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Under the Radar: Take Off to the Great White North

Been there, done that. The market could barely stifle a yawn at this week's 25 basis-point rate cut by the Federal Open Market Committee . But even in a slow, sleepy summer week like this one, a few nuggets of news and intelligence may have slipped under your radar, and they could make you money in the weeks and months ahead. Here's a look at what we found.

Anadarko Looking North?



Rumblings out of Calgary, Alberta, late in the week suggest Anadarko Petroleum (APC - Get Report) may be looking to expand its Canadian presence. Sources north of the border say that the Houston-based exploration-and-production company is scouting out a possible deal with Anderson Exploration (AXN - Get Report), a Calgary-based company with proven reserves of 664 million barrels of oil equivalent. Natural gas makes up 65% of its current production.

In recent presentations, Anadarko has hinted at its interest in getting larger and its attraction to Canada. According to one Canadian trader, Anderson is in Canada what Mitchell Energy (MND) is in the U.S.: a top-tier natural gas company with solid, proven reserves. "If Mitchell is one of the last jewels in the U.S., Anderson fits that bill in Canada," he says. What drew Devon (DVN) into acquiring Mitchell is likely pushing Anadarko toward Anderson.

Recent market reaction hints that Anderson is in play, as the stock has moved higher on heavy volume since Wednesday. "Something is happening; there is a lot of conviction in the market about Anderson," says Scott Walters, a trader at Toronto-based Research Capital. "We're hearing Anderson will sell if they can get $35 Canadian or better." At current exchange rates, that equals about $22.70 a share. Anderson closed at $18.04 Thursday.

Anderson in Play
Rumors of a possible takeover might be fueling this stock.

The interest is likely from a U.S. company, either Anadarko or someone else. " Calpine (CPN) has also been tossed about, but they already have a presence in the McKenzie Delta," says Walters. "The only Canadian company that has the ability to make a deal work is Alberta Energy (AOG), and that is very unlikely."

Walters and others think Anderson Chairman and CEO J. Anderson will be a very willing seller if he gets his price. "At $35 Canadian, he'd be happy to go fly-fishing," Walters says. If the pricing of Devon's deal for Mitchell is any indication, he has a pretty good chance.

An Anderson spokeswoman said she was unaware of any news and wouldn't comment further. An Anadarko spokeswoman said the company's policy is not to comment on speculation about possible corporate activity.

O! (Air) Canada

Speaking of the Great White North, anyone notice the nice run in Air Canada (AC:Toronto) in the past week? It's up nearly 12% this week -- that from an airline that's recently struggled to stay in the air.



Air Canada Flies High
But some question whether the ride can last
Source: BigCharts.com

Part of that run can be attributed to rumors that Air Canada would spin off its regional carrier to raise capital. However, the airline told analysts at Toronto's Research Capital that "we are nowhere close to doing this." Air Canada management said the amount of work involved was overwhelming, not to mention they don't see the current market as the right environment for an airline IPO.

They could change their mind -- at least about the environment -- after news that Continental (CAL) plans to proceed with an IPO of its regional carrier, ExpressJet Holdings. The company plans to offer 18.75 million shares at $15 to $17 a share. While no firm date has been set, establishment of a price range suggests the company is close to completing the offering.

While Air Canada is an enjoyable airline to fly, it hasn't been a pleasant ride for investors, as it's lost nearly 60% of its value in the past year. One analyst suggested using the recent strength to lighten up on the troubled carrier.

Delayed for Takeoff

Speaking of airlines, last week's column advised investors to take another look at AirTran (AAI) as it moved to the New York Stock Exchange. While the sector is turbulent, a few reliable sources suggested that AirTran -- known for its low fares and no-frills service -- was beginning to build loyalty at its Atlanta hub. Plus, its ability to maintain a profit in rough economic times was a good sign for the company's future.

While that may be true, the company said late Wednesday that its third-quarter profits would range from 2 cents to 6 cents a share, well below the consensus estimate of 14 cents reported by Thomson Financial/First Call. The news sent the stock sliding more than 15% Thursday.

Nevertheless, those AirTran bulls tried to find a silver lining. They reminded me that AirTran still expects to post a profit, unlike most major carriers. Still, I don't like such startling news to follow the rosy picture of just a week earlier. This one's coming off the radar, at least for now.

Another piece of sort-of-good news is that UBS Warburg airline analyst Sam Buttrick upgraded the stock to hold from reduce (I assume that means sell) when it traded below $7.

That leads to a very interesting question: How can you hold something that you supposedly already sold?

Hmm, ponder that as you enjoy your weekend.


If you're looking for more on the energy markets, check in this weekend as we present the latest edition of the semiannual TSC Energy Roundtable. Six energy pundits work to make sense of the topsy-turvy oil, natural gas and power markets, including their best ideas to make you money in the months ahead.

Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, Edmonds' firm was long Calpine, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to Chris Edmonds.

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