock has fallen 14.6 percent since its 52-week high in June. But like Baytex, Vermilion continues to enjoy largely bullish sentiment from analysts, with 13 "buys," eight "holds," and one "sell."
The consensus 12-month target price is CAD79.13, which suggests potential appreciation of 18.5 percent above the current share price.
Analysts forecast full! -year 201! 4 revenue will jump 24 percent year over year, to CAD1.5 billion, while cash flow per share is projected to rise 15 percent, to CAD8.04.
Thanks to strong production that exceeded analyst estimates during the second quarter, Vermilion boosted its full-year production guidance by an average of 500 barrels per day, to a range of 48,500 barrels of oil equivalent per day (BOE/D) to 49,500 BOE/D from the previous range of 48,000 BOE/D to 49,000 BOE/D. That's the third consecutive increase since the company began offering such guidance last November.
Bloomberg reports that Vermilion is set to be flush with cash from its 19 percent stake in a gas project offshore Ireland, the cash flows from which it will then redeploy to acquire assets, with a particular focus on those situated in Alberta and Saskatchewan, as well as possibly raise its dividend, reduce leverage, and invest in existing projects.
According to the news service, CEO Anthony Marino says the firm's stake in Royal Dutch Shell Plc's Corrib gas project will boost annualized free cash flow by CAD3 per share when it commences production in mid-2015.
Though domiciled in Canada, Vermilion is France's top oil producer, and the firm generates the vast majority of its revenue from overseas operations, which accounted for nearly 72 percent of 2013 sales.
So in terms of pricing for the commodities it produces, the performance of Brent North Sea Crude is a more relevant benchmark for its operations than WCS, or even WTI. Although Brent crude has declined in recent months, analysts forecast the price of the energy commodity will range between USD104 per barrel to USD107 per barrel through 2015, up from the recent spot price of USD97.70 per barrel.
Analysts with GMP Securities believe Vermilion is one of the best run E&Ps in Canada, while analysts with AltaCorp Capital believe the company's future "looks as promising as ever" for investors seeking both growth and income.
Vermilion pays a CAD0.215 monthly ! dividend,! or CAD2.58 annually, for a forward yield of 3.9 percent. The company has grown its payout by 3.4 percent annually over the past three years.
Claude Paris/AP Until April 15 approaches every year, it's hard for many Americans to pay much attention to tax issues. But the recent surge in the number of U.S. companies using a popular tax-cutting strategy known as a tax inversion has led to extensive controversy, with proponents of the strategy arguing that it's entirely legal while opponents worry about the loss of U.S. corporate tax revenue. Moreover, political fallout from having well-known companies like Burger King Worldwide (BKW), AbbVie (ABBV) and Medtronic (MDT) flee for foreign countries almost guaranteed that the U.S. government would take action. Earlier this week, the Treasury Department finally fought back, with new rules designed to limit some of the most common ways that companies structure tax inversions, but they fail to address the deeper issue that led to the use of tax inversions and similar tax-saving devices in the first place. What Tax Inversions Are and Why They're a Big Deal The reason that tax inversions have generated so much controversy is that they effectively take away U.S. tax revenue without having much meaningful impact on the way a company does business. A tax inversion involves a U.S. company buying out a foreign company, with the resulting combined business taking the tax home of the foreign company. Because most foreign tax systems have lower tax rates on businesses than the U.S. corporate tax rate of 35 percent, major corporations can save billions of dollars over the long run by moving abroad. Until now, moreover, it was relatively easy for companies to do tax inversions. Despite rules designed to limit their use, tax inversions involved huge U.S. companies merging with much smaller foreign companies. For instance, AbbVie is almost twice as big as its target, Shire, even after Shire shares soared following the buyout announcement. Medtronic has a similar size advantage compared to target Covidien (COV). What the Treasury Did In its notice to the public, the Treasury took a hard stance on trying to eliminate tax inversions. Treasury Secretary Jacob Lew characterized the new rules as "meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether." The rules themselves are complicated, but they seek to make tax inversions harder to structure. One rule change essentially doubles the required size of the foreign target company, with potential adverse consequences if shareholders of the U.S. company own as little as 60 percent of the combined company's stock. Another prevents a U.S. company from using tactics like paying special dividends to reduce its relative size or moving assets into a foreign subsidiary that it then spins off to its shareholders. Other rules go beyond the tax inversion strategy, limiting the ability of companies to access cash from their foreign subsidiaries through loans. Why the Treasury's Moves Aren't Enough Yet critics were quick to note that the new rules don't go far enough. CNBC commentator Josh Brown pointed out that the rules do nothing to stop U.S. companies from accumulating assets in overseas subsidiaries and keeping them outside the U.S. indefinitely. Under current tax law, such moves never require the U.S. parent company to pay taxes on the foreign income. Even the Treasury admits that these measures won't solve the true problem involved in enforcing U.S. tax rules in a global economy. As Lew said, "comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions," but the Treasury felt that taking what action it could now would be better than doing nothing. More broadly, the global economy makes it easier than ever for companies to shop for countries that offer the best tax incentives. Just as U.S. companies routinely get large tax breaks from state and local governments that want to lure new business prospects to their areas, so too have entire nations sought the business of the largest multinational corporations, touting their much-lower corporate tax rates and the availability of legal tax laws to help them minimize their worldwide tax liability. The Treasury's efforts to control tax inversions are an important first step. But without full-blown tax reform to align the U.S. foreign tax system with the rest of the world, the Treasury's move won't solve the larger problem and will instead give companies an incentive to find other innovative methods to cut their tax bills. 
