Optimism for high oil prices for the long-term — Stockchase Weekly Top Picks
The weekly Top Picks…
As we do each week, we curated multiple sources of experts opinions to come up with our Top 5 Stocks Top Picks to Trade this Week. Our Top 5 selection is available weekly on Monday for Premium Members and on Wednesday to everyone that don’t mind the ads and the multiple pages.
Let’s start with a short recap of the economic highlights of the week :
The U.S. President Donald Trump’s fresh call to implement tariffs on steel and aluminum imports from the European Union, Mexico and Canada has caused a hostile trade environment between developed economies. Euro Union issued a 10-page list of tariffs on U.S. goods and challenged the United States’ move in World Trade Organization (WTO). Amid increased U.S. supply and OPEC considering boosting production led oil prices to cool down.
U.S. economy in the peaks…
Apart from the heated trade turmoil, U.S. economy is in the peaks of its superior performance in decades. Unemployment rate in the U.S. declined to 3.8% in May 2018 the lowest rate since April 2000. Canadian Economy posted less than expected GDP rate of 1.3% (Annualized) for the first three months of 2018, but in line with the forecasts of Bank of Canada.
Unemployment rate of Canadian Economy was at its lowest level in the past four decades for the third consecutive month. Giving hopes for an interest rate rise in July the Bank of Canada removed cautious language about future rate moves.
Benefits for the long-term investors…
Strong economic activity in United States and Canada combined with high oil prices have many things to benefit the long-term investor(s) of oil and related industries.
This week’s Top Five Picks mainly focus on growing optimism for high oil prices for the long-term. Growing tensions in the middle East and OPEC’s decision to not to increase supply substantially even after oil prices rose to $80, speaks the likelihood of higher oil price for a long-time.
This week’s 5 top picks stocks…
Geopolitical issues, rebel groups, Tensions in Israel, Iran and Syria. Venezuela out of control and a sharp energy production fall. The following are the TOP 5 Picks for the week selected from a host of Top picks from contributors.
I’m not a huge fan of oil stocks but the stock where the CEO is a large shareholder could be one I would consider buying. It’s Top Pick #2.
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TOP PICK #1
SNC Lavalin (TSX:SNC)
We selected Prakash Hariharan’s, Portfolio Manager at Analytixinsight Inc., recommendation of SNC-Lavalin Group Inc. as a Top Pick. “Good backlog. Exposure on the oil and gas looks good.” he noted.
Revenues from Oil & Gas…
SNC-Lavalin gets 36% of its revenues from Oil & Gas industry segment, recovery of this industry is an excellent catalyst for the growth of the company. Higher oil prices are likely to give scope for new oil production, meaning new contracts for SNC-Lavalin.
Recently settled class actions…
The company has recently settled two class action lawsuits by its shareholders.
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TOP PICK #2
Leucrotta Exploration Inc. (TSXV:LXE)
James Hodgins, Chief Investment Officer at Curvature Hedge Strategies recommends Leucrotta Exploration Inc. (LXE-X) as his Top Pick. “This is roughly half oil and half natural gas condensates. So there are 90% liquids in general which makes this a good target for acquisition. There is almost no debt.” he noted.
The CEO is a large shareholder…
M&A globally has picked up tremendously but not in the energy space. He thinks that this will pick up, especially for small-cap companies like Leucrotta, The CEO is a large shareholder and would be well-rewarded by a good buyout. He has done it before.”
Robert Zakresky, CEO of Leucrotta Exploration did turn around and sold several companies (almost six energy companies) while being CEO of those companies. Oil prices are at the sweet spot range for the oil industry, this is most likely to trigger M&A activity soon, have this in your basket before someone picks it up.
When investing, I seek out CEOs who are big shareholder. I like companies like this one — Leucrotta Explorations — where the CEO is all-in.
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TOP PICK #3
Parex Resources (TSX:PXT)
Brian Madden, Senior VP & Portfolio Manager at Goodreid Investment Counsel recommends Parex Resources Inc. (PXT-T). “A producer of oil in Colombia, which lacks the takeaway isses that plague western Canada. PXT has tripled its production over five years. It carries no debt and has started share buybacks. It grew earnings by 64% year over year.” he noted.
With zero debt, 17% Return on Assets and 162 million barrels of oil reserves with a production life of over 11 years Parex Resources has substantial growth prospects to look forward to. Furthermore, it can tap on to international Brent pricing that mostly trades at a premium price than most oil price indexes.
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TOP PICK #4
Paramount Resources (TSX:POU)
Bruce Campbell, President at Campbell and Lee InvMngmnt recommends Paramount Resources (POU-T),
“They get a premium to Western Canadian Select oil for their liquids. They missed their last quarter due to weather and their facilities, which is short-term in nature. So, the stock has pulled back under $15, which is a definite buy. This is midjudged as a gas stock. An energy play.”
There seems to be a lot of potential for growth of the company revenue and earnings in the coming quarters.
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TOP PICK #5
Comerica Inc. (NYSE:CMA)
David Burrows, President & Chief Investment Strategist at Barometer Capital Management recommends Comerica Inc (CMA-N).
“Has branches primarily in Texas (rising oil prices) and California, two strong geographic regions. Regional banks are sensitive to rising interest rates. Loan origination is accelerating in the U.S. Expect dividend growth and return of capital to shareholders. Deregulation will help, too.” he noted.
Texas and rising oil prices…
Texas one of the biggest beneficiaries of rise in oil prices in the United States, grows very fast during oil prices rise. Having significant amount of its operations in Texas, Comerica is the right banking stock to play.
With multiple catalysts, it has many opportunities to grow, growing interest rates and deregulation in banking industry and merger & acquisition of small community banks are few of the levers that can help it grow.
Happy trading !