Opinions
Todd Johnson
Canadian Natural Rsrcs
CNQ-T
COMMENT
Sep 22, 2015
Stock price when the opinion was issued
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He owns a lot of shares. It's sold off because Canada is for sale since January due to Trump tariffs; energy is for sale again because of oil tariffs; CNQ is exposed to these factors. US shale production is peaking in the next 2 years, as will non-OPEC supply growth. So, there will be massive demand for companies with deep reserves as the demand for oil grows. It trades at 6.4x cash flow at $70 oil, an 11% free cash flow yield; and a 9% cash return (dividend + share buybacks). This is massively oversold.
Concerns about economy, sentiment around energy stocks is lower, oil prices are weak as well. He sold. Long-term, makes sense to own oil and energy. 200-day MA is flat, trending slightly down. Price now below 200-day. Down 26-27% from recent highs. Technicals don't look great. Yield is ~5.65%.
SU is the only true energy name in his portfolio.
Loves it as one of the biggest oil & gas producers. Strong mix of crude, nat gas, and synthetic oil. Production set to grow 12% in 2025. Counting on new Trans Mountain to boost profit. 9/10 on value, 8/10 on fundamentals. US tariffs are a risk, along with unpredictable oil prices.
Paying down debt, strong balance sheet. Chevron assets expected to add nicely to FCF profile. Solid pick for steady cashflow. Yield is 5.5%, reliable.
If she could make this a Top Pick again, she would. Very high conviction on its future. Premier oil company at a discounted price. One of the best management teams in the world. Premier assets and cost structure. Consistently good acquisitions at a good price that are accretive. Strong record of share buybacks and dividend increases.
Revenues are slightly down YOY, but that's a function of oil prices being down. Likes the 60/40 mix of gas to oil.
Core holding, along with SU and TOU. Of oil & gas, gas is probably the better bet right now with LNG coming onstream. Trump says a lot of things and, on the broken-clock theory, some of it may be accurate. But you can't just turn on the tap.
Considerable underinvestment in oil for a while, particularly in Canada. PM Carney is no particular friend of the sector. If onshoring of all this production comes back to America, they're going to have to power it somehow. And there won't be enough windmills, nuclear plants, or solar panels to do it.
Ottawa for the past 10 years hasn't given much clarity about exploration; the whole industry has been wondering what they can and cannot do. However, in this election, all parties are talking about using our natural resources, refine them here, then export them abroad. We need clarity to buy a stock like this. The dividend is high because they CNQ can't grow, a sit and wait situation where they're dying a slow death. He hopes regulatory clarity comes later this year. CNQ is the biggest and best of the group.
Sold off on concerns about Canada, what if another Liberal gets in, tariffs on energy, and exposure to the WCS differential. His fund has to be more sensitive to short-term moves, so he sold and harvested a decent tax loss. So you could sell and buy, say, CVE.
For most retail investors, it's a name you can just sit on. One of the deepest resource bases, rock-solid management team, yield is 6.1% (extremely sustainable). Usually it's defensive.
About 27% natural gas. Not sure exactly what their breakeven on oil price is, probably ~$52 or so. Oil's come down quite a bit on Saudi moves and global demand issues. Trades at a premium (7x) to peers (5x). Good production profile this year. Cashflow per share growth. Really good balance sheet, as is payout ratio.
If you think oil's going to $70-80, go ahead and buy. He's not so sure about that. Other places are easier to invest.
This has the best oil sands mining project. Horizon is a great project for them. They are executing this under budget, which historically has not been the case for oil sands projects. Very disciplined management in capital allocation. A good core holding. Have increased their dividends for about 15 consecutive years. Sees a lot of upside in a normalized oil price environment.