Opinions by Josef Schachter | StockChase
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Josef Schachter

President

ON STOCKCHASE SINCE Aug 2003

Schachter Asset Management


Opinions by Josef Schachter


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COMMENT

Overview. The DOW is taking another hit today, we are near the year’s low. As the market is moving up and down, it is hitting lower highs and lower lows. 23,300 will be an important point for the Dow. We might hit that very soon, yielding our first major correction since 2009. We are down about 10% for the year but we could hit 20% or 25%. We are having the correction now because: (1) The Federal Reserve is increasing the cost of money, which reduces the value of earnings; (2) The money supply is tightening. The US money supply was growing at a rate of over 7% per year but is now down at 4% under the MZM terminology (see https://en.wikipedia.org/wiki/Money_supply). If you want 3% economic growth and 2% to 3% inflation, you need 5% or 6% money growth or more. The money supply is not growing fast enough and so money is getting tighter and that in turn drives the US dollar higher. (3) The amount of debt that has to be raised is enormous, but the Fed is not buying more and Europe is not buying more, so interest rates are rising. So money is more expensive and tighter. He thinks this is why the market is correcting. He thinks the DOW could go down 3000 over the next three months and he thinks people should be cautious about buying today, and hold onto cash, because there will be great buying opportunities late in Q3 or in Q4. He thinks energy stocks could be caught up in this. 

Overview. The DOW is taking another hit today, we are near the year’s low. As the market is moving up and down, it is hitting lower highs and lower lows. 23,300 will be an important point for the Dow. We might hit that very soon, yielding our first major correction since 2009. We are down about 10% for the year but we could hit 20% or 25%. We are having the correction now because: (1) The Federal Reserve is increasing the cost of money, which reduces the value of earnings; (2) The money supply is tightening. The US money supply was growing at a rate of over 7% per year but is now down at 4% under the MZM terminology (see https://en.wikipedia.org/wiki/Money_supply). If you want 3% economic growth and 2% to 3% inflation, you need 5% or 6% money growth or more. The money supply is not growing fast enough and so money is getting tighter and that in turn drives the US dollar higher. (3) The amount of debt that has to be raised is enormous, but the Fed is not buying more and Europe is not buying more, so interest rates are rising. So money is more expensive and tighter. He thinks this is why the market is correcting. He thinks the DOW could go down 3000 over the next three months and he thinks people should be cautious about buying today, and hold onto cash, because there will be great buying opportunities late in Q3 or in Q4. He thinks energy stocks could be caught up in this. 

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Josef Schachter

President, Schachter Asset Mana...

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COMMENT

Energy Prices. When he was on the show previously, he was bearish on natural gas (December) and then bullish. Since then, natural gas plays like Birchcliff and Painted Pony have gone up a lot. Birchcliff is up 50% from its lows. He thinks natural gas will come down a little, but oil will come down further, perhaps 20%. He sees a $10 risk premium in the current price of oil. Also, if the US dollar rises 10%, the price of oil (in Canadian dollars) will drop. He thinks oil will drop to the $50’s in the next 2-3 months, which will bring the TSX energy index down by 15 to 20%. He thinks that the risk premium is partially based on anticipation of a possible loss of supply of oil from Iran, but he doesn’t think that Europe will go along with those sanctions. In addition, after the upcoming elections in Iraq are held, it is possible that the pro-American faction will win and Iraq will rapidly increase its sales of oil to address the war damage to its economy or that the pro-Iranian faction will win and limit oil production to keep prices high. There will be more news in mid-May and at that time, the price of oil might come down hard. The market is currently bullish on oil because crude oil inventories in the United States are down by over 100 million barrels and wordwide they are down by over 200 million. He showed a chart on World Oil Supply and Demand from the Federal Reserve Bank of Dallas (chart is at https://www.dallasfed.org/-/media/Documents/research/econdata/energycharts.pdf) . This shows that the demand for oil will be outpaced by supply growth. The implied oil change is for an increase in inventory in 2018 that looks similar to 2014 and 2015, which will be bad for the price of oil. This year, the United States production has gone up from 9.8 million barrels at the start of the year to 10.58 million. The US production has increased over 750,000 barrels in just 4 months. This rate is more than the increase in demand.

