Canadian Oil Sands (COS.TO) Buy, Sell or Hold

Canadian Oil Sands (COS.TO)

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140 watching

DON'T BUY

Thinks there are better places to be in the oil sands. Would prefer Cenovus (CVE-T). Expect that oil will do well but to capture the oil price at these levels you will probably be better to own something a little more international.

HOLD

He is neutral on this one. Has a target of $27.

COMMENT

Great, long-term asset. Prefers Suncor (SU-T) which owns a piece of it and has way better growth. Nothing particularly wrong with it, he just has other preferences. Will probably ease its way up with other oils.

BUY

Just reported and was in line with expectations. Starting to move up quite nicely. Feels it has some good potential upside right here once the Syncrude story gets going and starts running properly.

DON'T BUY

People almost look at it as a utility. Pretty good at digging it out of the ground and processing it. Payout ratio is too high. They have big capital plans. They are tight on the money side. In the past when this happens they cut the payout. Will be fine on a long term basis.

PAST TOP PICK

(Top Pick Jan 26/11, Down 3.13%) Oil came off and this came off with the group.

COMMENT

Over the past few years, this has pretty well become a pure play on the commodity. There is a bit of a future growth profile. Current oil price comes close to supporting the distribution. When it becomes oversold, he Buys but when it recovers in price, he Sells. He would have been a buyer around $20.

DON'T BUY

His favourite in the oil sands is Cenovus. Doesn’t see a lot of growth in the yield of COS. Oil sands guys are becoming manufacturing guys.

COMMENT

Is this a possible take-out by the Chinese since they already own a part of Syncrude? Great question. This is a place where the Canadian government might stick its hand in as Syncrude is the oldest, most profitable oil sands plant. For a takeover, you are likely to find it in something smaller.

BUY

Cut their payout last year because of a bigger than expected capital expenditure. Gives a reasonable 4.5% yield. Owns 36.7% of Syncrude. Possibility that Chinese could be interested.

BUY

If you think oil is going to be $90-$100 or in the vicinity for the next little while, this one should be fine. 5.3% distribution should be safe. Good company and well-positioned and in a good play. Good entry point to establish a core position and you can trade around your core position.

COMMENT

Good time to sell Puts into the market? By doing this, you are taking on an obligation to buy the shares so you have to be comfortable owning this company. Also, on a stock like this that has a pretty decent dividend, there is a decent cash flow coming out on a regular basis and is about 4% higher than the risk free rate and options tend to be priced off the risk free rate, you actually get a much higher premium on the Put than you would on the Call option. Very good strategy.

COMMENT

Probably basing at this time. Not his favourite and he would look elsewhere. If you want the income, you are probably fairly safe with this one.

COMMENT

Their problem is twofold. They are the biggest player/owner in Syncrude, which is going through an expansion, which is using up a lot of capital as well as a lot of maintenance costs. Oil stocks in general have come off quite a bit. This has given them a double whammy. Company has said the dividend is safe but if oil comes down a lot, he wouldn't bank on it.

DON'T BUY

This is not one of his favourites. If he wants yield, he goes to some of the older, smaller income trust oil/gas companies. They have a lot of business ahead of them in terms of keeping their facilities up and running. High maintenance costs and have some high capital costs coming.

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Canadian Oil Sands (COS.TO)