DON'T BUY

There is absolutely no reason to own this right now. They’ve too much debt, and lack the ability to meaningfully pay it down. This was a result of their entry into the Eagle Ford. When comparing what they look like in terms of growth rate relative to valuation, in Canada the average intermediate oil company is expected to grow next year by about 15%, with an average multiple of 5.2X EV to future cash flow. This company is expected to grow by 1% and is trading at 5.7X.

COMMENT

A good oil company. They’ve held up better than others. He would prefer Torque (?) or Spartan (SPE-T) based on valuations. The company just gave an update and are temporarily down in the low $40s, so he wouldn’t be looking for a dividend cut. At $50 oil, total return is probably 13 or 14. His preference would still be to go into some of the Permian guys.

DON'T BUY

Too small and there is too much uncertainty around the prospectivity of their acreage as well as their competitive edge in completion technology, which he thinks they have a 10% interest in.

COMMENT

Like many service stocks, this has gone down materially. The pro is that the multiple is looking very attractive relative to what he thinks it could do in 2018. The con is that within services there is always a lot of subsectors, and the one with the least pricing power is, he thinks, drilling. Unlike pressure pumping, where equipment is in shortage, he doesn’t see a lot more upside in the day rates for drilling equipment.

SELL

If you own this, he would Sell it. Get your tax loss and move on to another name which has more upside. Management has clearly struggled for a couple of years to regain investor confidence after several stock issuances, that came with mixed messaging. There is just too much history to see this one outperform.

TOP PICK

Canada is materially undersupplied for pressure pumping demand. Pricing will continue to go up, and yet these stocks are selling off in the belief that while crude oil has checked back, companies are losing pricing power. That is not correct. This company can cash flow $300 million next year. Where the stock price is trading at, it is discounting by about $150 million of cash flow next year, not $300 million. If he is correct, there is 75%-100% upside in the stock. A stock price of $6-$7 is not unreasonable. (Analysts’ price target is $5.88.)

TOP PICK

The frac sand market is 75 million tons this year, growing to 110 million tons next year, growing to 140 million tons in 2019, equalling 65 million tons of demand growth. Supply growth will be anywhere from 30 million to 40 million. The price insensitivity of producers to an increase in frac sand price means that pricing will go up month after month, quarter after quarter for the next couple of years. This is the best positioned frac sand company. Dividend yield of 0.8%. (Analysts’ price target is $54.25.)

TOP PICK

A Permian producer that has been doing a really good job of acquiring acreage, so they issued a ton of paper on to the market. They’ve grown 14% a quarter for the past couple of years. They now get to slow down on that and focus on delineating their acreage, and also going after some new benches. One that they think they have a command of is the Wolf Camp C, and these wells are super, super economic. Have about 70% of their production hedged next year. (Analysts’ price target is $40.)

N/A

Market. The Canadian economy is doing all right, but you look at the composition of the index and it is mostly oil, gas and banks. Then we had the Home Capital effects which spilled into the banks, and they became unloved. Oil and gas fundamentals have not been great this year. The base metals and all the other resources had a little bit of a lift in the last little while, but it has also been going down in the first 6 months of the year. Banks will probably do okay, but it pretty much depends on what oil and gas does. Everybody is looking for a rally in oil and gas, but no one knows how long it will last or how good it will be.

COMMENT

Short? A great management team. She would definitely not Short this name. You never Short a name that has a great management team. She wouldn’t rush out and buy this right now. Their same-store sales comps on their other chains are not doing particularly well.

COMMENT

Just made a fairly large acquisition and issued new stock, which was probably not the best time. That put a top on the stock, but long-term she really likes it. It probably has another 5-6 years of acquisitions ahead of it. They don’t have any competition right now. Management is great and have made a good job of integrating acquisitions. They are logical in how they plan their geographical locations. There is more to go before the run out of steam.

COMMENT

This is early days and we don’t know how their US acquisition is going to work out. It has the largest proportion of assets in mortgages, which might be a negative going into a recession if we have a real estate correction.

COMMENT

She likes the fundamentals of the zinc market, and this is a good play on that. Not crazy about the acquisitions they made as the 2 mines are not the same quality that they had. If you need a zinc play, this is a good one.

BUY

This stock has been amazing. It is well-managed and they hedge their currency, they basically do everything right. Introduced credit cards recently, so there will be some cost benefits going forward. There is always something good happening at this company.

COMMENT

A holding company. As a growth manager, this is not exciting as there is not much happening. There is nothing growing in this company. The dividend is absolutely safe. If you are looking for meaningful appreciation, this would not be her favourite stock. 4.9% dividend yield.