Energy Prices. When he was on the show previously, he was bearish on natural gas (December) and then bullish. Since then, natural gas plays like Birchcliff and Painted Pony have gone up a lot. Birchcliff is up 50% from its lows. He thinks natural gas will come down a little, but oil will come down further, perhaps 20%. He sees a $10 risk premium in the current price of oil. Also, if the US dollar rises 10%, the price of oil (in Canadian dollars) will drop. He thinks oil will drop to the $50’s in the next 2-3 months, which will bring the TSX energy index down by 15 to 20%. He thinks that the risk premium is partially based on anticipation of a possible loss of supply of oil from Iran, but he doesn’t think that Europe will go along with those sanctions. In addition, after the upcoming elections in Iraq are held, it is possible that the pro-American faction will win and Iraq will rapidly increase its sales of oil to address the war damage to its economy or that the pro-Iranian faction will win and limit oil production to keep prices high. There will be more news in mid-May and at that time, the price of oil might come down hard. The market is currently bullish on oil because crude oil inventories in the United States are down by over 100 million barrels and wordwide they are down by over 200 million. He showed a chart on World Oil Supply and Demand from the Federal Reserve Bank of Dallas (chart is at https://www.dallasfed.org/-/media/Documents/research/econdata/energycharts.pdf) . This shows that the demand for oil will be outpaced by supply growth. The implied oil change is for an increase in inventory in 2018 that looks similar to 2014 and 2015, which will be bad for the price of oil. This year, the United States production has gone up from 9.8 million barrels at the start of the year to 10.58 million. The US production has increased over 750,000 barrels in just 4 months. This rate is more than the increase in demand.

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Josef Schachter

President, Schachter Asset Mana...

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COMMENT

On Light Oil in Saskatchewan. He is optimistic about the light oil in Saskatchewan. On his list, there are three companies (large cap, intermediate cap and junior) that have exposure to Saskatchewan: Crescent Point, Spartan (now Vermillion), and Surge Energy. This is a desirable area because (1) takeaway capacity is not as difficult from Saskatchewan and (2) this doesn’t have the differential issue.  

On Light Oil in Saskatchewan. He is optimistic about the light oil in Saskatchewan. On his list, there are three companies (large cap, intermediate cap and junior) that have exposure to Saskatchewan: Crescent Point, Spartan (now Vermillion), and Surge Energy. This is a desirable area because (1) takeaway capacity is not as difficult from Saskatchewan and (2) this doesn’t have the differential issue.  

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Josef Schachter

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COMMENT

Cash. He thinks many of these stocks have gotten ahead of themselves. We are not quite yet at the start of the growth cycle for energy. If there is a pullback on energy, he expects to see the energy index at 150 or less and from that level he expects to see explosive growth.

Cash. He thinks many of these stocks have gotten ahead of themselves. We are not quite yet at the start of the growth cycle for energy. If there is a pullback on energy, he expects to see the energy index at 150 or less and from that level he expects to see explosive growth.

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Josef Schachter

President, Schachter Asset Mana...

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$0.020
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Unknown

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BUY on WEAKNESS

He likes Blackbird. The stock is trading at $0.37 and has about $0.35 of hard value. They produce about 1200 boe/day, they have 4000 boe/day of capacity. They’re working with Tidewater Midstream to bring a new facilty into service in the area, which will be on in calendar Q2 of 2019, which will give them the ability to ramp up quickly to 10,000 boe/day, 50% liquids. He loves the management team. It has great drilling locations, which offers very economic wells in a great area. He has a $0.70 one-year target and a $2 five-year target.

