Suncor to Abandon Gaddafi's Libya, and Air Canada Strike to Forcibly End.

Top News Stories for the Day:

Suncor (TSE: SU) has announced that it will be pulling out of Libya indefinitely until the departure of Omar Gaddafi from power. To be sure, it will have to take a write-down on its assets in the country should it take longer than the NATO Allies expect to gain power for the rebels. However, it is probably only a matter of time, whether it be from old-age or unnatural causes, until Suncor can get its pumps in Libya going again and returning cash to shareholders. It is, of course, probably no coincidence that Canada has a number of aircraft bombing Gaddafi's compound and that Canada also has a significant monetary interest in getting the country into Allied-friendly hands.


Air-Canada's (TSE: AC.B) striking workers will soon probably be forced back to work by federal government legislation. Clearly, this would be a huge blow to the union and its activists as the right to strike is the biggest bargaining tool that a union and its workers possess. Our current pro-business Conservative government is making a strong indication to the labour community that it is on the side of big business and the country's shareholders. National business and employee profits first, employee rights, secondary. For investors, this is a huge win as labour costs for airlines, as in most businesses, eat into profits. If you can force labour to work, regardless of their decision to strike, then you have, for all intents and purposes, destroyed the labour movement in the country. Air Canada is a PRIVATE business, and thus its labour situation should be the company's concern, not an issue involving government legislation. 


More information on these two stories from the CBC:
http://www.cbc.ca/video/#/News/Business/1239849460/ID=2002094493


Happy Investing : )

Suncor Generates Huge Profits From the Oilsands, but Might Have to Take a Loss on Libya.

When Suncor (TSE:SU) bought Petro-Canada, it is doubtful that they anticipated the amount of trouble their Libyan assets would cause the company and its shareholders. Having announced huge profits today of 1.02 billion dollars for the last three months, the company is increasing its dividend by a penny per share. And with cash-flow coming in at 2.4 billion dollars for the quarter, the company has plenty of money to still invest in the expansion of its oil-sands operations. So why is the stock down almost five percent on the news? 

Trouble at its operations in Libya due to the uprising have forced them to reduce production in the country and perhaps even "write-off" or record a loss on the value of its assets there. On it's balance sheet, the Libyan operations are currently valued at about 900 million dollars, but if turmoil in the country continues or gets worse, Suncor will be forced to re-evaluate the value of those holdings.

Essentially, Suncor, operationally, is doing great, and money is pouring into the company, but assets that it holds in both Libya, and now Syria, could be in serious trouble. For investors, this means that on a cash basis, there is nothing to worry about, but there might be an accounting loss in the near future if Libya does not turn around soon. 

Investors Should Buy What They Know and Steer Clear of What They do not Understand.

It is important for the intelligent investor to "buy what they know." Or only stick to owning businesses for which they would be able to notice opportunities, changes, or threats in their respective sectors. When competing with millions of other people around the world for the buying and selling of stocks, one must possess a reasonable expectation of spotting competitive, strategic, or systemic threats to the businesses that they own. It is, therefore, important to diversify, but only within reason.

For instance, many investors have an appetite and desire to own technology and renewable energy stocks. On the whole, the rapid and inherent nature of change in the technology sector makes threats and difficulties very difficult to notice with regards to many technology stocks on the market today. Many great technology names have come and gone over the years, and few have managed to withstand the constant pressure to innovate and re-invest themselves.

IBM (NYSE: IBM) has done so for decades, and continues to do so with much success, but many others are in constant fear of being overtaken by the next great technological fad or change. Even the great Microsoft (Nasdaq: MSFT) is beginning to come under siege by Google (NYSE: Goog), Apple (Nasdaq: AAPL) and others... especially in the cloud computing arena, which might be the next great shift in the technology space.

Other individuals might be very astute at spotting key developments in the fashion or retail space. Personally, many clothing stocks such as Aeropostale (NYSE: ARO), American Eagle (NYSE: AEO), Gap (NYSE: GPS) etc. carry a lot of uncertainty as I may be unaware of important trends taking place in the fashion space. On the other hand, trends in the energy, banking, or consumer staples arena are much easier for me to wrap my head around. A knowledge of current oil inventories and reserves for Suncor (TSE: SU), in combination with a prediction of energy prices over the next year, could give me a reasonable valuation for the company, but a variety of key factors concerning current clothing trends would leave me at a disadvantage compared to other investors in this sector of the economy. In the Art of War, Sun Tsu said to evade your enemy if unequally matched. In investing, the same is true.

Warren Buffet, the Oracle of Omaha and guru for many value investors, always said to steer clear of something that you do not understand. It is nearly impossible to tell if a company has a "durable competitive advantage," or good defence against competition, if you do not understand how its business operates, who its primary competitors are, and what threats or changes are on the horizon. Without this knowledge, the intelligent investor is exposing themselves to far too much risk. Investing should never be a guessing game, but a calculated and well played match between you and other investors to acquire businesses for a reasonable and well rationalized price.

If you cannot assign a true dollar value to the company, independent of the current stock price, than you should not own it. You would not buy a rental property without first understanding the neighbourhood it is in and how much rent it generates, so do not buy a stock without first knowing how it actually makes its money, who its customers are, and what the competition is like.

If most industries are unfamiliar to you, a quality, low-fee mutual fund or exchange traded fund are probably best.

Happy Investing : )