Tuesday, January 31, 2012

Oil Sands Realizes Massive Profits for Imperial Oil Shareholders. IMO Dividend Increase and Kearl Oil Sands Expansion on the Horizon.

Imperial Oil raises dividend after profits rise 26%. For 2011, the Canadian oil giant is finishing the year with its second highest profit ever, which should make Intelligent Investors very happy. Earnings for the quarter rose from $799 million to $1 billion, and total revenue rose to $8.12 billion.

Annual revenues for 2011 were an astounding $30.71 billion, but the dark spot for quarter was total production levels, which declined to 291,000 barrels per day. The Cold Lake oil sands project, however, was very strong, with daily production increasing to a whopping 160,000 barrels per day.

The end of this year should bring Imperial shareholders another profit jump as the Kearl oil sands mine comes on line with 110,000 barrels of production per day. By 2015, the Kearl mine should be producing 270,000 barrels per day, almost as much as the entire Imperial operations did this quarter

Imperial, which also runs the Esso brand stations across Canada is a good long-term hold for Intelligent Investors, and one of the few companies that already has production increases scheduled into its pipe.

Full Disclosure: Matthew Clarke owns or indirectly controls shares in Imperial Oil Corporation. (TSE: IMO).   

Friday, January 27, 2012

Warren Buffett of the North Buys Huge Stake in RIM. Research in Motion Appoints Prem Watsa to Board of Directors. More Shareholder Friendly Company.

The CEO of Fairfax Financial, Prem Watsa, has increased his stake in Research in Motion (TSE: RIM) to 5.12%. Often referred to as the Warren Buffett of Canada, he succeeded in making a fortune while others failed during the great financial crisis of 2008-2009. Mr. Watsa has now been named to the board of directors for the BlackBerry maker. 

According to Canada's Globe and Mail:
"Mr. Watsa, Fairfax, and other companies related to them bought 6,499,500 shares of RIM on Wednesday and an additional 7,550,700 on Thursday, according to filings with U.S. securities regulators."

Fairfax Financial spokesperson Paul Rivett is quoted as saying that the company is very excited to be buying RIM below book value. Furthermore, the company is interested in buying more shares as Research in Motion continues a restructuring program. With a new CEO and an increased presence for investors on the board, shareholders should be pleased with recent changes. 

Wednesday, January 25, 2012

Low Interest Rates to Extend Until at Least 2014. U.S. Federal Reserve Wants to Keep Cheap Money Flowing.

The Federal Reserve Bank of the United States has announced that it intends to keep rates in the basement until at least later 2014. In response, both Canadian and U.S. stock markets moved higher as expectations for a continued economic recovery improved. The reserve indicated in its statement that high unemployment and low economic growth leave it with little option but to keep the overnight lending rate steady between 0 and 0.25 percent, as inflation does not seem to be picking up much steam.

In Canada, job quality has been worsening, with more self-employed and lower wage positions being created. Increased downward wage pressure will help reduce inflationary pressure in the Canadian economy, which helps the Bank of Canada follow its U.S. counterpart in continuing a period of record low interest rates at home as well.

Apple Confirms Entrance into Digital Textbook Marketplace. Education Publishers Realize More Money to be Made from Digital Copies with no Used Marketplace.

Flush with almost $100 Billion in cash and vibrant earnings numbers, Apple (NASDAQ: AAPL) has confirmed its plan to enter the textbook marketplace. It is teaming up with major educational publishers to publish digital copies of textbooks to be read on its iPad tablets. The textbooks will incorporate graphic manipulations, videos, testing, note taking and more. 

At least 12 educational textbooks are already available via the iPad, and surprisingly they cost less than $14.99 each. Students will not be able to re-sell or pass-on their textbooks to other students, eliminating the ability to buy used books for less. Major publishers are already realizing that this ability will enable them to make more from many books than they do now.

Apple also announced a number of lecture courses already available for free on iTunes that will hopefully help them to build a stronger brand in the educational marketplace. 

Clearly, Apple already has reaped huge benefits in the publishing market with iTunes, and now iPublishing should be able to generate even more commissions on digital media sales. As the early adopter, Apple is developing an excellent competitive edge over other late entrants.

