Tuesday, November 16, 2010

Big Opportunities in the Oil Patch on Chinese and Irish Concerns.

Stock markets around the world had a fairly steady pullback today on concerns about European government debt, in particular Irish, and on an anticipated attempt by the Chinese to cool their economy down. But some bargains may be in store.

To cool their economy, the Chinese might raise interest rates and curb spending on houses and big-ticket items like automobiles. With this, investors worry that there might be a decline in the prices of commodities purchased heavily by China, like oil and base metals. On these concerns, we saw the shares in some Canadian oil stocks reach their lowest prices in a year. Of particular interest to Canadian investors might be Imperial Oil (IMO on the TSX).

Imperial Oil is down over 8 percent on the year and recently hit a low of $37.36 per share. The company, which operates the ESSO brand in Canada, has been having troubles picking up production in recent years, and currently is producing around 300,000 barrels of oil equivalent per day. In the next five years, however, this number is expected to soar 25 percent to 400,000 barrels per day. If oil stays anywhere around 80 dollars per barrel, the likelihood of this being a boon for investors is high. They also manage the proposed Mackenzie Gas Pipeline development, which would ship fuel from Canada's arctic down to Alberta... and potentially unleash massive potential for future profits.

The company has NO meaningful debt whatsoever, which means the shareholders own all of the profits, not the banks, and they have an intimate relationship with Exxon Mobil, their parent company, which provides them with significant leverage for large projects. This company easily has the potential of raking in $4 per share in earnings, and has significant cash-flow, which they generally use to buy back shares, and increase your stake in the company.

Whenever there is trouble, investors generally upgrade to higher quality names. With no debt, and a long history of delivering solid returns, Imperial Oil is a high quality company. Look to make gradual entries into this name at levels near the 52 week low. It is a core holding.

For more info, check out the corporate website:


Disclosure: Matthew Clarke has an ownership stake in Imperial Oil.

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