For What It's Worth; Energy Edition

November 19, 2018

 On the fear of slowing economic growth in the world and a perceived abundance of oil, price for West Texas Crude have collapsed since the start of October as the following chart shows.  You have probably noticed this on your trips to the gas station in recent weeks.

 This has caused the shares of many businesses in and related to the energy patch to pull back or in some cases collapse.  The following are recent comments from a large GLOBAL institutional money manager.

  • Capital Group, one of the largest foreign holders of Canadian energy stocks, says investors are turning away from the country because of Prime Minister Trudeau’s failure to get pipelines built, which is desperately needed to ease the record discount for oil sands crude.

  • "Capital Group’s energy investments are increasingly shifting to other jurisdictions and that is likely to continue without strong government action," the group's Darren Peers wrote in a recent letter to the PM, asking him to be "more proactive in securing market access which will assure the competitiveness of Canadian energy companies."

  • The firm, which runs ~$1.7T in global assets, holds more than $30B of investments in Canadian companies and is the largest shareholder of Suncor Energy (NYSE:SU), Enbridge (NYSE:ENB), Canadian Natural Resources (NYSE:CNQ) and Keyera (OTC:KEYUF), and owns significant stakes in TransCanada (NYSE:TRP), Cenovus Energy (NYSE:CVE) and Whitecap Resources (OTCPK:SPGYF).

  • While praising efforts by Canadian firms and the government to lower emissions and develop energy assets in a "socially responsible way," policymakers need to do more to help drillers get crude to global markets, Peers wrote.

For those with intestinal fortitude (and time) this has created potential opportunities of varying risk-reward.

 

I will start with what believe is the lowest ‘risk’ and reward. TransCanada has pulled back because of rising rates and delays on pipelines.  Initial price target would be in the $58 range from the current $51-52 range, a move of 11-12% plus dividends.

 

The next option would be Suncor.  Suncor has a target price of $67 from its current $43-44 range, a move of 52% (Canaccord Genuity research…please ask for copy if interested)

 

Any finally we have the riskiest option which is Paramount Energy (I have attached the research report).  The price of this firm has plummeted despite an increase in the price of natural gas. 

The target price for this has been cut to $12 which represent a gain of about 50% from the current price.

Disclaimer:

The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Argosy nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any securities and/or commodity futures contracts. The securities mentioned in this report may not be suitable for all investors nor eligible for sale in some jurisdictions. This research and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without the prior express consent of Argosy.

 

The views expressed do not necessarily reflect the opinion of Argosy Securities Inc. The
information contained herein may not apply to all types of investors. Please consult a
professional before making an investment decision

 

‘historical analysis does not reflect future returns’

 

 

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