Stockchase Opinions

Joanne A. Hruska, CFA Canadian Natural Rsrcs CNQ-T BUY Nov 14, 2018

If you want more oilsands, less debt and more valuation, go with Suncor. CNQ is less oilsands, slightly more debt, and slightly less valuation. Both are on watch list. They will have tremendous free cash flows in the coming years as the oil differentials tighten. Both are low cost operators. Both are good buys, but would slightly prefer CNQ.
$36.360

Stock price when the opinion was issued

oil gas
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STRONG BUY

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.

BUY
Will Trump's "drill, baby, drill" keep oil prices low?

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.

BUY

The only oil stock he owns. Never cut its dividend. Low-cost producer, profitable at $40 oil, so oil has to fall a long way for it to not make money. Great free cashflow generator. Disciplined capital expenditures. Conservative, great, wonderful business.

COMMENT

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.

HOLD

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.

DON'T BUY

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.

TOP PICK

Is one of the best-managed companies in Canada. All oil stocks have pulled back, so this is an opportunity. Lots of growth potential through the Oil Sands. Pays a 5.76% dividend.

(Analysts’ price target is $50.74)
TOP PICK

She'd "top pick" this one forever at these prices. A no-brainer. The premier Canadian oil stock. Rare opportunity to own a premium asset at a discount. Oil price may get weaker as international supply comes on. Still makes $$ with a low commodity price. Good mix between oil and gas.

Best-in-class assets with low decline rate overall of ~11%. Strong culture of maximizing shareholder value through buybacks and dividend increases. Yield is 5.45%, and dividend increases multiple times a year.

(Analysts’ price target is $50.94)
WEAK BUY

He's not bullish oil now (nat gas, yes), so he doesn't own CNQ, though it's run well. CNQ has a deep resource base. The value of the Oil Sands will rise because of its strategic value against the dwindling US shale producers. This is reaching the lows of this cycle. CNQ is more oil than nat gas. Pays a 5.5% dividend yield and strong balance sheet. Are paying down debt.

TOP PICK

Offers low-cost production, long reserves (33 years) and a low 11% decline rate. Likes their capital discipline; are paying down debt and paying back shareholders. Trump's threats over oil are unrealistic--America needs Canadian oil. Period.

(Analysts’ price target is $51.23)