Athabasca Oil Sands Corp (ATH.TO)

(A Top Pick Jul 20/18, Down 58%) A small-cap oil stock, but nobody is buying small-cap oil. They are the most levered to a rising oil price or a compressing WCS oil price differential. Their outlook is good, but the market isn't buying. He sold this and bought Cenovus and Whitecap Resources.

With MEG potentially taken out, this may the only significant opportunity to maximize the torque of heavy of oil differentials tightening. He expects the valuation to rise by 50%-100% on oil prices between $70-$80 per barrel.

This holds the type of exposure to oil he likes best as he is very bullish on oil prices going forward. With the Canadian energy sector at the point that everyone hates it, now is the time to buy. They are going to monetize their midstream assets that are high in demand, which will allow them to pay down almost all their debt. If you run an $80 WTI price, he sees this trading in the mid-$4 range.

He hopes they will be able to monetize their midstream assets in the near future for $300 million, which would almost eliminate their debt. This is a good play for tightening heavy oil differentials and higher WTI – which he sees over $80 next year. Yield 0%. (Analysts’ price target is $2.44)

A heavy oil producer that has a lot of leverage on the balance sheet. It trades a relative cheap multiple, but he does not like the exposure to heavy oil. It is a speculative name in his mind that lacks the growth parameters they look for.

They are the number two in Canada. Should be able to monetize some assets and should be debt free. The name is trading at just over 2 times EBITA. At $70 oil, he sees a 102% upside. At $80 oil, he sees an upside of 172%. (Analysts’ price target is $2.41)

Pay attention to producers, and how they’re going to respond to the price of oil. Look at the big producers, the Suncors of the world. They’re going to lead the commodities. Athabasca was up $0.01, when oil was down. Expect Athabasca to get its legs underneath it and start to push ahead. The resistance level is important. Looks pretty good, but prefers Parex, Kelt, and Enerplus.

They have higher operating costs due to oil sands. He has not sold any when it recently peaked. We have exhausted sellers recently. They could be debt free by end of year. (Analysts’ target: $2.25).