John StephensonEncana CorpECA.TOBUYSep 01, 2005

Just beat earnings and have increased production. Cheap valuation compared to peers. But it's getting more expensive heading into 2021. There's no growth here, but that goes with the entire oil patch. The real issue is will they survive. Their balance sheet is getting better, but still high for a blue-chip name. You'll be saved if oil and price prices massively spike. Take profits if it's in an unregistered account.

Weakness in share price recently is related to their moving HQ into the US. Their strategy for the move is to trigger share buying in the US as they become part of a larger market index, he thinks. There is no guarantee this will happen in the US, so this is a pretty risky strategy. In the meantime, they are selling off as their are dropping off the TSX60 index. It is cheap on a number of valuation metrics, but it is still so caught up in the lack of momentum in all energy stocks that he would stay away. The stock will face a 5:1 consolidation when they adopt the new US company name. The new ticker is expected to be OVV.

They have a very solid CEO but they are in a really tough business, being gas focused. They are shifting more to the US where you can get a better price.

Is switching to American good? Canadian companies move south to pay lower taxes. ECA's overall cash flow will grow modestly. The price of oil is expected to rise, so that's a tailwind. ECA ranks in the middle for him. This is probably a trade, but other gas companies are better.

It's trying to form a base now. Fine to hold it. He predicts a general market pullback in January. If this falls below $4, then sell. 2020-21 will show upside after slipping first. Start building oil positions sometime in 2020. He prefers infotech and financials, though.

Their move to the US may trigger write-offs he thinks. It could be rocky for a while, but longer term will do okay. Energy prices will be integral, of course. He hates the new name.

Short-term, when a Canadian company moves to the States, it loses a lot of shareholders. Also, they made an acquisition at the start of 2019, so they carry a lot of debt. He isn't sure that this will turnaround soon. ECA used to be big holding in Canadian portfolios, which he suspects will be unwound. Meanwhile, pension money is flowing into private equity which is buying....energy. It's convoluted--people are selling oil stocks to buy private equity which is buying oil.

Their decision to move to the US to attract more investors is not likely to work. They are competing with massive Permian producers. He discredits the CEO who joined, earned $70 million in compensation, but has only invested in $1 million in company shares. He can't back someone like that.

Will hiding their Canadian identity help this stock? It's a difficult issue in the oil sector. Mind you, the CEO has been living in the States. Changing their name won't make a difference. Margins and production growth will matter, instead. ECA's move to the US speak to something more ominous in Canadian oil: it's difficult to raise capital here. Fossil fuels are going through an existential crisis with parts of the world not wanting oil anymore. Oil is like tobacco, going down a difficult path that people don't want to own, but at least a person can choose to smoke.

You're brave to be in energy now. He is. Valued stocks are selling at a major discount here. Look for free cash flow that can grow production and dividends. Encana is one of the best in this sector. It's a bargain now, but not for the weak of heart and you'd need to hold this a long time. They have good positions with many operations in the U.S. They're profitable.

The stock's been under pressure since the acquisition that investors didn't like. Core growth areas of the Permian basin and having four core production bases has helped them generate a lot of cash flow. They're starting to pay down debt and buying back stocks.

Energy is oversold in general. ECA-T is more based in the US now. The company just doesn't seem to make as much money as others in the space. Not to say it can't go up if natural prices improve, he would just look for someone else. (Analysts’ price target is $10.00)

They just bought 4% of shares. They must prove their acquisition of Newfield of lowerng well costs (they have, by 1.4 millions wells). But US investors and hedge funds don't like this deal, so it will take time to convince them. He's owned this before as a short-term trade. There are better names, particularly in mid-caps.

It moved a fair bit of its operations to the states where they get better pricing. This stock is very cheap right now. It is probably a pretty good entry point if you believe the price of oil is going to move up. (Analysts’ price target is $10.60)