Eric Nuttall, partner and senior portfolio manager, Ninepoint Partners

FOCUS: Energy stocks


Oil remains in a multi-year bull market with oil trading at multi-year highs, global oil inventories at multi-year lows, demand back to pre-COVID levels, and muted supply growth in the years ahead. We look for OPEC spare capacity to become exhausted by the end of this year setting us up for US$100 WTI (or higher) in 2023.

With oil stocks currently discounting US$60 WTI and able to privatize themselves with just 4.5 years of free cash flow at US$80 WTI, we look for meaningful capital returns in the form of buybacks and dividends to this year awaken generalist investors from their catatonic state and begin to recognize the generational opportunity (still) in energy stocks.


Eric Nuttall's Top Picks

Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, discusses ARC Resources, MEG Energy, and Headwater Exploration Inc.

ARC Resources (ARX TSX)

ARC is one of the most mispriced energy stocks that we can find. With over 20 years of “stay flat” inventory, the company can privatize itself every 4 years at the current oil and natural gas price. Given the profound mispricing, the company is aggressively buying back stock and trading at only 2.4x EV/CF and a 24 per cent free cash flow yield we see strong potential for multiple expansion. Our target is $27, offering 106 per cent potential upside and represents a target 11 per cent free cash flow yield (on an enterprise value basis).

MEG Energy (MEG TSX)

MEG Energy offers the highest leverage to a rising oil price given their unhedged status in 2022 and strong pricing leverage given their 100 per cent heavy oil production. Generating $1.6B of free cash flow this year at a US$80 WTI price and $12.50 WCS differential, the company will soon meet their initial deleveraging target allowing them to implement a share buyback program. The stock currently trades at a 40 per cent free cash flow yield and could potentially repurchase 10 per cent-20 per cent of the outstanding shares this year. Given their ultra-long life reserves and $4-6/share value of tax losses, we ascribe a 6x target multiple, which at US$80 WTI = $37/share = 157 per cent potential upside.

Headwater Exploration (HWX TSX)

HWX offers pure exposure to Clearwater, the most economic play in North America. While we await the results of important step-out/exploration well results to elongate their drilling inventory we think the stock is worth 6x their 2023 cash flow = $10/share at US$80 WTI = 56 per cent potential upside while offering free optionality on high impact imminent exploration.




PAST PICKS: February 9, 2021

Eric Nuttall's Past Picks

Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, discusses Tamarack Valley Energy, Seven Generations Energy, and Enerplus.

Tamarack Valley (TVE TSX)

  • Then: $1.87
  • Now: $4.58
  • Return: 145%
  • Total Return: 145%

Seven Generations Energy (VII TSX) Acquired by ARC Resources on April 8, 2021***

  • Then: $7.74
  • April 7, 2021: $8.45
  • Return: 9%
  • Total Return: 9%

Enerplus (ERF TSX)

  • Then: $5.26
  • Now: $14.25
  • Return: 171%
  • Total Return: 174%

Total Return Average: 109%