Lower Costs Give Nova an Edge

Article Excerpt

NOVA CHEMICALS CORP. $37 (Toronto symbol NCX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 82.7 million; Market cap: $3.1 billion; SI Rating: Extra risk) is studying a plan to extract ethane from excess natural gas at Alberta’s oil sands projects. Nova’s close proximity to gas suppliers in Alberta gives it an advantage over other plastics producers. This new project could further lower its input costs. The stock got as high as $44 in July, partly due to takeover rumours. However, it operates in an economically sensitive industry. For example, the stock fell recently to $34 on fears that the problems in U.S. housing markets would hurt spending and economic growth. The stock now trades at 13.3 times the $2.67 U.S. a share Nova should earn in 2007, and at just 7.9 times its forecast cash flow of $4.52 U.S. a share. The $0.40 (Canadian) dividend yields 1.1%. Nova Chemicals is a buy. buy…