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Three Experts Are Reaping a 'Harvest'

June 22, 2007


thestockadvisors.com

It's rare indeed when three of the top advisors in the newsletter field focus on the same income vehicle - particularly one that is not well-known among investors.

In this case, Mark Skousen in his High Income Alert newsletter, Toby Smith in his ChangeWave Investing, and Richard Lehmann in his Forbes/Lehmann Income Securities Advisor alI favor Canada's Harvest Energy Trust (NYSE: HTE). Here are their reviews.

Richard Lehmann explains, “Harvest Energy is a large integrated oil and natural gas royalty trust with current production weighted about 70% to crude oil and liquids and 30% to natural gas. This aggressive trust is growing rapidly by acquisitions and a technical approach to maximizing assets.

“First quarter 2007 net revenues were $875 million and net income was $59.6 million. Cash Flow was $186.72 million, which represents a payout ratio of 68%. These trust units are treated as equity in a corporation and thus for US taxpayers, the taxable portion of the distribution is subject to a minimum 15% Canadian withholding tax.

“This tax is eligible for recovery on US tax returns as a foreign tax credit and the dividend is Qualified Dividend Income (QDI). This high yielding issue should be used in a high-risk growth and income portfolio. Buy at or below $30.50.

Mark Skousen notes, “Canadian oil & gas trusts are a great way to earn generous double-digit percentage dividends. Right now, Canadian oil & gas trusts give you the chance to buy oil reserves at cheap prices.

"I particularly like Harvest Energy Trust because it pays out a high monthly dividend (roughly 35.5 cents in U.S. dollars or 38 cents in Canadian dollars for a dividend yield of 13.8%. In addition, it also sells at a reasonable multiple compared to other Canadian oil & gas trusts.

"Harvest also owns a major refinery, which is where the big money is being made (profit margin is over 10%). Let's pick up Harvest Energy and set a protective stop at $25.”

Meanwhile, Toby Smith says, "Harvest announced a plan to acquire Grand Petroleum, whose assets include a significant presence in southeast Saskatchewan, the Sylvan Lake/Markerville area and eastern Alberta, which are adjacent to existing Harvest operations with complementary drilling opportunities.

“Harvest's acquisition represents approximately $42,500 per flowing barrels of oil equivalent (BOE). With the daily energy production of U.S.-based master limited partnerships (MLPs) being valued at $200,000 per flowing barrel of oil/equivalent, $42,500 is a steal, steal steal.

“I believe this huge valuation discrepancy will be taken out of the United States vs. Canadian energy producing businesses -- mostly by Canadian producers converting to MLP structures themselves. We expect to see more ‘MLP-ification’ of the Canadian energy trusts. It's going to make us a lot of energy money during the next few years.”



thestockadvisors.com