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COMMENT
Market Outlook He thinks we have been in the worst bear market in the energy space ever. He has been accused of being too bullish, but when the Trump Administration lied about putting sanctions on Iran back last October the market changed direction. Next year he sees US shale growth rates decelerating as well results start to plateau and companies turn to lower quality rock. The growth rate has fallen from 1.9 million barrels per day of annual growth falling to only 600,000 barrels per day for US production. Offshore global supply is also peaking, he says. By 2021 the market could be incredibly tight. Energy stocks could go up 100%. He hopes an increase in oil prices would bring back investors. Companies should not be valued at 70% of their reserve values. He thinks companies should become buyers of their stock from free cash flow. Believe in the oil price on the screen today and you will see share prices move up.
BUY
They were trading at values lower than reserve values. They are initiating their first share buyback this year. One analyst has a $26 price target for them. They are a big natural gas producer, and we are heading into a colder than normal winter outlook. When you can buy a quality company at these levels, where management is investing heavily themselves and it trades at 3 times cash flow, you can't go wrong.
oil
gas
WATCH
The spending outlook for drilling in 2020 is very poor. Companies can not justify spending more to just keep production flat, especially when the market will not give you credit for it. Companies should be putting free cash flow into share buybacks. It is negative for service companies. He wonders when this has been fully discounted in the share price. He is more tempted to buy a producer.
oil
gas field services
BUY
He thinks there is still good upside to come. The sector has put all the good companies in the same camp as the poor performers and dragged all down to the same reduced valuations. Arc is yielding 9.1% and trades at a 25% discount to their reserve valuation. Out to 2021 their spending drops to create a 10% free cash flow yield after paying the dividend. He still sees this as an opportunity.
oil
gas
HOLD
A large holding for him and he is concerned about upcoming earnings. He sees it trading at 8-12% free cash flow next year based on his oil price outlook. They are doing share buybacks. They have 10 years of inventory in the US Bakken and you are only paying about half of historical valuation. He thinks this will be a company that reacts strongly when investors return to the space.
oil
gas
PAST TOP PICK
(A Top Pick Nov 16/18, Down 28%) Dirty oil is not getting funding in the US and their share price reflects this. They just added an acquisition in the Permian. He liked the management team change. They are able to grow 10-15% based on current oil pricing. He just prefers to buy in Canada where valuations are at a significant discount.
Energy
PAST TOP PICK
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