Cenovus Energy Inc Cuts Capital Spending by $700m

Cenovus now budgeting between $1.8 billion and $2 billion in capital expenditures for 2015

Little more than a month after Cenovus Energy Inc (TSE:CVE, Mkt cap 18.79B, P/E 16.25, Div/yield 0.27/4.29, EPS 1.53, Shares 757.00M) unveiled a significantly reduced capital budget for 2015, plunging oil prices have forced its hand once again, leaving the oilsands major with little choice but to announce a further $700 million in spending cuts.

Cenovus Energy Cuts Capital SpendingAs the Financial Post reports, the Calgary-based firm will trim the number of contractors it employs in order to bring it in line with the current oil landscape.

The company is now budgeting between $1.8 billion and $2 billion in capital expenditures for 2015, which represents a 27% reduction on the budget it announced Dec. 11, and a 37% drop from its 2014 budget.

Predictably, Cenovus pointed at the ever subsiding oil prices as the reason it was cutting $700 million from its spending plans, adding that it aims to take another $400 million to $500 million off from its operating and capital expenses over the next 12 months.

Contractors are thought to make up around a third of Cenovus' 5,200-strong workforce, but the company was not prepared to reveal just how many of those positions were being eliminated.

"We don't have a specific target at this point," said Cenovus spokesperson Brett Harris. "That's something that we're going to be determining over the course of the next couple months."

The Canadian oil company's president and CEO Brian Ferguson said in a statement that the plan is to move "at a pace we believe is more in line with the current pricing environment."

The new budget has been calculated on the assumption that the West Texas Intermediate (WTI) benchmark oil price will average US$50.50 per barrel through 2015, which is significantly less than the company's previous estimate of US$74 per barrel.

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Cenovus Sets Out More Cautious Approach For 2015

Cenovus CEO Brian Ferguson said that the company plans to maintain its dividend "through these difficult times."

Cenovus Energy Inc. (TSE:CVE, Mkt cap 14.60B, P/E 12.63, Div/yield 0.27/5.52, EPS 1.53, Shares 757.00M) is hitting "pause" on hiring for the first time as it waits for stability to return to the oil market, adding that it will also strip back its capital budget by 15% next year.


Cenovus Cautious Approach 2015As the Financial Post reports, the Calgary-based oil company is the latest in a string of Canadian energy companies to unveil reduced spending plans for next year following the drop in oil prices.


Cenovus president and CEO Brian Ferguson said the company has no plans to lay off any staff, but it will not be increasing its headcount. Instead, it will be looking at how and where it can allocate employees.


Cenovus, which split from Encana Corp. in 2009, is said to be one of the fastest growing companies in the oilsands, with the number of its employees increasing 59% to 3,544 from 2,221 since the separation.


However, the staffing announcement, coupled with the news that the company is to limit its capital budget so that it falls between $2.5 billion and $2.7 billion in 2015, puts the brakes on this expansion somewhat.


Cenovus explained that it would be able to fund its committed capital with internal cash flow if West Texas Intermediate prices averaged US$65 per barrel next year. But the company has forecast a 29% drop in cash flows to between $2.6 billion and $2.9 billion in 2015 – a considerable comedown from the $3.8 billion to $3.9 billion expected in 2014.


Ferguson says, though, that the company plans to maintain its dividend "through these difficult times."


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The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.
 

 

 

 

Stockwatch – Michael Sprung on BNN Market Call Tonight

Stockwatch – Top Picks

Stockwatch – Cenovus Energy Inc., CVE-T, Owned by clients, Last Purchase May 12, 2014, $31.25

Cenovus is an integrated oil and gas company focused on the development of bitumen assets in Alberta with significant joint venture operations at Foster Creek and Christina Lake.  Production should ramp up strongly over the next few years resulting in increasing earnings, cash flow and potential dividend increases.  The stock has lagged the energy sector over the past year and appears attractive at current levels.

