Wednesday, November 13, 2013

8 Super Safe Stocks You Can't Afford to Overlook

Click Once – Change Everything

I thought I'd seen it all when it comes to investing – until this fortuitous click. Now I've discovered a stand-alone portfolio that stomps the S&P by 223%… and ranks among the safest investments anywhere. Curious about making 20x more money?

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8 Super Safe Stocks You Can't Afford to Overlook

David Dittman

It's a rule as old as investing itself: safe investments generate wimpy returns.

But there's one problem: it's not true. At least not in the case of the 8 "super safe" stocks—unknown to most U.S. investors—that I recently uncovered.

These winning companies stand this old saw on its head, collectively averaging a return of 265% in the past six-plus years. Plus they pay such high dividends that even after this run-up, they still throw off an average yield of 5.3%.

They're the kind of stocks that every investor dreams of: the ones that deliver stunningly high returns with virtually no risk—year in and year out.

An Accidental Discovery

The funny thing is, I stumbled across these 8 investments almost entirely by accident.

Let me explain.

I'm the chief investment strategist for Canadian Edge, the only U.S.-based financial advisory that focuses on our northern neighbor's high-octane economy (more on how Canada plays into this story in a moment).

As part of our research into the stocks we recommend in Canadian Edge, we assign each one a safety rating between 1 and 6. If you're a subscriber, it's the first thing you see when you look at one of our two Canadian Edge portfolios.

My discovery happened one morning as I was reviewing our Conservative Portfolio and updating our safety ratings for specific holdings. I happened to be focusing on those that carry our highest safety rating—6.

Suddenly, I noticed that 8 of these super-steady stocks were not only maintaining their safe-haven status as 6s but were also were piling up extraordinary gains—with most up by triple digits.

Turning the Rules Inside Out

According to the "rules" of investing, safe stocks like these aren't supposed to return so much. As a trade-off for the stability and peace of mind they give investors, they generally produce modest returns. And most investors are happy to accept that.

I wanted to make sure this wasn't a fluke, so I double-checked their safety ratings and how long they held them. I ran another filter based on safety, returns and dividends, taking it back over six years.

The outstanding numbers held. In fact, they worked out to an annualized return of 22% over the six-year period. Just as important, they held on to their top safety ratings throughout.

If you had invested $10,000 in each of them six years ago, you'd now be sitting on $292,000. By comparison, if you had put your $80,000 into an S&P 500 fund, you'd have just $90,400. And we think these juggernauts will do just as well over the next six years, for a couple of reasons:

For one, they're all conservative companies in predictable lines of business. Once stocks like these achieve momentum, they tend to keep on chugging. They never turn on a dime, because they aren't trendy tech or retail stocks with fickle customers.

But that's just the beginning.

Tap Into "One of the Great Growth Stories of Our Time"

Even more importantly, every one of these 8 companies is linked to one of the great growth stories of our time: the emergence of Canada as a major global energy source rivaling Saudi Arabia.

That sounds like a grandiose statement, but I assure you it's no exaggeration. The country is sitting on 300 billion barrels of proven oil reserves, plus an estimated trillion more in the ground—and it has scores of nations lined up to become buyers.

But don't just take my word for it. None other than Warren Buffett, the world's most celebrated value investor, is getting in on the action in the Canadian oil patch. In a recent SEC filing, he revealed a new half-billion-dollar investment in Suncor Energy (NYSE: SU), the company that opened the Western Canadian oil sands to the world.

Tellingly, the Oracle of Omaha's Suncor buy marks the first time he's ever invested in a Canadian firm. One energy expert commented: "Suncor is probably a good proxy for Canadian oil prices, and if Mr. Buffett is bullish, it's good across the board for Canadian [oil companies]."

Buffett's move is just the start: as the oil and gas flow out of Canada, an unprecedented wave of wealth will rush in. That will trigger windfall profits for companies involved in everything from well drilling and oil and gas shipping to building plants, roads and schools. Even the Canadian real estate, retail and manufacturing sectors will benefit.

And my 8 "accidental" superstar stocks will be right in the thick of it, in prime position give you the biggest profits while letting you still sleep soundly at night.

Unbeatable Gains From "The Incredible Ironclads"

I'd love to tell you all about these 8 northern dynamos, but it's impossible to do so in a brief online article like this one. That's why I've put everything you need to know—including full details on each firm's fundamentals, operations and outlook—together in a new free report called "The Incredible Ironclads: Profit from the Safest, Most Profitable Companies on the Planet."

