Advantage Oil & Gas Ltd (AAV-T)

He's angry with their recent oily acquisition, just as people are warming up to natural gas. He sold. Can't agree with the company's strategy.

Likes it. CEO is committed and knowledgeable. Many decades of inventory. Good optionality to his bullish view on nat gas to 2025 and beyond. Key beneficiary of LNG Canada. Technically a 12% free cashflow yield, but really closer to 20%. Good upside, roughly $16 target, about 40% upside.

Would consider selling stock given strength. Doesn't think Entropy is a strong business model (baked into energy price). Stock is expensive without Entropy value. Better names in sector. 

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Not overly expensive with a market cap approaching $1B. Momentum is good. Growth is looking good this year and the sector is recovering. Would let this run for now. Unlock Premium - Try 5i Free

Gas vs oil? As there is less oil production, associated natural gas production is falling. He owns BIR and was buying yesterday. AAV has performed well relative to other gas producers. He took profits on AAV recently and moved it into oil producers. BIR is trading at 2 times EV, but cuts its dividend by 81% recently. BIR is more cavalier on its spending, but feels it has more upside.

Oil outlook Oil is tricky. It's a broken market that may or may not be coming back. Some have returned to gold too early. Over the decades, oil has risen and fallen largely due to spin (i.e. Peak Oil). He picks up a little oil when the stocks get cheap. Oil is a messy space. Of the juniors, WCP is his favourite. SU-T is the senior one he likes. But he really likes Advantage (but they deal in natural gas, not oil).

Energy is setting up for its seasonal rally into October. The technical chart is demonstrating a bullish channel. He would really like to see a rally back above $4.90 for a signal it is really going to move. In the meantime there is resistance near $4.25, so expect some choppiness.

Classic example of a Canadian company that has gas trapped on Alberta. Well ran company. Good asset base. What will trigger interest on the stock is some of the changes from the take-away capacity. Until there is a solution, it is more a wait and see. As the structural reform moves, this would be one of the first stocks to look at.

(A Top Pick Jan 3/17, Down 51%) They have not done anything wrong except to be a natural gas producer. If you have a long enough horizon and want to stick in at what looks like the bottom you will be okay. There is not much downside from here.

He really likes this company. More of a manufacturing company than an oil/gas company. They should be generating gobs of free cash flow. The challenge in Canada is that there are ongoing issues around pipeline availability and egress take away solutions, and we have seen that manifest itself in the past quarter.