Canadian Natural Rsrcs (CNQ.TO)

(A Top Pick January 23/17 Up 17%) This is the elephant in the industry. It is a high-quality company. The heavy oil differential has still hurt them despite the improvement in oil prices. Still a core position. He thinks the differential discount will get fixed, especially once Line 3 is completed on Enbridge.

Everybody loves this stock. They produce about 10% of Canada’s total production. This is one of the best performing names in the industry. Management will probably see $2 to $3 billion of free cash flow this year, which they can use to pay down debt and buy back shares or pay dividends. He sees this as a core holding in the large cap portion of a portfolio.

Everything in Canadian oil is a purchase. Just buy and hold your nose for two years. This is the large-cap oil player he stays away from, but is well-run. They are buying long-life assets from Americans, but paying depressed prices. This
will pay off in the long term.

The dividend looks pretty safe. 63% all-in payout ratio. It has a really good balance sheet. They have 9% production growth and only trade in line with peers. Oil is risky but there are tail winds. He thinks it is time to nibble.

Most of their CAPEX is behind them, so they're enjoying cash flow, paying down debt and increasing their 3.6% yield. Not very expensive. Doing selective acqusitions. Will do even better when the gas price returns. (Analysts' price target $51.83)

CNQ-T versus SU-T. They both rank well in his model. In a rising interest rate world, energy stocks do well. CNQ ranks slightly higher as share earnings will grow 100% in 2018 with a 16 times P/E. He does not own either stock.

He is constructive on the oil price. As demand season picks up here and as differentials narrow, it will be good for them. The free cash flow is going north. They are through the Horizons build. They had a 20% dividend increase. The stock is down year to date, so it is a good level to be accumulating. (Analysts’ target: $51.94).

Good long-term core position. Increased their dividend. The business is doing fine. All energy stocks have come off lately, but CNQ is one of the best ones.

This is the only large-cap oil company he owns. He has preferred CNQ and Suncor for a while, as the two large-cap oil companies to own. CNQ is a better business than Husky Energy. It has a better cash-flow than Husky.

Focused on heavy oil and acquisition related growth. They garner the most international interest. He took profits on CNQ-T recently but it is a great core name to own. RDS-N holds $4 Billion in CNQ-T and at some point he thinks they will put it back into the market. He would wait for that block to trade if it was going to, but who knows when.

She is not buying energy now because of her overall negative view of the Canadian energy market at this time. If she was going to buy at this time, she would buy a large producer and she would specifically prefer CNQ because it is well diversified, has a very strong balance sheet, and she likes its management.

CNQ-T vs SU-T. Both companies suffer from wider heavy oil differentials. He really likes CNQ over Suncor because it is gushing with free cash flow (he estimates $2.3 billion this year). CNQ Horizon expansion added 70,000 bpd of production. He owns CNQ bonds and equity. (Analysts’ price target for CNQ-T is $52 )

VET-T vs. CNQ-T. VET-T is trading a bit more expensively. She likes the CNQ-T story better from a valuation perspective.

Near its 52 week high but well above its lows. Until you see better pricing for Canadian heavy crude these stocks are going to have a hard time growing. We will probably see increased dividends.

(A Top Pick Feb 14/17. Up 20%.) WTI oil prices were up about 12% last year, and the E&P producers in Canada were down about 13%, but this company held its own. In terms of companies you want to own for the long-term producing energy, this is at the top of the list. Good dividend growth and free cash flow generation. This is a company that gets stronger while others are getting weaker.