Arc Resources Ltd (ARX.TO)

(A Top Pick August 18, 2017. Down 5%). The company executes excellently. This is primarily a gas company. Gas prices in Canada are extremely depressed because the infrastructure for gas delivery was designed to take southern Alberta gas to the US and Eastern Canada, but all the new discoveries have been made in Northern BC and Northern Alberta. The infrastructure to bring this out is still being built out. Arc has a lot of natural gas liquids. He expects natural gas prices to rise going into the Fall.

Do not have a final investment decision on the LNG plant project yet. Should have a decision on this project sometime this year. Most are thinking the big LNG plant will get built. Most western Canadian natural gas stocks are very cheap. Western Canada is awash in natural gas and North America does not need it. If LNG gets exported globally, will see an enormous boom. Arc is a low cost, high quality operator in this area and may be some merit to own a small position in hope the plant gets built. There is an element of speculation.

Should get LNG positive approval next Friday. All the signs are there. But will service stocks go up as well?

His model price is $13.66, so he seeks the stock as almost 6% overvalued. They pay out as much as analysts expect them to earn. There is better value in American stocks.

It's one of the better-financed oil companies and a strong balance sheet. It has long-life properties to develop. Pays over 4% yield. (Analysts' price target: $18.03)

It is attempting to break its downtrend and to base. You want to see it break $15. If it does that and stays for a couple of days you could step in.

(A Top Pick July 25/17 Down 19%). It is a BC based natural gas producer that has been disappointing due to the lack of takeaway capacity. There is a possible BC LNG facility being talked for the market and demand is growing in North America for natural gas. It is not the time to sell. He likes the yield.

Over 60% of their revenues are oil based and represents over 75% of their revenues. There is upside if there is a positive FID for the BC LNG project by Shell. He thinks it has one of the best management teams. Yield 4.5%. (Analysts’ price target is $17.86)

Projected earnings for 2019 are lower than 2018. His model price is 4% lower than the current price. The yield is barely supported by earnings. There is better value elsewhere and the stock is out of favour.

He expects Shell to go positive on their investment decision in LNG on the West Coast. That will cause a re-rating on gas stocks. (Analysts’ target: $17.97).

Very well respected, they drill some of the most economical wells in the country, it trades at a premium because people have been hiding in this stock. Other companies have more potential to rise because they were more beaten down.

It is a higher quality producer in the top 15%. A good payout ratio. It is a high quality energy pick. They are not subject to transportation problems. (Analysts’ target: $18.01).

It has a very established down trend. He would need to know the composition of the balance sheet. He thinks you should leave it alone as he does not see a technical bottom forming yet.

The price is coming close to book value of $10.37. The balance sheet is in good shape and he likes management. Hold off until it falls closer to book value. Yield 4.5%.

[Is the true value of the natural gas deposits included in their book value? Also, the outstanding shares keep rising, so wouldn't that dilute current shareholders?]The value of the properties they own are included in book value. It's not a market value but an historical cost value. Correct, it becomes dilutive, when there are more shares outstanding the book value per share declines. It becomes dilutive if they back stock at a premium. He likes Arc and has made it a top pick in the past. It's a low-cost gas producer that had a good Q4. A secure dividend and well-run. 4.7% yield