Here's a brief sketch of 3 of the 8 stocks you'll read about in this compelling new report:

  • The pipeline powerhouse: This company moves nearly a third of the Athabasca region's total capacity. On top of that, it transports 50% of Alberta's conventional oil output—plus nearly a third of its lucrative natural gas liquids. We're up 586% on this stock to date. It yields a solid 5.2% and holds our top safety rating of 6.
  • The renewable energy profit machine: Canada is awash in renewable resources—the kind that actually work in the real world. This outfit boasts a $17-billion portfolio of 209 power-generating assets, 84% of which generate hydroelectric power, while 12% generate wind power. We're up 137% since 2008 and pocketing a 5.8% yield. This pick also holds our top safety rating of 6.
  • The king of the landlords: This outfit is not only Walmart's biggest rent collector in Canada, it's Target's number one landlord, too. This is a rare opportunity to profit from the two largest, richest retailers in history as they battle it out with massive Canadian store expansion on the line. It also rates a 6 and has given us 230% gains to date, along with a satisfying 5.8% yield.

As I mentioned, I'll give you full details on these and 5 other dream investments in "The Incredible Ironclads: Profit from the Safest, Most Profitable Companies on the Planet."

If you want to tap into the handful of stocks that can deliver extraordinary returns with virtually no risk—and who doesn't?—you'll want to check out my new special report right now. We're making it available free of charge to anyone who samples our Canadian Edge research.

But a word of warning: I had to twist my publisher's arm to get his permission to release these picks in a free report, so I can't guarantee this offer will be around for long. Don't miss out!

Editor's Note: I don't know of any other group of investments that have done as well as the 8 stocks David gives you in this special report. And they're perfectly positioned to rack up even bigger gains as Canada's treasure chest of oil, gas and other natural resources turn it into a global economic power.

Best of all, you can profit from these extraordinary picks with no risk and no obligation whatsoever. Don't wait: Get your free copy of the The Incredible Ironclads now.

265% Return… for Six-and-a-Half Years

Not one freaky stock – 8 of the world's safest stocks that also rank among the most profitable on earth. Over the past 6 years, $5K invested in each would have turned into $292,000 – compared to $90,400 in the S&P. You'd have thrashed the S&P and made 20x the money over the same period. That's a 22% annual gain on each of the 8… for six-and-a-half years. Even better: These beauties are just getting started.

Check them out.

A New Dawn for Solar Power Stocks

Chad Fraser

Solar power stocks have weathered their share of storms in recent years.

First, the financial crisis deterred potential customers and cut their sales. Then governments began cutting spending to rein in their deficits—including on solar power subsidies. This all came against a glut of cheap panels—mainly from Chinese manufacturers—that cut prices and profit margins.

But fast-forward to the present, and the industry finds itself in the midst of a recovery. Consider these statistics from the U.S. in the second quarter of 2013:

  • The U.S. installed 832 megawatts (MW) of solar power in the quarter. That's up 15% from the first quarter and represents the second-strongest quarter ever, according to the Solar Energy Industries Association (SEIA).
  • Utility sector installations led the way, with 38 projects completed, totaling 452 MW. That's up 42% over the previous quarter.
  • California was ahead of all other states, with installations rising 7% over the first quarter.
  • The SEIA sees 4.4 gigawatts (GW) of solar power coming online in the U.S. this year, up 30% from 3.3 GW in 2012.

Part of this growth is the result of cheaper equipment: the average price of a solar panel has declined about 60% in the last two years. At the same time, continued technological advances have improved efficiency.

It's important to keep in mind that solar still accounts for a small part of U.S. electricity generation, just 0.11% of the total in 2012, compared to coal at 37%, natural gas at 30% and nuclear at 19%, according to the Energy Information Administration (EIA).

However, as Investing Daily managing director John Persinos reported in a comprehensive analysis of the solar power recovery in a just-released issue of our Personal Finance advisory, a new law in California—a long-time environmental trendsetter—bodes well for its prospects.

"In October, solar power scored a major legislative victory when California Governor Jerry Brown signed into law a complex package of incentives and regulations that will facilitate the continued expansion of solar generation in the state," wrote Persinos. "A central provision sustains so-called 'net metering,' which allows renewable energy customers to sell their excess power back to the grid at retail prices."