Energy

He likes Blackbird. The stock is trading at $0.37 and has about $0.35 of hard value. They produce about 1200 boe/day, they have 4000 boe/day of capacity. They’re working with Tidewater Midstream to bring a new facilty into service in the area, which will be on in calendar Q2 of 2019, which will give them the ability to ramp up quickly to 10,000 boe/day, 50% liquids. He loves the management team. It has great drilling locations, which offers very economic wells in a great area. He has a $0.70 one-year target and a $2 five-year target.

Energy
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$0.370
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TOP PICK

This is a very large company, 71% natural gas. The NAV is $4.73 and book value at the end of 2017 was $6.01, so this stock is trading very cheaply. His one-year target is $7 and his 3-5 year target is $20. (Analysts’ price target is 1.88$)

oil/gas

This is a very large company, 71% natural gas. The NAV is $4.73 and book value at the end of 2017 was $6.01, so this stock is trading very cheaply. His one-year target is $7 and his 3-5 year target is $20. (Analysts’ price target is 1.88$)

oil/gas
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$1.620
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Yes

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PAST TOP PICK

(A Top Pick July 28, 2017. Down 40%). He recommended buying on weakness, the stock dropped and he recommended it most strongly last December. It is up 50% since then. He thinks the stock can go up to $7. He pointed out on the 10 year chart that the stock has massive upside when the price of oil moves. For example, it went from less than $15 in 2012 to nearly $60 in 2015. Similarly in 2009-2010, the stock went from $2 to $17. They go from being hated to being loved, and right now, the natural gas story is getting strong. Storage is low, last week there was even a draw. The US industry is so focused on drilling oil and liquids that the focus on natural gas is just not there. The LNG takeaway capacity in the US is going from 2 bcf to 9 by the end of 2019. Canada does have the pipelines into the midwest, and they are expanding. These can carry a lot of Canadian production into this growth of demand of 7 bcf. He also expects LNG to BC to be approved, which will result in a further increase of demand for Canadian natural gas, at better prices.

oil/gas

(A Top Pick July 28, 2017. Down 40%). He recommended buying on weakness, the stock dropped and he recommended it most strongly last December. It is up 50% since then. He thinks the stock can go up to $7. He pointed out on the 10 year chart that the stock has massive upside when the price of oil moves. For example, it went from less than $15 in 2012 to nearly $60 in 2015. Similarly in 2009-2010, the stock went from $2 to $17. They go from being hated to being loved, and right now, the natural gas story is getting strong. Storage is low, last week there was even a draw. The US industry is so focused on drilling oil and liquids that the focus on natural gas is just not there. The LNG takeaway capacity in the US is going from 2 bcf to 9 by the end of 2019. Canada does have the pipelines into the midwest, and they are expanding. These can carry a lot of Canadian production into this growth of demand of 7 bcf. He also expects LNG to BC to be approved, which will result in a further increase of demand for Canadian natural gas, at better prices.

oil/gas
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$2.000
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Yes

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TOP PICK

This was his top pick last year too. They are doing 37000 boe/day, production volume is up 16% from the year before. He thinks that going forward they will do 38000 boe/day. The company’s cash flow should be over $1 this year, so it is trading under 2x cash flow.  He thinks the stock can go up to $7 in one year, and has a $20 target for 5 years. He pointed out on the 10 year chart that the stock has massive upside when the price of oil moves. For example, it went from less than $15 in 2012 to nearly $60 in 2015. Similarly in 2009, it was a $2.40 stock and a year later it was $23. They go from being hated to being loved, and right now, the natural gas story is getting strong. The company can make money at $2 gas, but he expects gas prices to go up as American exports of LNG rise.  If AECO goes to $3 at the of this year, this stock will go a lot higher. The book value is over $15.37 and NAV is $13.68. This stock is ridiculously cheap. (Analysts’ price target is 1.58$) 

