Canadian Oil Sands Trust: Oil Value Amid Political Turmoil

| About: Canadian Oil (COSWF)

We recommend Canadian Oil Sands Trust (OTCQX:COSWF) stock as a Contrarian Buy for a pure play on long-term oil price with unlevered appreciation potential of 42% to Net Present Value (NPV) of US$38 a unit. Third quarter results, released the evening of October 28, exceeded our recent expectations and the declared quarterly distribution of C$0.50 a share met our expectations. Bloomberg reported that adjusted earnings exceeded the consensus of 8 analysts.

In a long-anticipated change triggered by Canadian government action exactly 4 years ago on Halloween 2006, COSWF and the other Canadian income trusts in our coverage will convert to corporations in 2011. Stock prices have had ample time to adjust to lower corporate dividends that for COSWF we suggest may be C$0.40 a share quarterly next year. To support that we project a continuation of the volume growth of the past seven years adjusted to the historical monthly pattern. We take oil price for the next year from latest futures market quotes.

On the eve of a U.S. mid-term election we are reminded of the parallel situation in 1978 when U.S. political leadership expanded government control, raised taxes and spent wastefully. In the ensuing two years price gained four-fold for gold, more than two-fold for oil and about a half for the broader stock market. When new leadership cut taxes and restricted government and the monetary authority raised interest rates to compensate for inflation, prices stabilized and a new era of economic growth was launched.

Originally published on October 29, 2010.

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