Whitecap Resources (WCP.TO)

An excellent quality company. They can keep increasing dividends as oil prices stabilize. They have a lot of free cash flow. We have seen some pretty significant increases in production, all internally funded. It has done nothing so it has lots of upside.

There is nothing wrong with it, but there is a buyer strike. Investors are standing back. He has US names that will grow more and at a cheaper valuation. It is difficult to make a case for owning the Canadian names.

When a sector gets crushed the overwhelming sentiment is to go back and look for the money that you feel it owes you. A lot of people jumped right back into the energy stocks in Jan-Feb. The history is, unless you get significant restructuring, it is likely there is going to be some indigestion after 12-14 months. That looks like what we are getting. He would prefer something like Algonquin Power (AQN-T) which is acting pretty well and is in a defensive group.

This has recently caught his attention. 2-3 years ago, this was considered to be one of the dividend stocks to hold. Because of the price of energy, it has come down since the beginning of the year. Very well-managed. This is showing up on his valuation screens as looking reasonable.

Among the oil/gas dividend players, he considers this to be the best in the group. He doesn’t buy oil/gas dividend stocks, because they are too volatile for the yield. This company will continue to grow its production by 5%-10%.

(A Top Pick Sept 12/16. Up 1.92%.) A very good company. What has been hurting Canadian producers is the reaction to what is going on in the US with the border adjustment tax Trump has been talking about.

Great management. It has very light oil properties in Alberta and Saskatchewan. The team has focused on properties that have a low decline rate of about 20%, and don’t have to drill is much as companies that have a 40% decline rate. Bought a large Saskatchewan land play off of Husky Oil last year. Dividend yield of 2.61%. (Analysts’ price target is $14.92.)

Whitecap Resources (WCP-T) or Crescent Point (CPG-T)? Two different types of companies. This is more of a growth company paying a dividend, while Crescent Point is much more mature. It pays a fairly good dividend. This caught his attention lately and he has begun to look at. Very good balance sheet. They have capacity to bring on another $1.3 billion in debt. People are forecasting this is going to grow from 46,000 barrels a day, to something like 57,000. If you want more potential growth, this is probably not a bad way to go. Pays a very generous dividend.

The market is being fairly efficient at pricing a lot of these companies as they are very similar valuations. He likes this one very much. He doesn’t own it, only because it has held up better than its peers, and is trading at a slight premium. There is upside where he thinks they will increase their CapX spending as long as oil remains in the $50-$55 level. On his estimates, they will be growing production this year by 17%, and by about 10% next year. Slightly better than average growth for a slightly higher multiple. He would have no issues owning this.

Exploration and production light oil production. They plan to increase from 45k to 55k barrels per day production by the end of this year. He likes that the balance sheet has room on it and they carry less debt than peers. They stand to benefit from a rising commodity. (Analysts’ Target; $14.80).

A midsized light oil player and a dividend player. Management’s idea is if it can give investors 10% production share growth, each year, and pay a modest dividend, maintain existing production, it is a viable way to build a business. During the downturn, management was able to buy assets on the cheap. They bought a number of land packages that really increased the size of the company. Dividend yield of 2.28%. (Analysts’ price target is $14.33.)

He likes the company although he doesn’t currently own it. It has been one of the better managed ones through this whole debacle. They have been quite proactive in how they handled their balance sheet and finances. There have been a lot of costs taken out of the energy companies in the last few years, and are much more efficient than they used to be.

(A Top Pick July 21/16. Up 22.92%.) See today's Top Picks for comments.

All 3 picks have recently done fairly transformative acquisitions. He wants to own companies that have institutional following and access to capital markets and could do smart acquisitions at the bottom of the cycle. This does about 50,000 barrels a day, 80% weighted towards oil. Recently did an acquisition of some very low decline assets. They also have a little bit of hedging in place. Feels they have one of the most sustainable dividend profiles of the group. Dividend yield of 2.34%. (Analysts’ price target is $13.89.)

Tourmaline (TOU-T), Seven Generations (VII-T), or Whitecap (WCP-T) for price appreciation? All 3 of these companies are really well run energy companies. They have all done well operationally and stock-wise over the last year. His 1^st pick would probably be Tourmaline, which has the best combination of quality management and growing its earnings and cash flow, with a relatively reasonable valuation.