oil/gas

This was his top pick last year too. They are doing 37000 boe/day, production volume is up 16% from the year before. He thinks that going forward they will do 38000 boe/day. The company’s cash flow should be over $1 this year, so it is trading under 2x cash flow.  He thinks the stock can go up to $7 in one year, and has a $20 target for 5 years. He pointed out on the 10 year chart that the stock has massive upside when the price of oil moves. For example, it went from less than $15 in 2012 to nearly $60 in 2015. Similarly in 2009, it was a $2.40 stock and a year later it was $23. They go from being hated to being loved, and right now, the natural gas story is getting strong. The company can make money at $2 gas, but he expects gas prices to go up as American exports of LNG rise.  If AECO goes to $3 at the of this year, this stock will go a lot higher. The book value is over $15.37 and NAV is $13.68. This stock is ridiculously cheap. (Analysts’ price target is 1.58$) 

oil/gas
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$2.000
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Yes

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BUY on WEAKNESS

He’ll be going to the Annual General Meeting this week, to be at the contentious Board election. The company has a fabulous asset base in Saskatchewan and in the United States. He thinks the stock would be a good buy under $10 and better under $9 with the oil price retreating later this year. Management has seen the pressure that they have to perform. Debt went up in 2017 and has to come down.

oil/gas

He’ll be going to the Annual General Meeting this week, to be at the contentious Board election. The company has a fabulous asset base in Saskatchewan and in the United States. He thinks the stock would be a good buy under $10 and better under $9 with the oil price retreating later this year. Management has seen the pressure that they have to perform. Debt went up in 2017 and has to come down.

oil/gas
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$11.180
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Unknown

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COMMENT
Cenovus Energy(CVE-T) 

May 1, 2018

Their Q1 production was 488,000 boe/day because of all their acquisitions but they reported losses from their hedge book. Their operating margin was $157 million cash versus $305 a year before, but they spent $522 million. The company has $9.8 billion of debt, up from 9.5 billion at the end of December. They have about a half billion dollars of assets for sale. They have $19.4 billion of equity. Book value (ex goodwill) is about $13.92, which is higher than the stock price. The dividend is about 5 cents per quarter. They have a new CEO. It is not clear where their growth will be. Schachter thinks they should focus on their thermal operations and get rid of their conventional-world assets. He is concerned about the balance sheet. The debt to equity ratio looks tolerable. He compared it to Whiting Petroleum, Chesapeake Energy and WPX Energy, all well-known American energy companies that are treated as very exciting but have much worse balance sheets. He sees the Canadian energy companies as value stories compared to the American ones. The bargains are in Canada.

oil/gas

Their Q1 production was 488,000 boe/day because of all their acquisitions but they reported losses from their hedge book. Their operating margin was $157 million cash versus $305 a year before, but they spent $522 million. The company has $9.8 billion of debt, up from 9.5 billion at the end of December. They have about a half billion dollars of assets for sale. They have $19.4 billion of equity. Book value (ex goodwill) is about $13.92, which is higher than the stock price. The dividend is about 5 cents per quarter. They have a new CEO. It is not clear where their growth will be. Schachter thinks they should focus on their thermal operations and get rid of their conventional-world assets. He is concerned about the balance sheet. The debt to equity ratio looks tolerable. He compared it to Whiting Petroleum, Chesapeake Energy and WPX Energy, all well-known American energy companies that are treated as very exciting but have much worse balance sheets. He sees the Canadian energy companies as value stories compared to the American ones. The bargains are in Canada.

oil/gas
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$12.930
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Unknown

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COMMENT

This stock compares to Trinidad Drilling (TDG-T) and both are on his coverage list. He likes what he sees out of Ensign. It has $740 million debt versus $1.7 billion of equity. Their book value is $10.77 and the stock trades at $6. They have a very big presence in the United States. Of $1 billion in 2017 revenue, $459 billion came from the US, $262 from Canada and the rest international. They’re in the Middle East and in Mexico and Venezuela. Venezuela adds some risk to the stock. He is hoping to add coverage on weakness.