Solar power's brightening prospects reach beyond the U.S. For example, as we reported in a September 24 Investing Daily article, the re-election of German chancellor Angela Merkel likely cements in place that country's $735-billion plan to shutter all of its nuclear plants by 2022.

By 2050, Germany aims to get 80% of its power from renewable sources. Given that the country is already a solar power leader (last July, it produced 5.1 terawatt hours of solar power—a new world record), solar equipment suppliers can expect to reap the benefits of its long-term shift.

China, too, aims to vastly increase its solar power generation. By 2015, the country is aiming for 35 GW of installed capacity, rising to 50 GW by 2020.

Solar Power Investors: Walking on Sunshine

The improving market conditions have solar stocks on the rise, with the Market Vectors Solar Energy ETF (NYSE: KWT), a reasonable proxy for the industry, surging 110% year-to-date, far ahead of the S&P 500 index's 24% gain.

Moreover, a number of solar power stocks have reported third-quarter earnings in the past couple weeks, and on the whole, they've been reporting higher profits—or at least narrowing losses.

Here at Investing Daily, we've been closely following the solar power recovery. In his Personal Finance article, Persinos analyzed three companies that aim to benefit from the industry's improving prospects, including First Solar (NasdaqGS: FSLR) and Canadian Solar (NasdaqGS: CSIQ).

Each offers a different way to play the solar industry's gains: First Solar, for example, is a large firm, boasting 5,600 employees and a market cap (or the value of all its outstanding shares) of $6.14 billion.

The company started up as a photovoltaic module manufacturer in 1999, but in late 2011 it began to shift toward building solar facilities and selling them to utilities and investors. First Solar also provides construction, operation and maintenance expertise, in addition to a wide array of other related services.

First Solar shares have been among the most stable in the solar power industry, though stability is a relative term in this always-unpredictable business. The stock sports a beta rating of 2.38, meaning it is more than twice as volatile as the overall market, but that's lower than Canadian Solar at 2.79, SunPower (NasdaqGS: SPWR) at 2.87, and SolarCity (NasdaqGS: SCTY) at 3.74 (or nearly four times as volatile as the market).

SolarCity is a name you may recognize: the company is a leading residential solar system provider, with 68,000 clients in 14 states. Its chairman is Elon Musk, CEO of electric car maker Tesla Motors (NasdaqGS: TSLA), and Musk's cousin, Lyndon Rive, is CEO.

The company's business model makes it unique among solar power stocks: it installs panels on customers' roofs for free, and its clients then pay for the power they generate at a monthly rate that is competitive with their current utility. Rates are locked in for the duration of the contract, so they also save money as regular power prices rise.

The stock is up 346% since its IPO last December. However, it recently plunged 17% after it forecast a larger-than-expected loss for the fourth quarter.

First Solar Profits Eclipse Expectations

But back to First Solar: in the third quarter, the company's earnings jumped 121.8%, to $195.0 million from $87.9 million a year ago. On a per-share basis, profits gained 94%, to $1.94 from $1.00, on more shares outstanding. Excluding unusual items, First Solar earned $2.28 a share, blowing past the Street's forecast of $0.99.

Revenue rose 50.8%, to $1.27 billion, also well ahead of the $989 million that analysts were expecting. The company ended the quarter with cash and marketable securities of $1.5 billion, compared to $1.0 billion a year ago.

First Solar now expects earnings of $4.25 to $4.50 for all of 2013, up from its previous forecast of $3.75 to $4.25.

"First Solar is the largest and least risky play on the industry's rise," writes Persinos. The stock has gained 100.0% year-to-date and sports a price-to-earnings ratio of 12.8.

Smaller Player Goes Global

A more aggressive play is Canadian Solar, a much smaller company than First Solar, with a market cap of just $1.24 billion.

Canadian Solar supplies solar equipment, including ingots, wafers, cells, modules and complete power systems. This gear is used in everything from large-scale solar facilities to individual homes. The company is based in Canada, but its plants are mainly in China, creating "a dual presence that reaps low-cost manufacturing but also obviates some of the hassles of investing in a China-based company," notes Persinos.

The company boasts a customer base of over 1,000 in 70 nations. Its largest markets are Canada, the U.S., Japan, China, Germany and India.

