Eric Nuttall, portfolio manager at Sprott Asset Management

Focus: Energy stocks
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MARKET OUTLOOK
Oil bulls remain in a waiting game for the U.S. oil inventory trajectory to improve once imports begin to fall and refineries emerge from their seasonal downturn. We look to the coming weeks to show the increased tightness in the market through crude oil inventory draws in the U.S., as elsewhere in the world inventories have been falling since July 2016. We remain bullish on oil and believe that oil will trade to $60/bbl in 2017. Given that sentiment today is where it was in January/February 2016 (the lows) once sentiment on oil turns, we see 50 to 100 per cent upside in positions we own.

TOP PICKS

FAIRMOUNT SANTROL HOLDINGS (FMSA.N) – Last purchased at $6.56 on March 21, 2017
FMSA is a leading provider of frac sand to the oil and gas industry. Demand for frac sand grew by seven per cent even through the downturn while the rig count fell by 34 per cent+ due to the nature of wells being drilled that consume more and more sand. Looking to 2017 with a bullish outlook on oil, we see demand surpassing previous highs and pricing exceeding 2014 levels. 2018 consensus is using ~$40/t pricing, which is the current spot despite increasingly tight conditions, and every $5/t move improves cash flow by around 32 per cent. At $60/t in 2018, we believe FMSA could more than double, as it has fallen by 38 per cent over the past month due to concerns around too much capacity additions.

TRICAN WELL SERVICES (TCW.TO) – Last purchased at $3.58 on March 22
TCW offers the best way to get access to the tightest area of the Canadian service space. With a slightly improved oil price, we see E&P capex spending supporting further price increases of 20 to 30 per cent in 2017 with further improvements in 2018. TCW trades at 3.4x our 2018 EBITDA forecast versus a mid-cycle valuation of 7x.

WPX ENERGY (WPX.N) – Last purchased at $12.60 on March 17, 2017
WPX offers a low-cost entry into the highest-growth basin in the United States (Permian). WPX is expected to grow production by 28 per cent in 2017 and 41 per cent in 2018 (nearly three times the average Canadian mid-cap) and trades at 5.9x 2018 EBITDA (only a 0.6x premium to the average Canadian mid-cap).
 

PAST PICKS: APRIL 7, 2016

CARDINAL ENERGY (CJ.TO)

• Then: $8.25
• Now: $6.77
• Return: -17.93%
• TR: -14.39%

CRESCENT POINT ENERGY (CPG.TO)

• Then: $17.53
• Now: $14.24
• Return: -18.76%
• TR: -17.27%

EXCHANGE INCOME CORP (EIF.TO)

• Then: $28.04
• Now: $38.09
• Return: +35.84%
• TR: +43.13%

TOTAL RETURN AVERAGE: +3.82%