Ensign Resource Service Group (ESI.TO)

(A Top Pick Jan 6/17. Down 15%.) Services are more cyclical, and in general will lag the producers. Also, they had a “not so great” quarter, which took the stock down. Overall, he still really likes this. It has been a really great company, and if you get the opportunity to buy it at a cheap price, he would stick with it.

The 5-year chart shows this had been going down, and is now stabilizing. The rally that started in 2016 is very gentle, and doesn’t have as much credibility as the big rally selloff in 2014-2015, so he would avoid this.

He considers this a medium risk company. He finds any of the service companies riskier, and have lagged, versus the producers. When you are in the services game, you are the last in line when things are good, and 1^st in line when things get bad. They are just starting to get an upswing after the energy prices improved. This is at its all-time low in terms of return on invested capital, but they have a tremendous track record. It is also undervalued. Dividend yield of 5.03%. (Analysts’ price target is $9.81.)

Energy service companies have come off more so than the oil companies. Their budgets are driven by the oil companies, and also their cost structures seem to be fixed, so when the wind comes out of their sails, they still have the same cost structures. This is now at a pretty good level. You might look to pick away at these companies in the next month or so. This one is a good name and is one of the bigger ones.

He prefers something like Vermilion which doesn’t have to cut its dividend. These fracing companies should be able to come out of this situation really beaten up and still really do well, as long as they get through it. The timing is starting to feel right.

An energy service company, and he is concerned at this point for all energy service companies, and would avoid most of them. The activity you are seeing right now in Canada is quite weak. At one point there were only 11 active rigs in Q1, the lowest level that has ever been seen since they were being measured. Activity in Q2 looks like it is going to be weak as well.

Driller. A little more conservative than PD-T. If we get a significant bump in commodity prices it would come back. The sector is too volatile.

This is not one that he particularly likes. In 2010 they had about $150 million in debt and now it is about $125 million. He wonders why they don’t cut the dividend.

Still a little early for the drillers, particularly the fracers where this one is placed. Feels they have a couple of very, very ugly quarters in front of them, and earnings revisions are still coming. He would be more inclined to buy the unlevered producers.

Well driller. Basins in North America drive their business. They live off most of the 2015 capital expenditure budgets that are now being drafted. Contract drillers are swingier when it comes to sensitivity to capital expenditure swings. That is why the stock is trading so low. The balance sheet is another concern.

Overall, this name is fine, but is very sceptical about land drilling in Canada given what has happened. We are still infrastructurally charged. Gas lines certainly seem to be something that is happening, but oil pipelines are more problematic. Drilling in Canada has definitely slowed over the last 2-3 years. If you want to “trade” the name, seeing that there is some seasonality in gas, that would be fine, but he wouldn’t make it as a long-term hold.

A more conservatively managed driller. Does not own one in this sector, but if he did it would be this one. A tough sector to own for the long haul. He owns SCL-T in this space.

Oil/gas service. He favours some of the other names. It ranks 277, so it is in the top 3^rd of his database. 17X PE. Earnings are virtually flat for 2014 versus 2013, but are expected to snap back to 38% earnings growth in 2015. Assuming they can deliver the numbers in the coming year, he thinks there will be an improvement in his Quant ranks.

Ensign Energy is a solid company. She used to own but moved into riskier drillers (Precision as it offered a dividend).Should be fine to hold if you own.

Top 10% of his database. Thinks there are still very good technical analysis pictures in the space. Earnings estimate are down in the group and are bottoming. This one ranks quite well, so is a candidate for purchase.