Opinions
Swanzy Quarshie
Imperial Oil
IMO-T
COMMENT
Feb 10, 2016
Stock price when the opinion was issued
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Good business. Alberta oil sands are low cost, long life, low decline. Refineries. Integrated, with benefit being that it takes the raw edge off commodity price sensitivity. Owns this indirectly through the back door, with an investment in XOM (major shareholder of IMO).
Modestly bullish on oil. Not his first choice, but no quarrels with it either.
Premium contentMarkets have factored in lower oil prices into the share price, but as the company is also a refiner, its downstream segment will benefit from lower feedstock costs. It trades at 12x earnings, under 2x book and supports a ROE of 21%. The company will announce latest financial results today -- we'll see if they are able to continue growing cash reserves. We recommend setting a stop-loss at $67, looking to achieve $103 -- upside potential of 16%. Yield 2.9%
Premium content(Note the short timeframe.) This is a swing trade. Looking at the chart, you can see how the stock likes to go down to $90-ish, and then go up to $100-ish. That's 10% that you can trade and trade. He always buys on the bounce.
He feels that all oil will break out eventually. He's hoping to get $100 on this, though it's pulled back a bit. If it gets there, he'll probably sell and then get back in if it returns to the bottom. If it doesn't, his buy price was close to the bottom so he isn't losing anything.
Basic premise is that Canadian oil companies have unbelievable assets. Well north of 20% dividend growth. Great cashflow and shareholder returns. Oil's just broken a triple top on a point-and-figure chart, and these companies look as though they're about to reaccelerate.
He'd buy this one, and he'd buy CNQ.
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A great, solid, well-run company, and you can tell that by the way it trades. Free cash flow profile looks healthy, which is good for the investor. Because it is such a good quality company with less beta than the rest of the group, in a rising price environment you are not going to get as much appreciation as you would in some others. This is a company you don’t want to own coming out of a recovery. Also. refining margins are coming down. Feels some of the best upside is going to be in the pure play rather than in an integrated story.