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

Canadian Oil Sands (COS.TO)

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DON'T BUY

Question: If oil prices were $55 in 2009, which of Canadian Oil Sands (COS.UN-T), Suncor (SU-T) or Husky Energy (HSE-T) would you buy?Answer: Probably Husky. It is an integrated with a lot more diversification. Suncor is integrated but is mostly heavy oil. Canadian Oil Sands is entirely heavy oil. Heavy oil is the most vulnerable to the changes in energy prices.

TOP PICK

No significant capital spending in front of it. Current distribution of $5. You can buy at with a prospective 10% yield, no declines and have an asset with a life expectancy of 50 odd years. Relatively low level of debt.

TOP PICK

37% interest in Syncrude. Long life strategic assets. Oil sands will play a strategic role going forward as the world becomes a smaller place to operate. 15%-16% yield faces a potential cut if oil prices are $70 or lower that he would be happy with half of that at 8%.

COMMENT

Any of the oil sands plays are probably a hold as long as oil is above $75 and above $90 will probably see a bounce up. If oil prices weakened, distribution could be affected. The high 16% yield indicates the market is betting there will be a distribution cut.

BUY

Taxes in 2011 will probably be small. Read that with oil at $50, it would still generate $2 per share. At the current stock price, you still get an 8% free cash flow yield. Good risk/reward. (Would not buy any oil sands project that has not completed their building as the costs are staggering.)

TRADE

No exploration potential or risk. Is a long-term annuity. Great property to own long term.

DON'T BUY

Came down on oil price, 17% yield and distribution increased over the last couple of years because of production increases. Not their top pick in oil and gas.

STRONG BUY

Is more commodity based than tax based. Will be able to manage their capital structure to offset the tax impact in 2011. Great way to play energy

BUY

Could easily correct more. If you believe that oil can stay above $80, this is a great name to own. There is no question of supply because we have 100 years. The fact that it is still a trust and has to go through the conversion is still an issue.

BUY

Growing dramatically, likes it. Represents good value. Paying their debt is reasonable at these oil prices. Will use part of cash flow to grow.

BUY

On his radar screen. Around 12% yield. Long-time producer and they know their way around. Good, long-term investment in the oil sands.

COMMENT

Distributions are safe. You also have to watch natural gas prices, which they have to use as an input to drive the cokers. Thinks oil should trade at around $100 as a floor.

BUY

This is the long-term play in the oil sands industry. Reserve life is pretty much towards infinite. Generous yield of 12%. Fairly high multiple. If your Outlook is to hold the stock without worrying above price fluctuation it will continue to pay for sometime to come.

DON'T BUY

The problem with this company from a valuation stand is that it is very expensive. Expect distributions will be funded by debt. He would much prefer Suncor (SU-T), which is much more mispriced.

DON'T BUY

The real problem with this one is that they are barely covering the distribution and may have to borrow to do so. Cost of producing energy from the oil sands is very high. A little cautious on the oil sands plays in general.

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Canadian Oil Sands (COS.TO)