Advantage Oil & Gas Ltd (AAV-T)

One of the worst energy names. The CEO and board did one of the word acquisitions in history. When the market wanted natural gas, they added liquids exposure. Are the worst-performing nat gas stock in North America. No upside. An activist has put members on the board.

The price of oil always gets pulled around. He likes the natural gas side a bit more -- it's been through a bear market for years and now coming out of that. Over time, increased ability to get nat gas offshore and the world needs it.

But if you go 100% natural gas it's more risky. So, be more diversified but with a tilt to gas. He likes names that are cheaper than they ought to be. For him that's ARX or, for more torque, AAV.

Contains some natural gas, which tends to be weaker at this time. He'd wait till March on seasonality alone. Looking at the technicals it's moving around a lot, being driven by news. That makes the technicals challenging. Not a large-cap. Trending down, might base out.

He's angry with their recent oily acquisition, just as people are warming up to natural gas. He sold. Can't agree with the company's strategy.

Likes it. CEO is committed and knowledgeable. Many decades of inventory. Good optionality to his bullish view on nat gas to 2025 and beyond. Key beneficiary of LNG Canada. Technically a 12% free cashflow yield, but really closer to 20%. Good upside, roughly $16 target, about 40% upside.

Would consider selling stock given strength. Doesn't think Entropy is a strong business model (baked into energy price). Stock is expensive without Entropy value. Better names in sector. 

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Not overly expensive with a market cap approaching $1B. Momentum is good. Growth is looking good this year and the sector is recovering. Would let this run for now. Unlock Premium - Try 5i Free

Gas vs oil? As there is less oil production, associated natural gas production is falling. He owns BIR and was buying yesterday. AAV has performed well relative to other gas producers. He took profits on AAV recently and moved it into oil producers. BIR is trading at 2 times EV, but cuts its dividend by 81% recently. BIR is more cavalier on its spending, but feels it has more upside.

Oil outlook Oil is tricky. It's a broken market that may or may not be coming back. Some have returned to gold too early. Over the decades, oil has risen and fallen largely due to spin (i.e. Peak Oil). He picks up a little oil when the stocks get cheap. Oil is a messy space. Of the juniors, WCP is his favourite. SU-T is the senior one he likes. But he really likes Advantage (but they deal in natural gas, not oil).

Energy is setting up for its seasonal rally into October. The technical chart is demonstrating a bullish channel. He would really like to see a rally back above $4.90 for a signal it is really going to move. In the meantime there is resistance near $4.25, so expect some choppiness.