Baytex Energy Corp (BTE.TO)

Google (GOOGL-Q) or Baytex Energy (BTE-T)? Completely different animals, but to him Google is one of the great growth stories out there. This one is an oversold play in the energy sector and depends on where energy settles out.

Has been crushed. Down to $15.74 from $48. Cut back production and decreased dividend. He has always liked them. They are always ahead of the curve, the first to hire rail companies to deliver oil. It will turn around and it will go up.

Cut their dividend this week. Sold his holdings last September. If you own, you should consider switching into something else.

It is too early to know where oil is going to be. The whole energy trade in 2015 could be phenomenal, even if we saw oil go from current prices to $75-$80. Thinks this is going to be a slow, steady grind back up. They are a big producer. They have some issues with their balance sheet and their cost of production, which they have to manage. They’ve been through this before, and management has got around it. It is too late to Sell at this point in time.

Cut their dividend and CapX program and the stock was up today 4%-5%. This is a name that had a really high yield, and it is almost a relief that they did this. Doesn’t feel that they necessarily had to do it right now, but feels management just wanted to preserve the balance sheet and give themselves some flexibility.

It continues to be a very good company. The balance sheet is a little stretched, however, and the oil price is too low. Any movement up in oil will be leveraged by this stock. There probably should be a dividend cut.

This would be one he would have on his “wish list” to watch. You just need the bottom to come in on crude prices. This has been pummelled in the last little while, like so many of them. Thinks it is a bit overdone. Foreigners own a lot of these energy stocks, and they don’t like the currency and they don’t like oil, so Boom, out they go. We have seen a lot of this in the last few weeks. If you own, give it a few months. You collect a nice yield while you are waiting.

Paid out far too much more than what they were earning. (He emphasizes earning as opposed to cash flow.) This company was paying out $2.88, and were only earning $2.50. Everyone assumed energy prices would go up and they would do acquisitions, issue equity, and keep the dividend alive. With oil falling 38%, that puts a whole question into the model. If earnings are going to fall significantly, the distribution may be cut and these companies are at risk. This one is at a level of EBV +3, which is still very, very high compared to a Suncor (SU-T) trading at EBV +1.

Another energy stock that has been totally beaten up. It is not even starting to show signs of a bottom. Period of seasonal weakness for oil and energy comes to a peak around now. You get seasonal declines in the price of oil and energy stocks between mid-September and the start of December. You should see the selling pressure alleviate somewhat through the course of the remainder of the month. But right now there is no sign of bottom picking. If you can trade this, by all means, but you have to be very nimble.

Had a good 3^rd quarter and things were looking quite nice, and then all of a sudden they had an issue with the tax people on a $50 million question mark on whether they have to pay back taxes to Revenue Canada. That kind of hit the stock at a time when oil prices were going down. This was followed by the OPEC release, so it is like a triple storm has hit them. Management has a really good track record of deploying capital well. Recycle ratios tend to be high relative to the industry. Made a US acquisition on which they paid a little bit of debt for it, which has been an additional concern. A good name. You’ll just have to wait and see you what the oil prices are going to do.

Got hit quite a bit. It has a $50 million tax thing with the CRA, but that is not a big deal. Have a leveraged balance sheet. It is about 3X debt to cash flow. He compared its cash flow of 130% to Crescent Point’s (CPG-T) at under 100%, and avoided it because of the difference. Lower oil prices would make that even worse. If oil stays low for quite a while, this company at some point would probably have to cut their dividend.

Higher risk name because of higher leverage. Their total debt to cash flow is 3 times, but half is long term debt and we could get an oil price recovery in 9 months. It used to trade at a premium to CPG-T, but no longer. In the short term he does not see the dividend being cut.

Has a debt to cash flow of more than two times. Rule of thumb is that when you get more than two it is a warning sign. They did a large acquisition earlier in the year in the US. The company looks stretched, but they have a lot of discretion about how they can allocate the capital. Management has a history of guiding the company well. Thinks they have the ability to skate through this. He is optimistic about the Canadian heavy oil price.

This was a very high growth rate stock. They bought Aurora in June that was going to be very accretive. The risk was that they took on more debt at the time of the transaction, and debt to cash flow went to about 2, which was fine if oil prices stay higher, but not good if oil prices do what they did. Their payout ratio, at $75 WTI and $3.50 natural gas he models at 160%, so that is not a safe dividend.

Likes that this is heavy oil. It has been a great stock looking out over the past 10 years or so, but it has been very disappointing. Sold most of his holdings, because it just wasn’t working. The issue for all oil companies is oil and oil prices. Oil is $76 and he expects we will touch $60 before we touch $80 again. The term structure and the futures are telling you that, and also he doesn’t see strong global growth. (Absent the US and to a lesser extent Canada.) Doesn’t see the dividend being an issue at present.