Stockwatch – Fortis Inc., FTS-T, Owned by clients, Last Purchase March 4, 2014, $30.55

Fortis is the largest investor owned gas and electric distribution utility in Canada with operations in the US and Belize.  Over the next few years, Fortis is expected to significantly increase its rate base.   The acquisition of UNS in Arizona is closed on August 15, well ahead of schedule.  The addition of UNS is a major step for the Company.  During this period of transition, the yield will support the stock and given the longer term anticipated earning growth, the investment should do well.

Stockwatch – Stuart Olson Inc., SOX-T, Owned by clients, Last Purchase March 20, 2014, $9.00

Stockwatch - Michael Sprung BNN Market Call Top Stock Pick Stuart Olson Inc formerly The Churchill Corporation

Stockwatch – Michael Sprung on BNN Market Call. Top Stock Pick: Stuart Olson Inc., formerly The Churchill Corporation

Stuart Olson Inc, formerly The Churchill Corporation, is one of Canada’s largest construction firms providing general contracting and electrical building systems contracting in the institutional and commercial construction markets as well as electrical, mechanical and specialty services in the industrial construction markets.  The Company is recovering from an acquisition in 2010 that resulted in losses from poorly priced contracts.  With a record high backlog of projects at better margins, profitability should increase going forward.  The dividend currently yields 4.8%.

Stockwatch – Outlook:

Investors have been the beneficiaries of surging markets in North America over the past few years as the economies have recovered from the financial crisis.  Valuations have been stretched as multiples have expanded.  In this environment, taking some profits where securities have had large appreciation may be prudent.  A larger weighting in cash can provide a good option to be deployed should any market setback occur.

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The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.

    Stockwatch – Cenovus Energy Marks Record Cash Flow in Q2

    Stockwatch – Independent oil producer Cenovus Energy Inc (TSE:CVE, Mkt cap 25.30B, P/E 21.58, Div/yield 0.27/3.19, EPS 1.55, Shares 756.94M) recently published its results for the second quarter of this year, which ended on June 30. Brian Ferguson, president and CEO of the firm, pointed out in the announcement that the company had generated record cash flow during the period – a jump of 37% or $1.19 billion.

    Cenovus Grand Rapids SAGD Total

    Stockwatch – Cenovus Energy generates record cash flow

    The increased cash flow was aided by 34% higher operating cash flow from Cenovus’s oil and natural gas-producing assets. This, in turn, could be explained with the year-over-year increase in oil sands production, as well as the higher prices of crude oil and natural gas.

    Cenovus generated a net income of $615 million – net earnings more than tripled compared to the same period last year. Higher operating earnings and a non-operating unrealised foreign exchange gain in the amount of $177 million contributed to the increase. The company’s operating profits saw a rise as well, up 85% to $473 million.

    Cenovus said increased production at its Christina Lake oil sands project served as a boost to its second quarter profits. Christina Lake production marked a 77% rise from the second quarter in 2013, averaging almost 68,000 barrels per day net.

    Production at the company’s other sand project, Foster Creek, rose 3% compared to the same period in 2013, averaging nearly 57,000 barrels per day net.

    John Brannan, Cenovus Energy’s executive vice-president & chief operating Officer, noted in the announcement that the marked growth in oil sands production, as well as the robust cash flow coming from the company’s conventional and refining assets, serve to show that Cenovus Energy’s integrated business strategy really works.

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    The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.

    StockWatch – Five Stock Picks from Michael Sprung of Sprung Investment Management

    StockWatch – “We are still finding relatively good value in the energy sector,” says  Michael Sprung, President of Sprung Investment Management Inc., in an interview with SmallCapPower.com. Mr. Sprung provides some insight into corporate Merger & Acquisition activity and mentions five stocks that he likes currently, including two small-cap names.

    Mark Thorburn: Founded in 2005, Sprung Investment Management help clients moderate swings in market volatility through a “value investing” approach. Aimed at preserving wealth and providing a real rate of return after fees and inflation, they are known for employing philosophies that run contrary to current investment trends.

