The arrival of the New Year is occasion to dwell – briefly, one hopes, no sense confining yourself to the dog house over it – on mistakes of the past 12 months. It’s a time for some of us to conclude that Mark Twain’s misgivings about the stock market were spot on.
“October is one of the peculiarly dangerous months to speculate in stocks,” the sage wrote. “The others are July, January, September, April, November, May, March, June, December, August and February.”
Below you’ll find capsule descriptions of three fine companies that show impressive long-term promise, though each – like any investment – bears further study before committing your hard-earned money to it.
Suncor Energy Inc., Calgary. Suncor stock, off just 0.4 per cent in 2014, hasn’t taken much of a hit from the roughly 50 per cent plunge in the world oil price. As the world’s oldest oilsands producer, Suncor might have no match in relentlessly reducing cost per barrel of the world’s most expensive oil, and of reducing CO2 emissions per barrel.
And Suncor’s Petro-Canada chain makes Suncor one of the country’s biggest refiners and retailers. That so-called “downstream” part of the industry actually benefits from a lower world oil price. Profit margins in Suncor’s downstream business have improved as the world oil price has dropped.
The oil-price slump is caused not by over-supply, as commonly thought. The culprit is weak global demand due to continuing recession in Europe and Japan and a dramatic decline in China’s previous torrid economic growth. Oil demand will recover as global economies do, and push the global oil price back up to the $ 80 range from its current $ 50, perhaps as early as the end of 2015.
Oil will remain essential to the world economy, as a bridge to the alternative-energy world of two decades’ hence, when solar, wind, biomass and alternatives not yet conceived come into their own. Which makes shares in Suncor, which possesses a staggering century or so worth of oil reserves in Alberta, poised for sustained, long-term gains in tandem with economic recovery in Europe and the Pacific Rim.
WestJet Airlines Ltd., Calgary. Now 27 years in operation, WestJet can no longer be regarded as a start-up, even if it still has the shine of youth to it in its continued expansion in routes and frequency of flights. WestJet was already a seasoned carrier before the recent, startling consolidation of the U.S. airline giants. Which makes WestJet among the continent’s largest independent airlines.
The oil-price slump benefits WestJet investors in two ways. It frees up consumer spending for both business and vacation travel. And it reduces WestJet’s operating costs, already low by industry standards. Filling up the tank of one of WestJet’s 737-800s now costs just $ 15,812, a 20 per cent drop from last spring when the world oil price began to dive.
WestJet remains primarily a domestic carrier, and to be sure it has room to grow at home given its above-average customer service standards. But it has still more revenue-growth potential by shedding its traditional reluctance to exploit more international-route opportunities.
WestJet shares trade at something of a discount, with a price-earnings multiple of 16.2. (Current stock-market darling Facebook Inc. commands a p/e of 74.) Airline analysts believe a fair p/e multiple for WestJet is closer to 18. That would price the stock at $ 54.50, a whopping 67 per cent gain over the airline’s current share price.
Then there’s the dividend kicker. While it judiciously keeps substantial cash in reserve, WestJet pays a dividend with a respectable 1.4 per cent yield. That the Calgary firm has hiked that dividend four times in as many years is a signal of the airline’s staying power.
BlackBerry Ltd., Waterloo, Ont. (BB). The surprisingly rapid BB turnaround now underway is based on CEO John Chen’s reinvention of BB into a services rather than hardware company. That strategy was also the salvation of a once ailing IBM Corp.
BB is back to cosseting the enterprise clients – business and professional customers – that gave BB its initial, astonishing success.
It is doing so most prominently with BlackBerry Enterprise Service Technology (BES). BES enables enterprise IT czars to manage BB, iPhone, Samsung and other devices on which employees have stored sensitive data, using BB’s first-in-class security prowess. Every high-profile hacking attack on a Target Corp. or Sony Corp.is an advertisement for BES. BB has won a stunning two million-plus BES contracts in just the past year.
BES contracts are long-term, generating years of reliable cash flow, unlike one-off smartphone purchases. BES customers are loyal and deep-pocketed. And BB is unlikely to surrender its head start here, especially given its near-death experience in forfeiting device leadership.
Then there’s the emerging market called the “Internet of Things” (IoT). This is the world in which all Internet-connected devices can talk to each other. It won’t be long before with your smartphone you can tell your household appliances what to do. BB is also in the forefront of this sector, which will expand to business, government, healthcare, power grids and every other realm. Cisco Systems Inc., the Internet router giant, claims the IoT market will be worth trillions of dollars over time. That might sound far-fetched. But the global telecom sector alone spends about $ 1 trillion a year on routine upgrades.
Already, Ford Motor Co. is using BB technology to control in-car entertainment and mapping systems. A once insular BB is now a supplier to rival Samsung Electronics Co., and is helping Boeing Co. devise its new telephony project.
In 2014, BB was one of the world’s best-performing tech stocks, gaining 48 per cent in value. Yet at today’s BB stock price of $ 11, BB investors are effectively getting, on a book-value basis, a great deal of the company for free. And that doesn’t count the sizeable takeover premium a buyer of BlackBerry would be obliged to pay. BB’s market capitalization of a mere $ 6 billion is pocket change for Google Inc., Apple Inc., Microsoft Corp., Samsung and the many other firms rumoured to covet BB.