Monday, January 23, 2012

Starbucks to Sell Alcohol at More Locations. 75 Percent Mark-Up on Starbucks Beer and Wine Will Keep Profit Margins Healthy.

Starbucks (NASDAQ: SBUX) is going to add alcohol to more locations in an effort to increase afternoon and evening traffic in its stores. Starbucks first began selling alcohol in 2010 in Seattle, and it hopes to sell beer and wine to a wider audience. Stores in Atlanta and Chicago will be among the first locations to enjoy the new additions to the menu.

Currently, there are six stores that offer alcohol, and prices range from $5 for a beer, to $9 for some wines. The bar menu is meant to reflect local tastes and preferences, and it will not be standardized. Initially, there are 25 locations that have been selected. Most alcoholic drinks have a 75% profit margin, according to Sara Senatore of Sanford C. Bernstein & Co., which is about the same as coffee. This means that they are not at risk of depressing margins. The incremental costs associated with this concept would primarily be staffing and licensing, but it is a great way to utilize the existing locations for more hours.

For the Intelligent Investor, this should be taken as a healthy sign of innovation at Starbucks. They are thinking of more ways to make money from existing store locations, much more cost effective than simply cramming more stores on the same block, which caused them significant amounts of trouble in the United States.

NOKIA / Microsoft Lumia Phones Reported to Have Strong Sales. Over 1 Million Sold and Counting. Microsoft Could Finally be Gaining Some Steam in Smart-Phone Market.

According to the Financial News Network, Nokia may have already shipped over 1 million Lumia handsets. The Lumia is the first handset that runs Microsoft's software. The product is considered a must-sell for both Nokia and Microsoft as they have been struggling to gain any traction in the hyper-competitive smart-phone marketplace. 
According to analyst projections, Nokia could be undervalued by over 20% at a current price of $5.71 and an average price estimate of $6.96. Does this mean go in guns blazing and purchase your lots of Nokia or Microsoft shares right off the hop, of course not. But Intelligent Investors should definitely be considering some Microsoft (NASDAQ: MSFT) shares for their portfolios. If reports of Lumia sales are accurate, the two companies could be starting to gain some steam in this lucrative market.

Thursday, January 19, 2012

Bank of America Records $2 Billion Gain. But Investors Beware, Read the Fine Print!

Bank of America has reported a profit of $2 billion for the fourth quarter. This amounts to 15 cents per share. However, reading the numbers closer, there is clearly some financial engineering behind the scenes. In its earnings, Bank of America (NYSE: BAC) includes a $2.9 billion gain on the sale of its stake in China Construction Bank, and another $1.2 billion gain from swapping preferred shares for common shares on its balance sheet.

To be sure, the bank's capital ratios and overall balance sheet levels have improved (The Tier 1 Capital Ratio is now 9.86%), which means it should be far from having to raise new equity capital. But nonetheless, with one-time items excluded from the income calculation, Bank of America recorded a net-loss of around $2.1 billion! And that is for only a 3 month period.

Word of Caution: Intelligent Investors beware. Bank of America is doing better than it was during the peak of the financial crisis, but it has such disastrous loans remaining on its books that it is still bleeding billions of dollars every quarter.

Wednesday, January 18, 2012

BK Wheels. Burger King to Offer Delivery for $2. Virginia and Maryland First. Will BK Delivery be a Flop?

Burger King has begun offering delivery service in Virginia and Maryland. With over 7,500 restaurants, the burger-chain is trying to remain number two in sales behind McDonald's, with many analysts predicting that it has already lost that ground to Wendy's International.

The service will be available from 11am until 10pm, and will cost users $2. Burger King Holdings was recently purchased in 2010 by 3G Capital for $3.93 billion, and it is desperately searching for new ways to generate much needed cash-flow in a crowded fast-food marketplace.

Will hungry Americans be willing to shell out an extra $2 to ensure that they do not have to go anywhere at all to eat a Whopper and fries? Many analysts are predicting the program to be a flop, but with waist lines bulging across the country, this program definitely has a chance.