    Sprung is different from other investment management firms and that they make a deliberate attempt to minimize trading and transaction costs. They make decisions based on due diligence and staying in the course rather than reacting to market volatility.

    In June 2014, we asked Michael Sprung about his current view of the economy.

    StockWatch – See the interview at SmallCapPower here>>

    Michael Sprung: Well, I think right now we’re at a very interesting crossroads. Gwyn Morgan was writing the other day in the Globe and Mail, He noted that Der Spiegel had an article about a week or so ago and the headline was, “Troubled Times: Developing Economies Hit a BRICS Wall.” He’s referring of course to the BRICS, Brazil, Russia, India and China. The fact that those economies to some extent seem to have stalled. Particularly Brazil which we have seen their problems lately in getting the Olympics together, Russia of course facing all the sanctions, India primarily lots of potential bad loans there and corruption and China of course the slowdown in the economy and the overbuilding of infrastructure and so on of the last number of years some of it not in such great quality and so on.

    Where as what we’re seeing in the U.S., the economy is actually an expanding economy now. On an absolutely basis, the U.S. is likely to contribute more to global GDP this year than China. So, where the BRICs had a large surplus contribution before, now the sort of developed economies including Britain and Germany and the U.S. and so on, are actually going to have more of a contribution.

    So I think this is quite interesting because it affects Canada in a lot of ways. It affects Canada in terms of demand for resources. We’re seeing more manufacturing in the U.S. Now, the U.S. is still our largest export partner, but we are depending more and more upon the emerging economies. You wouldn’t know that to look at the stock markets today. To the end of last week, the total return on the TSX was still over 9%. Now, we’ve pulled back a little bit since then. Whereas the U.S. they have been closer to four and the emerging economies you are likely to see two.

    In terms of the stock market reaction, I think we’re in a very interesting time here. Our view is that particularly in Canada perhaps the stock markets are a little bit of ahead of the fundamentals. So we would not be surprised to see a pause. Now, if we did see a pause due to the fact that the U.S. is picking up to the extent that it is, we think that could be an opportunity for investors to step in.

    Mark Thorburn: What is your view on the new strategy at Rogers Communications Inc. (TSE:RCI.B)?

    Michael Sprung: I think Rogers faces a number of issues and problems to get over. One of them is the backbone of their infrastructure in terms of technological ability; it appears to have stalled out relative to some of the newer things that are available such as fiber. They do compete in the wireless world, but they’ve been having trouble. They’ve defined their new strategy in terms of trying to get back both business and retail confidence to try to reestablished themselves as technological leaders and to try to just regain some of the share that they’ve lost over the years.

    I think that they’re going to have a tough time achieving that. Now, they’re adapting a structure that is not unlikely see in other telcos, but they’re still going to have an awfully large executive suite. They’re not only going to have sort of consumer enterprise and media but with that, they’re going to have all of the other sort of corporate human resources, legal, accounting, and so on. So it ends up with about 12 or more people still in that executive suite. So I think it’s going to be a very difficult for them to achieve the turnaround that they’re looking for particularly in a short period of time.

    Mark Thorburn: There have been a number of Canadian banks that have reported strong earnings this quarter, are there any other banks that you think will surprise on the upside?

    Michael Sprung: Well, we’re certainly hoping that tomorrow this Canadian Imperial Bank of Commerce (TSE:CM) will surprise on the upside. Now, so far we’ve seen Bank of Nova Scotia, Royal, TD and National Report. Certainly, with the exception of the National, I think the results were far ahead of expectations and more of the real surprises came in.

    A lot of people have been talking about the head winds and credit and the debts of consumers and yet we’re seeing provisions for credit losses at least the ratios remained relatively low. So credit has been surprising on the upside.

    Net interest margins in this environment to a great extent have been expanding. We’re seeing great results out of international banking and capital markets have surprised more on the upside than the downside particularly with respect to trading and so on.

