Originally recommended by Tom Slee on Sept. 13/10 (IWB #10132) at C$13.48, US$12.99. Closed Friday at C$18.84, US$19.08.
Manulife Financial has traded through our C$18 target and I think that we should take a "mission accomplished" approach here. The stock is fully valued. We have made almost 40% in five months since the recommendation at C$13.48 in September when MFC was oversold (U.S. readers have done even better with a gain of 47% thanks to the appreciation of the loonie).
But this company still has a lot of problems and is not going to be fully hedged against market fluctuations until 2015. It's not a happy situation for a life insurance company. Sun Life also has some question marks and my suggestion is that investors would be much better off in the banks at this time, in particular TD Bank. Let's take our profits and move on.
Action now: Sell. - T.S.
Suncor Energy (SU)
Originally recommended by Gordon Pape on June 12/06 (IWB #2622) at C$41.63, US$37.57 (split-adjusted). Closed Friday at C$40.61, US$41.11.
Finally, we are seeing some movement in Suncor stock. The shares closed at C$42.90 on Feb. 2, their highest level since October 2008, before pulling back at the end of the week to finish at C$40.61, US$41.11. Still, that is a big improvement from our last update in November when they were trading at C$35.75, US$35.68.
The stock was given a boost by powerhouse fourth-quarter financial results. Net earnings came in at $1.35 billion ($0.87 per share), compared to $457 million ($0.29 per share) for the fourth quarter of 2009. Operating earnings were $946 million ($0.60 per share) compared to $342 million ($0.22 per share) in the fourth quarter of 2009. The results easily beat analysts' expectations.
The company said that the increase in operating earnings was primarily due to improved margins and increased refined product sales in Refining and Marketing, higher realized oil prices, and increased Oil Sands production.
Although total production declined due to the sale of some non-strategic assets, production from continuing operations increased to 605,400 boe/d (barrels of oil equivalent per day) in the fourth quarter from 544,500 boe/d in the same quarter of 2009.
Cash flow from operations was $2.14 billion ($1.37 per share) in the quarter compared to $1.13 billion ($0.72 per share) in the fourth quarter of the previous year.
"Operational results were strong across the business in the fourth quarter," said CEO Rick George. "In our oil sands business, steady and reliable production from both mining and in situ assets drove record quarterly production volumes, while our international and offshore assets continued to perform well. In our downstream operations, both production volumes and margins were strong contributors in the quarter, underlining the benefits of our integrated strategy."
Now that the stock has finally started to move, I think there is a lot more upside here. The shares are still well below their all-time high of C$70.32, US$71.11, reached in May 2008. I am raising my target to $50 in both currencies.
Action now: Buy. - G.P.
Blue Ribbon Income Fund (TSX: RBN.UN)
Originally recommended by Gordon Pape as Citadel Diversified Income Trust on April 8/02 (IWB #2214) at $10.20. Closed Friday at $11.40.
This closed-end fund was the focal point of a shareholder battle in late 2009 when the Citadel organization, which had changed hands, tried to replace long-time manager Paul Bloom. After a unitholder vote ended in a stalemate, negotiations resulted in the Citadel Diversified Income Fund being taken over by the Brompton Funds organization and renamed Blue Ribbon. Mr. Bloom is still calling the shots.
The old Citadel fund focused on income trusts, a field in which Mr. Bloom was a leading expert. Although most income trusts are now gone, due to the introduction of the SIFT tax on Jan. 1, the Blue Ribbon fund retains much the same character. The portfolio consists mainly of a few of the surviving trusts and limited partnerships (e.g. Inter Pipeline), several converted trusts (Baytex Energy, Keyera Corp.), stapled units (Medical Facilities Income Fund), and REITs (RioCan, Innvest, H&R).
The shares have been on a steady uptrend since the summer of 2010 when they traded in the $9 range. The momentum came from a surge in the prices of "survivor trusts" - those which maintained distributions after converting to corporations - as investors realized they offered terrific bargains. (We advised buying several of these in our companion newsletter, The Income Investor.)
However, Mr. Bloom does not expect that momentum to carry forward into 2011. Most of the value has now been priced into these securities and he sees little capital gains potential this year. On the plus side, the fund offers good cash flow for investors seeking steady income. The units pay monthly distributions of $0.055 ($0.66 a year) which Mr. Bloom believes is sustainable. At Friday's closing price of $11.40, that translates into a yield of 5.8%.
Action now: Blue Ribbon is a Buy for income-oriented investors. If your main goal is capital gains, sell and move on. - G.P.
Limited Brands (NYSE: LTD)
Originally recommended by Yola Edwards on Aug. 15/05 (IWB #2531) at $24.24. Closed Friday at $31.87 (all figures in U.S. dollars). Updated by Gordon Pape.
You may have never heard of Limited Brands but you certainly know some of the several retail chains that the company operates, such as Victoria's Secret, Pink, Bath & Body Works, and La Senza. The stock was originally recommended in the IWB by former contributing editor Yola Edwards in 2005. The shares traded in a narrow band of between $25 and $30 until July 2007 when they began a long downward spiral that culminated in a low of $6.26 in March 2009. Since then, they have been clawing their way back and are now trading at over $31.
Technical analysts will like the fact that both the 50 and 200-day moving averages of the stock are in a clear uptrend. As a fundamentalist, I like the fact that business is good and is likely to get better as the U.S. economy picks up.
On Thursday, the company reported that comparable store sales increased by an amazing 24% for the four weeks ended Jan. 29 compared to same period in 2010. Net sales were $772.6 million for the period compared to $622.6 million last year.
For the fiscal 2011 fourth quarter, which ended on Jan. 29, the company reported a comparable store sales increase of 10% compared to the fourth quarter last year. Net sales for the quarter, which included the all-important Christmas season, were $3.46 billion compared to $3.06 billion last year.
Management said it expects to report adjusted fourth-quarter earnings per share of $1.23 to $1.25, versus its previous guidance of $1.02 to $1.17.
The stock appears to have upside potential from here so I am reinstating it as a Buy with a target of $36.
Action now: Buy. - G.P.