TD Looking to Increase American Exposure, Could Issue $1 Billion in New Stock. Intelligent Investors Beware.

TD Bank (TSE: TD) is hoping to close a deal to buy America's BankUnited. Currently, the bidding war between BB&T and TD is thought to be in the neighbourhood of $2.4 Billion... at least $1 Billion more than BankUnited's Book Value.

TD is long used to digesting American banking assets, especially since its purchase of BankNorth. Nonetheless, more goodwill (or the amount paid above book value for assets) on TD's balance sheet is the last thing the company needs during a credit crunch. Undoubtedly, should the deal go through, TD is going to have to raise more capital to fulfill Basel III requirements. Many expect that the extra capital needed could require a new stock issue by the bank of between $500 million and $1 billion. For the Intelligent Investor, new stock issues should not be something to look forward to. It dilutes the value of your shares, and leaves you with a smaller share of the profit pie. 

To be sure, TD could make this acquisition work, but investors should be careful. A primary reason why Canadian banks did not find themselves in the terrible mess of their U.S. counterparts is because they were not as heavily leveraged, and because they were not as exposed to the American housing marketplace.

A point of caution for Intelligent Investors: TD has been aggressively increasing its risk profile and its exposure to the United States for years. It now has more branches in the United States than Canada, and it is looking to expand further on its American base. If you are looking for a more clean-cut Canadian investment, investigate CIBC (TSE: CM).  

Friday, January 13, 2012

American Trade Funds Deficit with Rest of the World. Canada Trade Surplus Balloons to $1 Billion in November.

November was a great month for Canadian exports. The international economy is doing Canada well as exports climbed to over $40 billion in November 2011, and imports dropped to $39 billion. That left Canada with a trade surplus of over $1 billion for the month, and leaves the country with more cash coming in the door to spend on its own people and economic recovery.

Analysts on average had been expecting a DEFICIT of about $500 million, so this turnaround is great news for the economy. Where did the burst come from? Energy exports climbed over 6 percent to around $6.4 billion. In particular, exports to the United States climbed by almost 2 percent, creating a surplus with our southern neighbour of over $4.5 billion. So what does this mean? Basically our sales to the United States are funding a deficit with the rest of the world.... Thank You American consumption! 

Wednesday, January 11, 2012

Twinkie Maker Hostess Brands Going Bankrupt. Retired Workers and Health-Care Costs Suffocating Business.

Iconic North American snack producer Hostess Brands is filing for bankruptcy protection. The maker of Twinkie and a plethora of other sugary and salty junk food is blaming three things for its failure to turn a profit:

1. Pension obligations from retired workers.
2. Health-care costs for both retired and current employees.
3. Tough economic conditions.

It was only two years ago that Hostess emerged from bankruptcy court, and private investors had hoped to turn the company around. Its major hurdle is the pension fund, which is owes more than $944 million.

Currently, the company is trying to negotiate its pension and medical benefits with its union membership, as the overwhelming obligations simply make the company uncompetitive with Pepsi-Co and its Frito-Lay subsidiary.

The company will maintain production and sales throughout the restructuring process, but any further expansion is out of the question. Surely, consolidation will be in order, and perhaps be a boon for Pepsi (NYSE: PEP).

Tuesday, January 10, 2012

KODAK Prepares to File for Bankruptcy. An American Icon and its Drastic Failure to Foresee Technological Change.

Resisting change and embracing the status-quo inevitably leads to failure in the technology industry. American Icon Eastman Kodak is teetering on the brink of bankruptcy, and it provides investors with an interesting and valuable case study examining the failure of a once profitable contender at the advent of the digital revolution. 

Bankruptcy is a final reversal of fortune for the company that actually invented the digital camera in 1975, but failed to embrace and foresee the true game-changer that this technology, and then later the camera-phone, would be for its market. 

On September 30th, the company issued a statement declaring that it was not going to declare for bankruptcy, but in the investment world, 'where there is smoke there is fire,' and with Kodak, the building has been burning down for years. 

The primary store of value left in this company is its digital photography patents, which are estimated to be worth about $2 Billion, but which no company has yet to reveal an interest in... so probably, in true Kodak style, even these are underestimated by the company.