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Today, The Panic-Proof Portfolio (Stockchase Research) and The Weekly Buzzing Stocks by Billy Kawasaki commented about whether EMA.TO, TSM, AMD, FSLR, LULU, SLB, SLF.PR.D.TO, GWO.PR.P.TO, PWF.PR.E.TO are stocks to buy or sell.
Complete elimination of any political risk premium that was in the oil price. About 2 months ago, he started getting far too many interview questions about whether oil was going to hit $100. As a contrarian that made him nervous, so he raised quite a bit of cash (about 33%). And he's been actively spending that given the selloff.
Heading into a key OPEC meeting in a few weeks. His best read on the situation is that they'll extend the voluntary cuts through to the end of this year. Still concerns about a weak China, whether the Fed will cut or not, and how is the US consumer holding up. That means sharper than average inventory draws beginning next month.
Given these headwinds plus seasonal weakness, high $70s is pretty good. Energy is up 20% YTD. As we look to the second half of this year, sees demand seasonally increasing, OPEC continuing cuts. Falling inventories are bullish for oil. Possibility of $90 Brent by end of 2024.
Weekly numbers that come out are typically of low quality. Last year, underestimated US demand by 400K barrels a day. So he waits for the monthly numbers and wouldn't be surprised to see an upward revision.
No tangible evidence that the consumer is faltering. We hear all these stories about trade downs to Walmart and people buying fewer Big Macs, but if you look at miles driven, the consumer seems fine. Demand is not shooting the lights out, but it's fine.
He still sees enduring religion of returning free cashflow to investors, irrespective of tax changes. It's likely that people will do some estate planning by the deadline and take some gains off the table. But he doesn't see the impact occurring on share buybacks.
Right now companies are awash in free cashflow, not meaningfully growing, and paying down debt. There's really nothing to do with that cash except give it back in the form of dividends or buybacks. Investors very clearly want share buybacks.
We've had a bit of a rerating. Stocks aren't trading at 2x cashflow, now more like 10-12x free cashflow yield. Still sees meaningful upside at $80 oil and $4 gas. Real power in the next couple of years is the compounding effect of buying back 10-15% of outstanding shares every year. Three to four years from now, the remaining shares will be so much more valuable.
We reiterate this Canadian based preferred share offering by Power Financial. The parent company POW recently reported EPS increasing by 138%. Cash reserves at the parent are growing, while debt is retired and shares bought back and their stock trades at 10x earnings and 2x book value. We continue to recommend a stop at $19, looking to achieve $25 -- upside potential of 16%. Yield 6.4%