    Now, we own exposure to Royal Bank and Nova Scotia and CIBC. I think tomorrow when CIBC reports, people are going to be looking very closely not only at the credit situation but also the success of their new credit card programs since they lost Aerogold to the TD. Aerogold did contribute somewhat to TD’s results, but I think this new Aventura Visa card that CIBC has coming out is going to surprise people on the upside as well. So overall, we’re expecting to probably have fairly healthy results out of the CIBC tomorrow and we look forward to seeing that when it happens.

    Mark Thorburn: Do you anticipate that merger and acquisition activity is going to pick up in 2014?

    Michael Sprung: Yes, we do. We anticipate that M&A activities going to pick up for a number of reasons. We’re in a slower growth world than we were in previous cycles. In order for companies to grow, I think they’re going to depend more and more on M&A activity to achieve that incremental growth. I think we’re already seeing it in a number of areas, energy being one. But we’re also seeing it amongst pharmaceuticals and other companies today. In a world where GDP growth is going to be much slower around 2.5% to 3% in order to achieve that, and I think beyond organic growth we are going to see a much more dependence on mergers and acquisitions. So that should make the investment bankers quite happy.

    StockWatch Michael Sprung SmallCapPower.com

    StockWatch – “We are still finding relatively good value in the energy sector,” says Michael Sprung

    Mark Thorburn: What sectors do you currently like?

    Michael Sprung: Well, in terms of places where we continue to find value, I’d have to say that despite the fact that energy is been amongst the best performing sectors of the TSX so far this year, we’re still finding relatively good value. I mean energy as a whole has been up about 14% year-to-date. And despite the fact that we’ve seen natural gas prices increased by both 12% which I think has surprised people on the upside, however, West Texas Intermediate for instance is only up about 3.5% year-to-date. We’ve seen a lot of the stocks beginning to run. I think largely as a result of the production increases that we’re beginning to see particularly in the U.S. and that is also contributing to the efficiencies in the economy to some extent particularly on the manufacturing side.

    So in terms of exposure, we still today like in Canada for instance. Now, and Canada has really, really surprised people with some of these things that they have done in terms of the recent of issue of PrairieSky by Encana Corporation (TSE:ECA) at prices above what anybody thought that they might be able to sell that at. That’s been a great surprise spinning out of the royalty business in Clearwater. The purchase of the large chunk in Eagle Ford I think has also been particularly a positive surprise to the market. We expect going forward that that will continue to be reflected in positive results in the share price at least over the next number of years.

    We also think that the dependence on natural gas make it down on the next couple of years to both 75% of production from the 85% where it currently is.

    We also like Cenovus Energy Inc (TSE:CVE) because that’s a company where you have fairly predictable production increases over the next number of years. The capital goes again to it. Again, they manage to maintain the cost of that oil sands development to a great extent. It’s a very efficient company, a very efficient management and they do have a both upstream and some downstream assets as well.

    Finally, of course, Suncor Energy Inc. (TSE:SU) which has been a long-term holding of ours which is more of a fully integrated play but again good balance sheet, great management, and again expanding production over the next number of years. So we like all three of those and we’ll continue to hold them.

    Mark Thorburn: Do you have any favorite small cap companies you’d like to mention?

    Michael Sprung: Yes, occasionally we do go down into the smaller cap and in fact what people might even consider almost micro cap. One exposure we have is Temple Hotels Inc. (TSE:TPH). Now, eight of the twenty-one hotels that Temple owns are in the Fort McMurray area. Given the limited expansion available there, they have quite a lock on the market. They also have been very aggressive acquirers of hotels in other areas primarily in the west.

    We see this is a company that, today you can buy for roughly eight times available funds from operations that used to be a unit trust, so we still tend to look at it that way. Yet, it carries a very healthy yield around 8.5% which reflects a payout ratio of about 75%, so I think that’s quite sustainable. So there is a company that we’ve done very well on that I think we will continue to hold unless it appreciates quite dramatically from here.

    Another example would be Alaris Royalty Corp. (TSE:AD) which is a more recent purchase of ours. This is almost like a private equity firm but rather than take equity interest directly in companies, they issue preferred shares which escalate in terms of their payouts provided certain benchmarks are made and if they don’t, then it can convert into real equity.