oil/gas

This stock compares to Trinidad Drilling (TDG-T) and both are on his coverage list. He likes what he sees out of Ensign. It has $740 million debt versus $1.7 billion of equity. Their book value is $10.77 and the stock trades at $6. They have a very big presence in the United States. Of $1 billion in 2017 revenue, $459 billion came from the US, $262 from Canada and the rest international. They’re in the Middle East and in Mexico and Venezuela. Venezuela adds some risk to the stock. He is hoping to add coverage on weakness.

oil/gas
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$6.110
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BUY on WEAKNESS

He prefers this to Parex Resources, which also drills in Columbia. GTE has a more significant growth profile. It has no problem on its balance sheet. The stock sells closer to its book value than Parex. If you have Parex, sell it and buy Gran Tierra on weakness.

oil/gas

He prefers this to Parex Resources, which also drills in Columbia. GTE has a more significant growth profile. It has no problem on its balance sheet. The stock sells closer to its book value than Parex. If you have Parex, sell it and buy Gran Tierra on weakness.

oil/gas
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$4.190
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Unknown

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PAST TOP PICK

(A Top Pick July 28, 2017. Up 41%). The management team is great. They did 31,426 boe/day last year and should do 37000 this year. That’s a big increase for a sizable company. They’ve had success with both exploration and development drilling. His target is $5.50 plus for this year and $12 for next year. There is good upside and people should buy it any time it breaks below $4. The company will be drilling 19-21 development wells and 8-11 exploration wells. That’s a very high percentage of exploration wells. Initial results from the exploration wells have been very encouraging.

oil/gas

(A Top Pick July 28, 2017. Up 41%). The management team is great. They did 31,426 boe/day last year and should do 37000 this year. That’s a big increase for a sizable company. They’ve had success with both exploration and development drilling. His target is $5.50 plus for this year and $12 for next year. There is good upside and people should buy it any time it breaks below $4. The company will be drilling 19-21 development wells and 8-11 exploration wells. That’s a very high percentage of exploration wells. Initial results from the exploration wells have been very encouraging.

oil/gas
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$4.190
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No

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COMMENT
Imperial Oil(IMO-T) 

May 1, 2018

A large amount of US exports are products. The refiners have crack spreads that are currently very favorable, which is why you’re seeing merger mania. Imperial Oil, Husky and others in this space are talking about significant profit growth in their Refining and Marketing business. Their net income this quarter was $516 million up from $333 the year before. If you look at the long-term chart, this stock hasn’t made money for investors. The dividend yield is not great. Compare it to Suncor. This hasn’t been an exciting place to be.

integrated oils

A large amount of US exports are products. The refiners have crack spreads that are currently very favorable, which is why you’re seeing merger mania. Imperial Oil, Husky and others in this space are talking about significant profit growth in their Refining and Marketing business. Their net income this quarter was $516 million up from $333 the year before. If you look at the long-term chart, this stock hasn’t made money for investors. The dividend yield is not great. Compare it to Suncor. This hasn’t been an exciting place to be.

integrated oils
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$39.350
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Unknown

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COMMENT

They have gone through a lot of stress at the Board level but that seems to have cleared up. They have a strong balance sheet, with $328 million in debt compared to $2.17 billion of equity. Their production this year will be about the same as last year. He thinks this stock is cheap, like many of its peers, a humbler reflection of what it was in 2008.

oil/gas

They have gone through a lot of stress at the Board level but that seems to have cleared up. They have a strong balance sheet, with $328 million in debt compared to $2.17 billion of equity. Their production this year will be about the same as last year. He thinks this stock is cheap, like many of its peers, a humbler reflection of what it was in 2008.

oil/gas
Josef Schachter

President, Schachter Asset Mana...

PricePrice
$1.410
Owned Owned
Unknown

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