Craig Porter's Top Picks: April 25, 2017

Craig Porter, senior portfolio manager at LOGiQ Asset Management

Focus: Resource stocks
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MARKET OUTLOOK
Since the OPEC cuts were put in place at the start of the year, oil has remained in a fairly tight range, averaging a little under US$52 per barrel. There seems to be much apathy in the sector, and concern on whether U.S. production growth will overwhelm the OPEC cuts. We feel that world oil marks are near a supply-demand balance currently, but will likely see OPEC extend their cuts another six months in order to protect a floor price (as many of the countries have large social programs at home that need to be funded). Canadian producers have underperformed U.S. producers as fears of a Border Tax, new carbon pricing, and an uncertain regulatory process keep investors on the sidelines.

After a second warmer-than-normal winter, natural gas prices have once again been weak. On a positive note, inventories in North America didn’t reach the levels seen in early 2016, as strong demand was driven by electrical generation, industrial demand and exports abroad.

The price of gold has been strong to start the year as investors sought out a safe-haven investment in times of political turmoil in areas such as Syria, North Korea and Iran. Although we’ve had one interest rate increase in the U.S., real interest rates (which factor in the effects of inflation) remain negative, drawing investors to gold as a store of value.

TOP PICKS

WHITECAP RESOURCES (WCP.TO)
The company is a low-cost producer of light oil in Saskatchewan and Alberta. They aim to grow production seven to 10 per cent per year and pay around a three per cent dividend all within the confines of cash flow. Strong, conservative management team.

NEVSUN RESOURCES (NSU.TO)
The company has an operating zinc/copper mine in Africa, where short-term operational problems have hurt the share price. They’re also developing a high-grade copper gold deposit in Serbia. The company also lost a number of shareholders after they cut their dividend, redirecting the funds to develop the Serbian assets. We feel that the shares are now attractively priced to take advantage of global growth.

CANADIAN NATURAL RESOURCES (CNQ.TO)
Cash flow will grow substantially over the next few years with the completion of a number of significant projects. Recently spent $13 billion acquiring Shell’s oil sand assets at favourable metrics. Core holding for most Canadian energy portfolios.
 

PAST PICKS: FEBRUARY 10, 2017

SPARTAN ENERGY (SPE.TO)

• Then: $2.86
• Now: $2.32
• Return: -18.88%
• TR: -18.88%

RAGING RIVER EXPLORATION (RRX.TO)

• Then: $9.27
• Now: $8.14
• Return: -12.18%
• TR: -12.18%

WHITECAP RESOURCES (WCP.TO)

• Then: $10.81
• Now: $9.58
• Return: -11.37%
• TR: -10.99%

TOTAL RETURN AVERAGE: -14.01%