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Dennis da Silva, Managing Director & Senior Portfolio Manager, Middlefield Group
We remain cautious in the near term for general equity markets. A market “breather” would be constructive in forming a longer term base for upside. We continue to favor energy within the resource sector with an overweight to natural gas companies. Natural gas prices are positioned to remain stronger for the next several years on the back of historically weak inventory levels and the emergence of an LNG export market. Investors will enjoy better returns by focusing on companies that deliver the best capital efficiencies, low cost structure, strong balance sheets and per share growth emphasis.
Paramount Resources (POU-T)
Key catalyst is the startup of Musreau gas plant early May to drive 2014/15 production from 20,000 boepd to 70,000 boepd. Valuation backfilled through 2016. Large land base ensures repeatability. Concern over leverage ($1.2B) overdone given Trilogy/MGM/MEG plus oilsands holdings almost equal to amount of debt. On the verge of significant free cash flow through 2014/15.
RMP Energy (RMP-T)
Great 2013 but 2014 is a step change as infrastructure (battery/pipeline) expansion adds 20,000 boepd of capacity for future growth. Could exit 2014 at 15,000 boepd from current 6,000 boepd. Increasing oil weight to 65%-70% from Montney oil. Strong balance sheet and improving margins will drive cash flow per share growth of 50% this year.
CWC Well Services (CWC-T)
Like services given macro picture on higher gas prices, increases producer cash flows and activity increases. CWC is under the radar screen but transformed from just oilfield services to diversified with a recent acquisition of a drilling company. The deal increases company size and expands the client product line. They enjoy a top tier client base. The equity deal and likely Brookfield sales will increase liquidity.
Tourmaline Oil (TOU TSX)
|Then: $39.82||Now: $52.60||+32.08%||TR: +32.08%|
Teck Resources (TCK.B TSX)
|Then: $28.60||Now: $24.29||-15.07%||TR: -11.89%|
Yamana Gold (YRI TSX)
|Then: $15.65||Now: $9.44||-39.71%||TR: -38.16%|
Total Return Average : -5.99%
Performance as at: March 31, 2014
*Index: S&P/TSX CAPPED ENERGY INDEX
*Returns are Net of Fees
Top 5 holdings disclosed as of Feb 28, 2014