Canadian Solar reported its latest results this morning. In the third quarter, the company earned $33.6 million, or $0.56 a share, compared to a year-earlier loss of $7.9 million, or $0.29. Revenue gained 29.1%, to $490.9 million. That beat the consensus forecast of $0.36 a share in earnings on $480.1 million of revenue.

The stock has surged 730% year-to-date.

Investor Fantasy? Nope

Imagine owning a portfolio of the world's safest stocks that also rank as the most profitable on earth. How about an average return of 265% along with an average dividend of 5.3%… plus the highest safety rating possible? It's no fantasy…

Over the past six-and-a-half years, the Incredible Ironclads produced 20x the gains of the S&P, while ranking among the safest investments on the planet. Evaluate them for yourself.

Go here.

Mining Black Gold in the Great White North

Robert Rapier I spent the past week in the heart of the Athabasca oil sands in Fort McMurray, Alberta. I was there as a guest of the Canadian government, which hosts annual tours for small groups of journalists and energy analysts. The trip was incredibly informative, and helped me gain a much deeper understanding of what's happening in Alberta's oil sands.

In today's Energy Letter, I want to provide readers with a general overview of the situation in Alberta. In this week's Energy Strategist I will specifically discuss two companies that I visited on this trip -- Cenovus Energy (NYSE: CVE, TSE:CVE) and Canadian Natural Resources (NYSE: CNQ, TSE: CNQ). In next week's Energy Letter I will discuss some of the logistical issues involved in getting the oil sands crude to market.

Canada produced 3.9 million barrels per day (bpd) in 2012, making it the fifth largest oil producer in the world. Canada is also the fifth largest global natural gas producer at 15 billion cubic feet (Bcf) per day.

Alberta has a population of 4 million people, and is Canada's primary oil- and gas-producing province. Alberta's economy is highly dependent on oil and gas. It's situated next to its more liberal neighbor British Columbia, which is a bit like having Texas border California.

Alberta accounted for 2.5 million bpd of Canada's oil production, and 10 Bcf/day of Canada's gas production last year. Alberta's share of Canada's oil production is expected to grow substantially over time. The province supplied 22 percent of US crude oil imports in 2012, a larger contribution than from any country other than its own.

Canada has the third-largest oil reserves in the world -- more than Iran or Iraq. Of the 173 billion barrels of Canadian reserves, 169 billion barrels are from oil sands, which are a mixture of sand, clay, water and bitumen -- a very heavy oil.

Of the world's oil reserves, 80 percent are state-owned or controlled. Only 20 percent of global reserves are accessible to independent oil and gas companies, and half of those are in Canada's oil sands.

Alberta's oil production has been growing by about 170,000 bpd each year, and a production increase of about 1.8 million bpd is forecast by 2022. There is some shale gas and tight oil in the central and southern part of the province, away from where oil sands are located. There have not been any forecasts made on future tight oil production in the province, as it is still at a pre-commercial stage.

Alberta's goal is to be in the top quartile for conditions favorable for investing in the oil and gas industry, and to grow oil sands from its current market share of 2.1 percent of global oil consumption. Canada's oil sands saw $25 billion (Canadian) of investment in 2012, versus $20 billion for conventional oil and gas. Historically most of the investment has originated from Canada, the US and Europe, but investments from Asia have increased substantially in recent years. Foreign countries with investments in Alberta's oil sands include China, Japan, Korea, Thailand, Norway, France, UK and the Netherlands.

If Alberta were a US state it would be the third largest by area, just barely behind Texas. The oil sands deposits are spread across an area slightly larger than New York state. Of the nearly 55,000 square miles of oil sands formation, 1,853 square miles have been identified as being close enough to the surface for mining. To date, 276 square miles have been disturbed by surface mining, and 27 square miles are under active reclamation.Alberta oil sands map
Source: Government of Alberta

Most of the oil sands production thus far has come from surface mining, and this is the technique that has attracted the most environmental criticism. Surface mining is feasible when the oil sands are relatively close to the surface. In order to produce oil sands from surface mines, any harvestable timber is sold and the overburden -- which consists of 30 to 40 meters of peat, clay and sand -- is removed and set aside for future reclamation. The oil sands are then removed from the open pit and placed in dump trucks capable of carrying loads of 400 short tons. The trucks themselves weigh 250 tons, so a fully-loaded truck weighs 1.3 million pounds.

oil sands truck photo
Truck unloading oil sands at Horizon oil sands site. Source: Canadian Natural Resources

The trucks transport the ore to a processing facility where it is dropped into a crusher, mixed with hot water, and then piped to the plant. The mixture is put into large separation vessels where the bitumen is removed in the top layer, and the bottom layer of sand and some residual bitumen is sent to the infamous tailings ponds where it will eventually be buried, before the land above the tailings pond is reclaimed. The recovery rate for bitumen from surface mines is over 90 percent.

