Cathedral Energy Services (CET.TO)

(A Top Pick March 26/15. Down 82.46%.) A driller and has been an absolute disaster. He has had very few blowouts in the past few years, but this one was absolutely brutal. Eliminated their dividend, revenues have gone way, way down, and they have had to lay off a lot of staff. There is a good chance they will survive, but there is no guarantee. Now has it as a Hold.

(A Top Pick Feb 3/15. Down 87.65%.) He is less certain as to whether this will be a survivor. For people who are very risk adverse, they might want to sell this. If oil/gas goes up, this could be a 10 bagger. The difficulty is, their revenues are getting absolutely killed.

This is a drilling company. Revenues have dropped from $77 million last year to about $50 million. Have also cut back on their capital plan and their dividend which makes sense. His concern was that the debt load had crept up to about $55 million, but they have now cut that back to $38 million. Very smart management.

They cut their dividend in half. They cut their capital spending in half. They cut half their labour cost. They have a reasonably good balance sheet. It is a good time to buy in now. They are smartly managed and a number of companies in this sector will go bankrupt or chapter 11 so this will eliminate competition.

They got out of the Venezuela situation where they were drilling. In the quarter ending in November, they had record revenues. Have expanded into the US. Financial statements are quite reasonable. Yield of 13.47%, but it would not surprise him if they announced a dividend cut in the future. His target price is over $10.

There are 2 Canadian companies that are focused around directional drilling, this one and Phoenix (PCO-X). Over the long-term, both companies have done very well but in the last 5 years, Phoenix has seemed to out execute Cathedral. Before you invest in any energy/resource type company, you have to be looking at what is going on in resource pricing or resource activity. This current pullback could be a buying opportunity.