Canadian Natural Rsrcs (CNQ.TO)

Energy is a big long-term cyclical. He is not bullish on energy long-term with a lot of new potential supply. One of the better companies and it is fine to hold. One of the most secure holdings in the sector with a good track record.

His favourite Canadian oil producer, but he sold all his oil producers six months ago, because Canadians can't get world prices for oil. He bought U.S. producers instead, because they get that world price. Canadians have failed to
build pipelines. There will come a time when we will have pipelines, but that time looks far off.

He sold a month ago because it declined below moving averages. The spread between heavy and light oil is significant, as is Canadian oil prices vs. world prices. It is a challenge for a lot of Canadian oil and gas companies.

(A Top Pick June 14/17 Up 17%) He thinks this will easily get back to $55 per share. The company is pushing out $5 billion in cash flow per year now. It is now over 1 million barrels per day in production and is already targeting 1.3 million per day. They could be one of only 2 or 3 companies who might dominate the space.

He expects heavy oil differentials will normalize soon. This company is building a free cash flow machine as costs are falling and revenue is increasing. Yield 3.1%. (Analysts’ price target is 57.34)

Energy producers have been weak this summer, but strengthening in the last few weeks. He looks for companies that thrive through too patches. CNQ is better than the group. The sector is catching a bid; the cyclicals will do better in this next part of the cycle. They will generate a lot of cash and improve their multiples. CNQ will do well.

There are short term opportunities in the oil patch due to Venezuela’s collapse and restraints within Saudi Arabia. CNQ is the quality play in this sector, so someone who buys this company is not hurting themself. However, he thinks there are way better places to make money than resources. He thinks the Permian will drown the market with more oil and there are difficult issues in access to market for heavy Canadian crude. This is a well-run company but this type of business is too tough at the moment.

This would be a conservative choice with 50% light oil exposure. He thinks there are companies with more leverage – like Cenovus. CNQ-T is a fine company and they are buying back stock.

(A Top Pick August 21/2017, Up 16%). Pipelines are weighing on sentiment. Just finished a big cycle of cap spending, so this frees up cash flow to pay higher dividends. Higher dividends, not growth, is the future of the oil patch. Smart in buying up distressed assets. Will be around for a long time, no matter what happens to pipelines.

Along with Suncor, these are the two big boys on the block for the energy sector in Canada. CNQ-T has done some great acquisitions and have managed their balance sheet smartly. Once capital flows back into the sector, this will be an excellent holding.

It has been selling off more aggressively than integrated companies, because of their lack of refinery exposure. Their production growth and cash flow yield looks very good. They have been buying back stock. He sees better opportunities to take advantage of rising oil prices, but would continue to hold it.

Canadian Natural Resources (CNQ-T) vs Suncor (SU-T). Both are trophy stories of Canada. CNQ is in 2 businesses and Suncor is in 3 businesses. CNQ is in the oilsands. Suncor is in the oilsands plus the production side, and the refining business. Both are generating free cash flow. CNQ is looking at expansion in their Horizon project. Suncor has been increasing dividends and buying back stock. On weakness on either, both would be great to own.

VET-T vs. SU-T vs. CNQ–T. CNQ-T is the cheapest of the three in terms of price to book. It has a nice upside potential of 40% on current earnings, which have been rising at a nice clip. Buy the cheapest of the three.

The best large-cap energy company in Canada. However, Iran, Iraq, Russia, Libya and other big oil producers are being constrained to sell oil. Canada, too. We need better politics to make our energy sector more attractive to investors. He fears a revolution in Venezuela in five years where they want to bring Exxon. Other countries, like Iraq, need oil revenues, too. That said, the world is reducing fossil fuel consumption. This is a tough business