    So they have had an expanding dividend over the last five years and we suspect that that will continue to expand. They currently have 12 investment partners, the largest of which represents both 17% of their funds coming in. They plan to reduce that to about 10% into not too distant future. So we’re seeing a diversification amongst health care, industrial, retail other areas, they tend only to invest into private companies which have good long-term tenure track records at least. So I think it’s been so a very, very smart management team that is designed to this company which is very, very lean at head office.

    So again, it’s currently selling under $29 I think. Anything under that level it certainly could represent a good longer term purchase.

    Mark Thorburn: Thank you for taking the time for the interview today, Michael.

    Michael Sprung: Thank you.

      Stock Watch – Cenovus Buys Oil Sands Processing Facilities from French Total

      Stock Watch –  Cenovus will use SAGD facilities at its planned Grand Rapids oil sands project.

      Canadian oil sands producer  Cenovus Energy Inc (TSE:CVE, Mkt cap 24.20B, P/E 36.61, Div/yield 0.27/3.33, EPS 0.87, Shares 756.51M) has bought steam-assisted gravity drainage facilities from French oil and gas major Total SA that will be used at its planned Grand Rapids oil sands project.

      Cenovus Grand Rapids SAGD Total

      Stock Watch- Cenovus will use SAGD facilities at its planned Grand Rapids oil sands project

      The processing facilities, which have the capacity to produce around 10,000 barrels of oil a day, were built for Total’s Joslyn oil sands project but were eventually abandoned after an over-pressurized well blew up. The equipment will be now moved to the Grand Rapids site where Cenovus expects to produce 180,000 barrels of oil a day.

      The Calgary-based company, which ended the first quarter with higher-than-expected earnings, obtained approval from the Alberta Energy Regulator for the Grand Rapids thermal oil sands project in northern Alberta in the first quarter of the year. The first phase of the project is expected to start producing oil in 2017.

      CEO John Brannon said in the company’s quarterly conference call that the facilities have been adequately maintained but he declined to disclose the price Cenovus paid for the assets, saying that the information was confidential.

      Cenovus reported net income of C$247 million, or C$0.33 a share, for the three months to March, up from C$171 million, or C$0.23 a share, in the same quarter of 2013. Its operating earnings slipped 3% on the year to C$378 million, or C$50 per share, but were above the average estimate of C$48 a share among analysts polled by Thomson Reuters.

      Production at company’s Foster Creek operations stood at 54,706 b/d in the quarter, down 2% from 2013, while the company’s other major oil sands project, Christina Lake, had an average output of 65,738 b/d, an increase of 48% year-on-year.

      Cenovus Energy Inc
      TSE:CVE

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      The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.

       

      Cenovus Gets Regulatory Go-Ahead for New Oil Sands Project

      Cenovus Energy Inc will develop the Grand Rapids thermal oil sands project, located in northern Alberta, in several phases

      The Alberta Energy Regulator has given the thumbs-up to Canadian oil producer Cenovus Energy Inc (TSE:CVE, Mkt cap 23.78B, P/E 35.97, Div/yield 0.27/3.39, EPS 0.87, Shares 756.51M) to develop a new oil sands project with an expected production capacity of up to 180,000 barrels of oil per day. The news sent the company’s stock 1.8% higher in Toronto on Friday, closing at C$30.50 after touching C$30.63 earlier in the session.

      Cenovus Grand Rapids thermal oil sands project northern Alberta developed several phases

      Cenovus – the Grand Rapids thermal oil sands project, located in northern Alberta, will be developed in several phases.

      The Grand Rapids thermal oil sands project is located in northern Alberta and will be developed in several phases. It is the company’s fourth approved oil sands project and is expected to have a life of 40 years. Calgary-based Cenovus said it would decide on when to start developing the field later in 2014.