Jonathan Leibson/PMC/Getty Images SodaStream (SODA) has been one of Wall Street's bigger disappointments over the past year, but shareholders may finally be catching a break. Sources were telling several different international publications last week that the company behind the namesake carbonated beverage maker is in talks to be acquired for at least $40 a share. The buyout would come as a welcome relief for investors who have seen the stock fall from its sudsy peak of $77.80 last summer to below $30 this summer. Inventory woes and cascading margins have slammed SodaStream, and investors know that soda is no good when the fizz is gone. Bottling Up Optimism Buyout chatter heated up last week when Israeli business publication The Marker reported that a British investor was in negotiations to acquire SodaStream in an $840 million deal that would swap common stock for $40 a share in cash. It seemed like just the latest in a long line of empty acquisitive talk, but then things began heating up in the U.K. media channels. The Independent reported that beer behemoths Diageo (DEO) and SABMiller (SBMRF) are considering an offer for SodaStream. The Times apparently has another source naming private equity firm KKR as an investor willing to shell out $46 a share for SodaStream. All of these conflicting rumors would seem to be turning this buyout symphony into a cacophony, and conspiracy theorists would argue that SodaStream itself could be behind this in an effort to smoke out a potential suitor. However, you don't often see three different international publications talking up SodaStream as a purchase. Pop a Cap Off We've been here before. It was originally Israel's Calcalist reporting last summer that PepsiCo (PEP) had the hots for SodaStream. Canned and bottled soda sales have been sluggish. Moody's Investors Service is reporting that carbonated soft drink sales declined 2.6 percent in the U.S. last year, with an even larger drop in diet sodas. Diversifying into SodaStream's growing global operations had some merit, especially as a way for PepsiCo to extend its brands into the faster-growing home-based carbonation market. It didn't happen. Calcalist came back five months ago, reporting that PepsiCo, Dr Pepper Snapple Group (DPS), or Starbucks (SBUX) could be taking a 10% to 16% stake in SodaStream. This followed just two months after Coca-Cola (KO) initiated a 10% stake in Keurig Green Mountain (GMCR), helping the single-serve java heavy with its upcoming Keurig Cold launch. That didn't happen either. Earlier this summer we had Bloomberg reporting that a private equity firm was looking to buy SodaStream at $40 a share, similar to the stories that would break in the U.K. and SodaStream's home turf of Israel last week. None of the stories have panned out, but someone seems to be aggressively trying to play Cupid given SodaStream's knack for being at the center of buyout chatter. It's easy to see why SodaStream would be receptive: Stateside sales have been slumping since late last year, and overall profitability has taken a hit. SodaStream is still gaining momentum in more established European markets, and perhaps that's why the latest round of potential acquirers is a global smorgasbord. If SodaStream isn't going to turn its U.S. operations around soon, it could be in the best interest of its investors if it does consider any serious proposals. However, after more than a year of empty chatter, the rumors are intensifying, but nothing is certain until SodaStream makes it official.
Getty Images WASHINGTON -- Average long-term U.S. mortgage rates surged this week, marking their largest one-week gain this year. Mortgage company Freddie Mac says the nationwide average for a 30-year loan jumped to 4.23 percent from 4.12 percent last week. The average for a 15-year mortgage, a popular choice for people who are refinancing, rose to 3.37 percent from 3.26 percent. At 4.23 percent, the rate on a 30-year mortgage is at its highest level since the week ended May 1, though it is still at a historically low level. Mortgage rates often follow the yield on the 10-year Treasury note. The 10-year note traded at 2.62 percent Wednesday, up sharply from 2.54 percent a week earlier. It was trading at 2.63 percent Thursday morning. Bond yields rise when bond prices fall.
A Walmart employee restocks shelves ahead of Black Friday sales last year. | With back-to-school promotions in the rearview mirror, retailers are already looking for ways to promote their brands for the holidays. Following Kmart's anti-Christmas commercial that rolled out last week, Walmart (WMT) on Wednesday released its second annual Chosen by Kids Top 20 Toys List -- a list it hopes will get parents spending on the troubled toy category, and help it identify hot items to prevent out-of-stocks and lost sales. The discounter also said it would "continue to be unwavering" on offering the lowest price. "When we saw specific trends emerge, we worked closely with our toy suppliers to make sure we were stocking our toy shelves ... with the items kids really want," said Anne Marie Kehoe, vice president of toys for Walmart U.S. By putting hundreds of kids between ages 18 months and 12 years old in a room to play with 80 toys -- and then having them vote on their favorites -- the company identified five toy trends ahead of the holidays: