Top Picks 2007: Vivian Lewis trusts in tars sands

Posted Dec 23rd 2006 8:30AM by Steven Halpern
Filed under: Newsletters, ETF Investing

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Canadian Oil Sands Trust (TSX: COS.UN) is the top conservative buy for 2007 from international investing expert Vivian Lewis. The editor of Global Investing notes, "Canada recently slapped surprise taxes on income trusts. Nevertheless, we think oil sands will also be a good idea even if not exempt from taxes on dividends.

"The main reason is that the dividends are pretty meager. COS pays 2.7%. This is not going to cause a sell-off in the share, even if the dividend is cut in 2011. The trust, however, dropped 10% in what I consider a mistaken reaction to the tax news.

"Meanwhile, Canadian Oil Sands Trust saw third quarter volumes and sales prices rise, which partly offset higher royalties paid, while net fell 27%. The dividend is 30 cents per unit. The stock is up 41%, including dividends, over the past year.

"Meanwhile, Talisman Energy agreed to sell its indirect 1.25% interest in Syncrude to COS's operating unit. The transaction is modestly accretive, increasing reserves and production per unit out by about 2%. Further, Talisman's preference to retain some exposure to Syncrude through COS leaves its balance sheet relatively unchanged.

"The move by COS shows that part of the concern many have expressed over the proposed new Canadian taxes on income trusts does not apply across the board. With a yield of 2.7% before the taxes come into effect in 2011, no one is buying this fund for income.

"And if the payout level falls, the argument for developing the Athabasca oil sands remains compelling. As a result, COS can actively acquire other interests in Alberta oil sands -- and perhaps also in other Canadian energy -- without serious impediments from its shareholders, the authorities, or even competitors."

To see Vivian's favorite speculation for 2007, click here.