Husky Energy (HSE.TO)

The hostile takeover bid for MEG may result in a higher bid – he has not written off the prospect entirely. He has not been a great fan of HSE-T, but he has owned MEG. As the energy sector has collapsed further, Husky is trying to take advantage of epically undervalued assets. He thinks MEG could go for closer to $13 per share versus the current $10.88 bid. He wonders if Suncor or Imperial may step forward as a bidder.

They recently raised the dividend and the balance sheet is good. Sales of natural gas in China are strong. The balance sheet is good and book value is $18.72 per share. Over 30% of their revenue comes from international markets. He sees better opportunities out there, but views this as a good stock for conservative investors.

This is an unloved energy stock that not enough people talk about. Price momentum has improved but valuation has improved a great deal. Husky is a boring, low-growth integrated oil and gas company -- which he likes. The company projects an 8% growth profile for several years to come, which is good, but modest compared to other stocks in the industry. This is a safe stock that people will do well in, if there is a sustained oil recovery.

As long as the oil prices does well, so will this. He holds Suncor (SU-T), instead. They have some refining exposure, which has been great for the bottom line. He owns the preferred shares for clients, buying them during the last oil crisis. Be careful, however, holding commodity based preferred shares – things can go wrong when the commodity price tanks.

Husky vs. Suncor (SU-T) Which has more room to grow? Both in same wheelhouse. Both have done well in downturn, Suncor a bit better, with decent dividend, good free cash flow, buying back stock. You could own Suncor and be happy. If you want the income, go with Suncor. Husky has less actual growth, but more upside, so if you want the appreciation go with Husky. You can’t lose with either, they’re both great.

It is an interesting turnaround. It will be really pressed to see the gains we have seen. But the management team has done what they said. They fixed the company and he is impressed. The numbers today were good. It seems to be a well run company. He is just not wild about the oil patch, however.

He thinks this company wanted to repair their balance sheet and is now showing some traction. Victor Lee knows Canada and they could become an acquirer in the future. The dividend could also increase. The stock has been boring, but it is trading below book value and on cheap cash flow multiples. It does not have the sizzle; it does not have light oil or Monteney natural gas. He would pick this for less volatility with 10-15% upside per year.

A boring stock: boring growth rate, dividend rate, cash flow compared to Canadian and American peers. Take your losses and move on.

He traditionally prefers CNQ and Suncor for large-cap oil companies. There’s nothing particularly wrong with Husky, but CNQ’s cash flow is better.

He does not own this integrated company. It is one of the most levered stocks to oil prices. If you think oil price will rise it will rise too.