Oil sands installation aerial view

Aerial view of the Horizon oil sands facility. Source: Canadian Natural Resources

Bitumen recovered from oil sands can be upgraded through various processes to a lighter oil (syncrude), as well as to products such as naphtha, diesel, and gas oil. Alternatively, the bitumen can be mixed with a diluent like naphtha to form dilbit, which can then be transported by pipeline or rail. (Unheated bitumen has a consistency like tar, and has to be upgraded, diluted, or heated to flow).But the overwhelming preponderance of future oil sands growth is expected to come from in situ (Latin for "in position") production. As of January 2013 there were 127 operating oil sands projects in Alberta, and only 5 were mining projects. Production from both methods is expected to continue to grow, but the vast majority of the oil sands resource is too deep to be mined. Thus, most of the future opportunities will be through in situ production.

oil sands production bar chart
Expected oil sands production growth. Source: Canadian Energy Research Institute

In situ production involves injecting steam into the ground to enable the oil to flow freely. The oil is then pumped to the processing facility. In situ production has the advantage of a much smaller surface footprint, since it doesn't require the removal of overburden from the surface above the deposit. Nor does it require extensive tailings ponds.

There are two primary methods of in situ bitumen production. Cyclic Steam Stimulation (CSS), or the "huff-and-puff" method, was first used commercially in Alberta by Imperial Oil at Cold Lake in 1985. This technique involves the injection of steam into the formation for a period of time, followed by an extraction period in which the oil is pumped out. When the oil flow slows to a certain point, steam is once more injected. This cycle continues until the well is no longer economical.

The other in situ method is called steam assisted gravity drainage (SAGD), and it was enabled by the same horizontal drilling breakthroughs that enabled the hydraulic fracking revolution. SAGD was first commercialized in 2001 by Cenovus at Foster Creek, and it was the single biggest reason that Canada's oil reserves more than quadrupled in the past 20 years. Once a technique makes it both technically viable and economical to produce a resource, it can be placed in the reserves category. Again, this is a similar situation to fracking, where resources in places like the Bakken and Eagle Ford became reserves when fracking made them economical to produce.

SAGD involves drilling a pair of horizontal wells, one about 5 meters above the other. Steam is injected into the upper well for months to heat up the bitumen. I learned from Cenovus that its initial projects required the company to inject steam for 18 months before producing oil, but as the engineers progressed up the learning curve the timing has been reduced to three months of steam injection. Once the wells start to produce, they have tended to produce almost without depletion for 10 years (a situation very unlike fracking, where wells initially deplete rapidly).

The horizontal wells can be drilled for miles in many directions from a single well pad, and as a result a large land area can be accessed without a huge environmental impact on the surface. A well pad such as the one I visited below can produce nearly 20,000 bpd of bitumen for 10 years before depletion begins to curtail production.

oil sands drilling pad photo

Cenovus SAGD well pad with nine well pairs. Source: Cenovus

There are certainly environmental issues to be managed, and I discussed some of them in detail in another column. (For those interested in the environmental concerns, see my article Oil Sands and the Environment). Nevertheless, based on what I saw on my trip, oil sands production growth is poised to remain high unless oil prices collapse. SAGD will lead the way, but production via surface mining is also expected to remain strong for the next two decades.

In this week's Energy Strategist I will take an in-depth look at the two companies that I visited on this trip -- Cenovus Energy and Canadian Natural Resources Limited -- and delve into their production costs and overall outlook. In next week's Energy Letter, I will examine the logistical issues of getting the oil sands to market, including the impact of the Keystone XL decision (regardless of which way it goes).

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

This article originally appeared in the The Energy Letter column. Never miss an issue. Sign up to receive The Energy Letter by email.

The Incredible Ironclads Blow Ancient Investing Rule to Smithereens

You know the old adage of investing: You can't earn big gains without taking big risks. Forget about it with these beauties! I've uncovered a cluster of 8 related stocks earning the highest safety ratings possible while delivering an average return of 265% plus an average yield of 5.3%.

Find out more.

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