Suncor Energy Inc (SU.TO)

(Top Pick Mar. 24/14, Down 1.74%) It held in quite brilliantly. He put in a sell at $36 as it violated a technical condition. He thought the integrated oils would hold up much better, but it turned out not to be the case. Year over year earnings comparisons will keep hammering the stocks. He decided to cut and run.

Costs are in the $30-$32 range, and is the lowest cost Canadian oil sands producer because they started quite a while ago. The price is too high and he would not own the stock. $30 would be his entry point, and he thinks it gets there by Labour Day.

There is risk in dividends in virtually all energy companies. Dynamics have changed and oil sand producers are relatively higher cost producers. If prices were to stay down here for some time, it is going to be tough. He would recommend that you look at a different sector.

On his watch list. If he was going to increase his exposure he would do it with CNQ-T.

If you are going to enter new positions in the oil/gas industry, you want to make sure it has a pristine balance sheet. This one is fine, but he prefers Tourmaline (TOU-T) and PowerX (?). Both have very, very strong balance sheets. PowerX (?) has no debt, cash on the balance sheet and a fully funded exploration program for 2015. Tourmaline has raised equity very judicially over the years with a very, very strong balance sheet along with a strong exploration program for this year.

He was debating about having this as a Top Pick, but some of these energy stocks have moved so aggressively bottoming in January. This one bottomed in December. Had broken a significant down trend line and we are now within the period of seasonal strength for the broad energy sector. This is no different and tends to gain all the way through to May. You want to be more towards the refiners and stay away from the drillers. Try to get it on a pullback to about $36. Loves the stock.

It is really diversified. It is integrated. It is a really great holding. Likes it, but it will be volatile like the sector. If we test lows again, then it is time to get in, but it is overbought right now.

Suncor (SU-T) or Husky(HSE-T)? Over the long term within energy, you want to own the high-quality names. He likes this one with its vertical integration. They have one of the best refining and marketing businesses in Canada. However, there have been some problems with their oil sands projects. His choice would be neither. He prefers Imperial Oil (IMO-T) over the long-term, because by far they are the best operator with the highest returns.

(A Top Pick Jan 9/14. Up 3.16%.) This has withstood the downturn a lot better than most because it is vertically integrated. It has the refining, the retail end and, unlike an explorer, it knows where its reserves are.

How do you know when to get out of the short? He thinks this is a rally within a bear market for oil. It bounced off the bottom a while ago. He thinks there is a lot more ability for this stock to catch up on the downside. He would go long in a torquier, aggressive one to offset it. He would cover his short now.

Balance sheet is set up to withstand the low prices we have here. They have on-going capital expenditures to maintain production.

If you are a longer term investor it is a buy. They are integrated so not 100% into the production aspect of the sector. You are looking at a difficult 6 or 7 months, maybe less and that is a relatively short time to suffer. A very solid company with good assets and good management.

There is nothing wrong with this company. In all of the large caps, he would say this is the most defensive given their lack of leverage. Looking at their performance relative to oil over the last couple of months, oil is down 42% and this company is only down 7%. People who need or want some energy component in their portfolio, typically buy the large caps, but that is creating a situation of a large disconnect between the stock price and oil price. Because of this you have 2 years to wait. He would rather buy a company that is a little more out of favour with as good of a balance sheet and maybe a better hedging position. There are much better names to buy.

Suncor (SU-T) or Cenovus (CVE-T)? This has some higher cost production because they do mining operations. Mining operations tend to be higher cost over time because of the cost of creating a barrel, as well as the maintenance cost of the machines in use. Cenovus has oil underground and just has to pump it out. They are both good companies, but the growth in Cenovus has better assets with lower cost production going forward. The growth in this company is largely the Fort Hills project that is higher cost production. Cenovus pays a higher dividend, which he likes. This company will have better leverage to oil prices when they recover. (See Top Picks.)

Doesn’t think you would go too far wrong buying these at the current levels if you are going to own for a while, but you might get it a little lower. Markets do over correct. Don’t go in this for a short-term trade.