Encana Corp (ECA.TO)

Has toyed with this one himself recently and keeps on asking himself, is now the time. Doesn’t think we are going to have a huge bump in natural gas prices this year, even with a cold winter. There is so much gas around in North America. LNG, which will use up some supply, is not coming around any time soon. Not expensive.

(A Top Pick Nov 16/12. Down 11.48%.) Had been bullish on natural gas but picked the wrong horse.

Hopes that their balance sheet stops falling and they are able to stabilize things a little. He has a Hold on the stock. Reasonably valued, but not dead cheap. It needs better natural gas pricing.

In the gas side of the business and it is a tough business to be in. You can’t really see a lot of growth in these companies, given the new, cheap gas that is coming on. 4.6% yield.

There is going to be a change in leadership and they are currently undertaking a review. A lot of uncertainty about the future direction. Until they tell the street exactly where they are going to be going, they will be concentrating more on liquids rich areas. However, the company has not been covering its dividend out of cash flow for a significant period of time. There is no likelihood of a dividend increase and a definite risk of a dividend cut.

A large dividend is often a signal a dividend cut is coming. They are well hedged and so are well predicted. Prefers others as Nat gas names. Some level of dividend cut could be a good thing.

The valuation is attractive here. A 3 to 5 year play on Nat Gas, which will be a growing part of the future and supplies are massive for the next 100 years. Accumulate the stock.

They will be cutting their dividend soon or else they will continue to make the same mistake they have made for 3 years of continuing to pay out more money than they are able to. If you want to maintain exposure to natural gas, he would buy Tourmaline (TOU-T). If you want an oil producer, you could buy Suncor (SU-T), which seems to have their act together. Or you could buy Canadian Natural Resources (CNQ-T).

Doesn’t think this has bottomed out yet. They were protected by hedges for a long time and the low gas prices out lasted those hedges. He would be careful about this one. There is a lot of gas out there and until we start using more of it, the price is not going to move too much.

He is much more positive on the outlook for oil then on natural gas. Natural gas is subject to the vagaries of weather, which no one can predict. Also, there is nonstop increasing production of natural gas. So demand is subject to something you can’t forecast long term and supply is growing.

(Market Call Minute) Constructive on Nat Gas, new management team, deleveraging story. A lot more value in the assets than in the share price.

Yield of 4.6% and a price to cash flow ratio of 4.4%. This makes it extraordinarily cheap. Has changed his mind on natural gas because of the potential huge demand of LNG that is going to come. This will take 3, 4 or 5 years to build reserves, pipeline and LNG plants. For the 1^st time in a while, you can see a great potential for natural gas.

Gas is not a bad story. The problem with this company is that it is medium cost and, in a very competitive environment, it is just not that great an investment. They would like to see a $6 gas to make money. He would prefer a low-cost producer such as Tourmaline (TOU-T) or Peyto (PEY-T).

It’s above the 50 day moving average but below the 200 day moving average. Chart shows a series of lower highs and lower lows. Long time support of this stock comes in at around $17.50.

He is pretty positive on the natural gas price over time. If you are going to invest in this, he would prefer looking at it on a three-year basis rather than a one-year basis. There is a new CEO so there could be some lumps on the way. Trading at fairly low historic levels and a fair bit of leverage to natural gas prices. (See Top Picks.)