Painted Pony Energy (PONY.TO)

He likes this company. It is on his coverage list but not yet an Action Alert Buy. They have 92% natural gas. He expects it to increase output this year from 42,000 to 60,000 boe per day. They trade at 2x cash flow which he considers very cheap. Book value is $6.71 compared to a price of $2.12 on the day of the interview. Debt is $336 million compared to $1.1 billion of equity. He considers this an acceptable level of debt, but notes that other people on TV have said this level of debt is a problem. On the upside, this company has traded at 2x in the 2014 energy bull market. At today’s book value, the projected bull-market price would be $13 to $14. The stock is very cheap today, but it looked cheap in January 2018, when it was closer to $8. It could go down further before, perhaps to $1.80, it comes back. He has a $7 12-month target.

Although it is producing more oil today, it is trading near five year lows, he says. The trend has been down for several years, but the short-term bullish retracement allows an opportunity to place a stop around $1.98. It is the seasonal strong period and we should see resistance around $2.39. He would like to see this stock really accelerate with the recent rally in oil prices.

Don't buy natural gas now, unless you're doing a short-term tactical trade. He's expecting Shell to come in within the next few months with an investment, Natural gas will be under pressure until 2023 and meanwhile not enough pipelines can carry it away. Long term, though, this and other nat. gas stocks could double after five years.

It is down big time. You can see how the market feels. They have a vast resource. He has to take a short term trade on the believe that LNG will go forward.

(A Top Pick Mar 9/17, Down 69.03%) This has been a very well managed company with the 3^rd largest Nat Gas resource. You had to pay your customers to take your product away last fall. It costs money to shut in your gas so they paid customers to take it away. If you look at a 10 year chart, the production has gone up 60 times as much and the stock went from $1.25 to $1.90. There is an opportunity here.

He hasn't jumped in yet. A well-managed company. For the longer term, they will do fairly well. Deserves a look at current levels.

He doesn’t know the fundamentals of the company. Nowhere to hang your hat. Resistance at the 3 dollars level.

They are one of the names suffering the long-term structural issue. It is hard to have capital tied in Canada.

We need an LNG announcement in the coming year to get gas out of western Canada. The debt is creeping up as they don’t get the gas they forecast out of Canada.

The mix is very good. $6.30 is the book value. The balance sheet is good. It is trading at a third of book value. People think the company won’t survive but he disagrees. This is trading at survival value. They have hedges on the gas price. He likes what he is seeing. He is looking into it seriously.

The big question is, when will we get LNG on the West Coast of Canada. This was started to be talked about around 11-12 years ago, and we still don't have anything as a final investment decision. Most demand for natural gas is in the lower part of the US. We are exporting it to Mexico. There is lots of gas in Pennsylvania and Ohio that is being sucked down there first, and what is left is the stranded gas which was left in Canada. Expects that sometime in 2018, Shell goes ahead with this project, which will get the Canadian gas stocks finally moving. This is still 5 years away. Very speculative.

The trouble with this company and the whole gas complex is that the outlook for Canadian gas is absolutely horrible. 2018 strip price for Canada is $1.25, which is down 8%. Typically, these names rally in the winter, but the winter trade is over. You have normalized weather returning next week. There is just too much gas production in Canada relative to the take away capacity. This is going to be a minimum two-year problem out to the 2nd half of 2019.

Gas prices in Canada has been decimated. This one has really done nothing for the last few years. Feels that a lot of the bad news is already in the stock. If you own, he wouldn't rush out to sell it, but wouldn't be buying any more at this time. They’re fairly good operators and there should be some growth, it's just that the underlying commodity is so weak that it is difficult for them. Also, there has been more pressure on because of tax loss reasons.

Their volumes are going up. They have a hedging program. He does not think it is a bad balance sheet. He thinks it is very cheap after being beat up with tax loss selling. He is meeting with Management in January.

From an operational point of view, this is a decent company. They have decent assets. However, there is a very high debt level, which is probably the main reason why it has been getting destroyed on the stock market. For investors in a struggling sector, this is just not what they want. He wouldn't recommend this because of the debt. He would rather make less money on less risk on something else.