      Cenovus has been producing oil in the area for over 15 years from the Wabiskaw formation and has operated a steam-assisted gravity drainage (SAGD) pilot project at the site for more than three years. The oil producer said that it has so far drilled around 180 stratigraphic test wells at Grand Rapids to qualify for the permit and support its development plans. The results have confirmed that the reservoir is “very consistent.”

      Cenovus’s other oil sands projects include Foster Creek, which has a production capacity of some 110,000 barrels of oil per day, and Christina Lake, which has a daily output of 130,000 barrels of oil. The company plans expansions at both fields and expects that its third project, Narrows Lake, will start production in 2017. Cenovus owns these three projects together with ConocoPhillips.

      Free Portfolio Review – Markets were up in 2013. Are you at risk in 2014? Sprung Investment Management Is Pleased To Offer Qualified Investors A Free Portfolio Review—Without Cost or Obligation. Learn more here>>

      The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.

       

      Top Stock Picks and Market Outlook – BNN Market Call, Friday March 7

      Top Stock Picks and Market Outlook – Michael Sprung Interviewed by Mark Bunting on BNN Market Call

      Top Stock Picks

      Cenovus to improve Foster Creek's SOR ratio in 2014

      Cenovus has taken steps to improve Foster Creek’s SOR ratio.

      Michael’s top stock picks for Friday March 7 are:

      Cenovus Energy Inc. (TSE:CVE, Mkt cap 22.22B, P/E 33.63, Div/yield 0.27/3.62, EPS 0.87, Shares 756.12M) Owned by clients, last purchase March 6, 2014 $29.08.
      Cenovus is an integrated oil and gas company focused on the development of bitumen assets in Alberta with significant joint venture operations at Foster Creek and Christina Lake.  Production should ramp up strongly over the next few years resulting in increasing earnings, cash flow and potential dividend increases.

      Fortis Inc. (TSE:FTS, Mkt cap 6.54B, P/E 18.82, Div/yield 0.32/4.17, EPS 1.63, Shares 213.16M) Owned by clients, Last purchase March 4, 2014 $30.55.

      Fortis Inc. owns 51% of the Waneta Dam in BC. Expansion will add a second powerhouse located immediately downstream of existing dam.

      Fortis Inc. owns 51% of the Waneta Dam in BC.

      Fortis is the largest investor owned gas and electric distribution utility in Canada with operations in the US and Belize.  Over the next few years, Fortis is expected to significantly increase its rate base.  Approval for the acquisition of UNS in Arizona is expected later this year.  During this period of transition, the yield will support the stock and given the longer term anticipated earnings growth, the investment should do well.n the longer term anticipated earnings growth, the investment should do well.

       

      Enercare is focused on the securitizing and renting of water heaters and sub-meters.

      Enercare is focused on the securitizing and renting of water heaters and sub-meters.

      Enercare Inc. (TSE:ECI, Mkt cap 607.93M, P/E 347.01, Div/yield 0.06/6.69, EPS 0.03, Shares 58.46M) Owned by clients, Last purchase March 5, 2014 $10.19

      Enercare is focused on the securitizing and renting of water heaters and sub-meters (primarily in multi-residential buildings).  Results have been improving as attrition in rentals has been dramatically reduced.  Sub-metering is growing and debt has been reduced.  We anticipate that the stock will continue to reflect the ongoing improvements in Enercare’s operations.

       

      Market Outlook

      The Canadian market has had a relatively good start to the year buoyed by stronger energy and precious metal prices and advances in the Health Care and Information Technology sectors.  Weakness in the emerging markets and Asia reflect investor concerns as to the sustainability of the recovery despite evidence of continued improvement in the US and greater stability in the Eurozone.  As evidenced earlier this  week, geopolitical events have an immediate impact on investor sentiment.  We anticipate that more disruptions are likely in the coming months and that investors should be prepared to seize opportunities during these periods.

      See Michael on BNN Market Call here>>

      Free Portfolio Review – Markets were up in 2013. Are you at risk in 2014? Sprung Investment Management Is Pleased To Offer Qualified Investors A Free Portfolio Review—Without Cost or Obligation. Learn more here>>

      The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.