Energy Stocks
Resource and commodity stocks in general should make up only a limited portion of your portfolio—say less than 20% for a conservative investor or as much as 30% for an aggressive investor. And as part of that segment, energy stocks could make up, say half of that total. The rest could be fertilizer stocks, mining stocks and so on.
Oil and gas stocks have been below-average performers lately, and many investors are tempted to get out of the industry altogether. However, the energy sector can play a crucial role in your portfolio as a hedge against inflation. The low inflation rates of the past couple of decades deserve some of the blame for the poor performance of the sector. However, energy stocks will likely rebound in years to come as the global economy recovers.
- Invest mainly in well-established companies;
- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
- Downplay or avoid stocks in the broker/media limelight.
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Beginning today, we launch Best Canadian Stocks, a feature which will appear every Tuesday as our daily post. We also launch a new approach—you will get our specific advice on whether to buy, hold or sell the stocks we profile, with a full explanation of how we arrived at our opinion. You will read about stocks making moves you should know about covered in one of our three newsletters featuring Canadian stocks—The Successful Investor, Stock Pickers Digest and Canadian Wealth Advisor. On Thursday, look for our first weekly feature on U.S. stocks, complete with our specific buy, hold and sell advice. PENGROWTH ENERGY (Toronto symbol PGF; www.pengrowth.com) produces oil and natural gas in Western Canada and off the Nova Scotia coast. Gas accounts for 55% of its production; the other 45% is oil....
Pat McKeough responds to many requests from members of his Inner Circle for specific advice on specific stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week we had a question from an Inner Circle member about an offshore drilling company that has grown quickly in less than 10 years in business. Pat looks at the advantages Seadrill derives from its modern, high-quality drilling rigs as well as the pressure building new rigs puts on the company’s balance sheet. He also examines a recent deal Seadrill made with Russian oil producer Rosneft and the complications that may arise from European Union economic sanctions against Russia. Q: Hi Pat: What are your thoughts on Seadrill? Thanks....
Bombardier recently had to suspend test flights of its CSeries passenger plane because of a problem with its Pratt & Whitney engines, which are 20% more fuel-efficient than current models. This was the first major issue with this new engine in over three years of testing. The delay will probably add to the CSeries’ development costs, but Bombardier still expects to begin deliveries in the second half of 2015. BOMBARDIER INC. (Toronto symbols BBD.A and BBD.B; www.bombardier.com) is the world’s third-largest commercial aircraft maker, behind Boeing and Airbus. It is also the world’s leading passenger railcar manufacturer....
Pat McKeough responds to many requests from members of his Inner Circle for specific advice on specific stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week an Inner Circle member asked us about one of the energy stocks involved in developing alternate sources of fuel. Clean Energy Fuels serves customers who operate commercial vehicles powered by natural gas. T. Boone Pickens, a leading proponent of alternative energy to reduce American dependence on foreign oil, is a major shareholder in the company. Pat examines Clean Energy’s business and assesses its prospects as various alternatives to the internal combustion engine continue to compete for government support and consumer confidence. A: Clean Energy Fuels Corp. (symbol CLNE on Nasdaq; www.cleanenergyfuels.com), is a North American seller of compressed natural gas (CNG) and liquefied natural gas (LNG). Its customers operate natural-gas-powered vehicles in the refuse, transit, ports, shuttle, taxi, regional trucking, airport and municipal fleet markets....
Pat McKeough responds to many requests from members of his Inner Circle for specific advice on specific stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week we had a question from an Inner Circle member on two Canadian energy stocks. In spite of its name, Tourmaline Oil has 85% of its output in natural gas. Whitecap Resources has the greater part of its production in oil. Both companies enjoy rising production—in Whitecap’s case, spurred in part by acquisitions. Pat examines both companies’ prospects for continued production increases and whether their share prices—and Whitecap’s dividend—can keep on rising. Q: Hi Pat: Can I have your view on Tourmaline Oil and Whitecap Resources? Thanks....
AGRIUM INC. (Toronto symbol AGU; www.agrium.com) continues to benefit from its plan to expand its retail operations, which sell seed, fertilizer and other products to farmers. Steady sales from the company’s stores help offset its exposure to volatile fertilizer prices. Agrium’s 1,400 outlets in North America, South America and Australia now supply 75% of its sales and 40% of its earnings. The remaining 25% of sales and 60% of earnings mainly comes from making fertilizers from natural gas. Agrium also operates potash and phosphate fertilizer mines. Sales jumped 82.8%, from $9.1 billion in 2009 to $16.7 billion in 2012 (all amounts except share price and market cap in U.S. dollars), thanks to rising fertilizer prices and acquisitions of retail stores, particularly in Australia. However, lower fertilizer prices cut its 2013 sales to $15.7 billion. Earnings were $7.31 a share (or $1.1 billion) in 2013....
PEYTO EXPLORATION & DEVELOPMENT CORP. (Toronto symbol PEY; www.peyto.com) produces and explores for oil and natural gas in Alberta. Its average daily production of 72,209 barrels of oil equivalent is 90% gas and 10% oil. In the quarter ended March 31, 2014, Peyto’s cash flow rose 53.6%, to $1.06 a share from $0.69 a year earlier. That’s because the company raised its production by 30.4%. Gas prices also gained 27.5%, to an average of $4.45 per thousand cubic feet from $3.49, while oil prices rose 6.1%, to $80.49 a barrel from $75.88. Peyto plans to spend $625 million on exploration and development in 2014, which will let it drill 110 to 125 wells. To put that in context, the company spent $578 million to drill 99 wells in 2013....
PASON SYSTEMS (Toronto symbol PSI; www.pason.com) is trading near all-time highs as it continues to gain from the boom in U.S. shale oil and gas drilling. Pason rents equipment for monitoring and managing oil and gas rigs. It also sells communication technology, such as its satellite system, which companies use to remotely collect data from their drilling operations. Pason serves oil and gas producers and drilling contractors throughout Canada, the U.S., Mexico, Argentina and Australia....
DEVON ENERGY CORP. (New York symbol DVN; www.dvn.com) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 57% gas and 43% oil. In 2011, Devon sold all of its international and Gulf of Mexico properties, which it saw as risky and expensive to develop. The company aimed to focus on its North American projects, which include conventional production, Texas shale oil and Alberta oil sands....
Natural gas prices are now at $4.72 U.S. per thousand cubic feet, up 159% from their low of $1.82 in April 2012. The best low-risk way to profit in natural gas is to invest in companies that are steadily increasing their production and cash flows. Here are two producers we cover in our newsletter on safety-conscious investing, Canadian Wealth Advisor. Note: ARC Resources has just released its first-quarter results and these will be reviewed in an upcoming issue of Canadian Wealth Advisor....
