Enbridge (ENB.TO)

This is another interest-sensitive stock that is at risk from rising interest rates. It is overvalued by 10% compared to his model. The company is doing a whole lot of financial engineering. He would like to see the balance sheet after all the shenanigans are finished. He think that ultimately the stock will go to about $35.

The risk-reward is favourable. He sees support near $40 and would begin to build a position here between $40 and $46 and would add to it above that range.

You have to look at the quality of the business behind the high dividend when selecting a dividend paying stock. On one hand they are increasing the dividend but on the other they are decreasing the debt. Just looking at the yield is over simplifying it. He would own if after knowing the risk is mitigated in the price of the stock.

As the Line 3 project got approved a lot of the uncertainty has been removed. The stock has responded but still there is a lot of upside as the yield should get below 5% [5.7% now]. They sold a portion of their hydro assets at a very good price. Funding is not an issue. (Analysts’ price target is $53.00)

They sold a lot of their nat gas assets to reduce their heavy debt. He got stopped out of it. He was happy to see it rebound, but he's not eager to get back into it (he prefers too many other stocks). He's neutral about it.

The stock popped a little bit with the approval of their Line 3 project. The route is not yet settled but the process is clear. They are simplifying their corporate structure. They are planning to sell about $10 billion of noncore assets to pay down debt and have announced sales of over $7 billion, which is $4 billion ahead of schedule. They expect to grow the dividend by 10% until 2020, andcash flow will grow with this because Line 3 will come online in late 2019. (Analysts’ price target is $52.99)

This had been a short for him because the utilities were expected to drop in price as interest rates rose--and they did. They were also relatively expensive and Enbridge had a debt problem. However, they have sold assets and are improving their balance sheet. Their payout ratio is now looking meaningfully better than it was. He no longer sees it as a short but he does not recommend it yet as a Buy. They company is still not cheap, interest rates will rise further, and the balance sheet problems are not yet fully resolved. This stock has room to drop further.

Moved to sell part of its non-pipeline assets for a reasonable price. Starts to look more attractive. With its restructuring, it may get back to its nice long-term trend. Political environment is still uncertain. Its going back to its roots, which makes it easier to analyze and a more attractive investment.

It has been in the good news box in the last couple of weeks. They have shown the stability of the model. We need pipelines. It has reasonable debt. It is a question of watching execution taking place.

(A Top Pick June 27/17 Down 7%). There have been funding concerns in the market surrounding their future capital requirements. They have announced a plan to restructure and have sold some assets along with receiving approval on the Line 3 project. Yield 6%

They have a lot of debt, because of future projects. On June 29, Minnesota will decide on BTE's line 3. So, there's risk between now and then, if the approval isn't granted.

ENF-T is a subsidiary and owns a lot of their Canadian pipelines. It is a stable interest sensitive. This stock has lagged as interest rates rose. He likes ENB-T, the parent because they are rolling up all these subsidiaries. The sale of ENF-T to ENB-T should close by the end of the year. Now ENF-T tracks ENB-T.

What they have in the ground is getting harder and harder to replace. It is more valuable than ever. The thinks the stock can get back into the low $50's. (Analysts’ target: $51.70).

Pipelines have been front and center. What the Feds are doing is stupid. They should have waited. There is a chance that the government of BC will change in the next few years and the majority of the population wants the pipeline. We know we need more pipelines to get more oil to market. West Texas pipelines will be exhausted in 4 months, they say. The question is how many pipelines are needed. The energy we use is changing dramatically as well get into alternative energies. Will pipelines become white elephants in the future?

He gets asked about this stock the most. Fundamentals are solid, but it's highly levered and suffers from a complicated company structure. It's on a long-term downturn. He's on the sidelines, waiting to see how interest rates effect this.