Enerplus Corp (ERF.TO) Buy, Sell or Hold

Enerplus Corp (ERF.TO)

26.78

-0.93 (3.36%)

as of Jun 3, 2024, 8:00:00 pm Market Open.

362 watching

BUY

This gives you a large operational leverage to oil prices rising. Their primary asset is burdened with high royalty rates. After $50 oil, every dollar is very significant for free cashflow. At $50 oil, they would trade at 3.3 times and at $60 at 2.4 times. Historically, they traded at 8 times. However, the market has changed. At $60, they could generate 25% free cashflow. The name has underperformed due to natural gas prices falling and court issues for the Dakota Access Pipeline. However there is rail capacity to compensate. One of his largest holding at around 7% weight and he continues to buy.

BUY

Sold the stock a couple months ago and then bought back a 5% weight this morning. The stock has probably bottomed. The market wanted them to transact and when they did not execute, the multiple collapsed. At $50 oil, it will trade at 2.3x cashflow. The stock price could triple going forward.

DON'T BUY

Part of bombed out group of stocks. So extraordinarily cheap. Will survive. Nice dividend and it's safe-ish for now. No growth in this environment. Do you really want to buy a name that's not growing? He's staying away, too risky.

PAST TOP PICK

(A Top Pick Oct 01/19, Down 69%) It was a sneaky way to get US exposure. However, Canada is the place to be for energy investors now. Takeaway capacity has been improving and outlook for differentials are positive. This may be a value trap.

DON'T BUY

The effect of the Transmountain pipeline? The sector is suffering from low oil prices and a lack of investor interest. He can't see any catalyst turning around this space, except lower oil supplies. Also factor the increase in e-cars plus ESG investing. ERF is very well-run along with Whitecap. Pipelines will help, but won't save the sector.

PAST TOP PICK

(A Top Pick Jul 19/19, Down 60%) A head scratcher for him. A strong balance sheet and low cost Marcellus natural gas production. They have a good inventory in the Bakken region as well. He likes the management team and the balance sheet is strong. He thinks they are under pressure to get something done, as private equities are hunting for assets. He thinks they are in a financial position to make some key acquisition.

PAST TOP PICK

(A Top Pick May 06/19, Down 75%) Oil was a poor sector choice. He was hoping this would be a trade, expecting oil prices to rise. Great balance sheet and managers, but oil price have just plunged. ERF will survive. He owns very little of ERF now. ERF has done what they could in this pandemic.

HOLD

It is astounding how good quality companies with good hedge books, like ERF, have fallen like all the other energy companies. They have about half of their production hedged for this year. They have 20% hedged at $57 and another 22% priced at $11 premium to spot prices. He sees meaningful upside once we pass the worst of the COVID influence.

PAST TOP PICK

(A Top Pick May 10/19, Down 75%) This looked better two days ago--all energy stocks have been hammered. ERF has a reasonable balance sheet. He sold this. It looked like this had found a bottom at a super cheap 2.5x valuation, cheaper now after the Oil Shock. Big question: When does price momentum start going down? Selling begets selling. He's sidelined on all oil stocks.

BUY

A name he continues to own and has been buying on weakness. It has simply fallen off the radar screen for many investors. He thinks it trades at 2.7 times value to cash flow and only 87% of the blow down value of the existing wells. It has a 10% free cash flow yield.

DON'T BUY

It held up better than other midcaps over the last 3 years, but he's focusing on renewable infrastructure. In producers of energy, he's sticking to large caps like BP, Shell and Chevron, or CNQ and SU-T here. That's where the money flows are going.

HOLD

A large holding for him and he is concerned about upcoming earnings. He sees it trading at 8-12% free cash flow next year based on his oil price outlook. They are doing share buybacks. They have 10 years of inventory in the US Bakken and you are only paying about half of historical valuation. He thinks this will be a company that reacts strongly when investors return to the space.

PAST TOP PICK

(A Top Pick May 06/19, Down 29%) He was looking for a seasonal trade in the summer. It is still making higher lows and has a good yield. If you don't own energies, this is a good one.

TOP PICK

A miss-priced US Bakken oil producer trading at just over 3 times cash flow and a pristine balance sheet. They have been buying back stock and increasing production with the free cash flow being generated. He would prefer to see them buy back more shares next year. Yield 1.36% (Analysts’ price target is $14.88)

BUY

Very well-run with a pristine balance sheet. They're buying back more shares than any other. But they're trading at only 2.5x next year's cash flow! Their debt + market cap is less than the value of their production stream (including a 10 year inventory in the Bakken). Excellent debt level. They should buyback shares with their 15% free cash yield. Deep value. A big holding of his.

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Enerplus Corp (ERF.TO)