Joanne Hruska, market strategist at Integral Wealth Securities
Focus: Canadian oil and gas stocks

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MARKET OUTLOOK

We feel that this part of the business cycle is a good time to start looking at investing in some segments of the Canadian energy sector. Investor sentiment for Canadian oil and gas stocks is very negative due to the lack of pipeline capacity for both oil and natural gas, but we feel that there are pockets of opportunity in light oil stocks right now. We’re not ready to call a bottom on natural gas stocks and feel that the recent widening in heavy oil differentials could lead some companies to cut back their 2018 budget due to lower cash flow. Our top picks highlight three Canadian light oil stocks.

TOP PICKS

RAGING RIVER EXPLORATION (RRX.TO)
Last bought at $7.25 on Feb. 2, 2018.

We added Raging River to the Integral Energy Model Portfolio last December, following their Duvernay light oil discovery in the Ferrybank area of Alberta. Since their inception in 2012, they’ve efficiently grown the company to well over 20,000 barrel of oil equivalent (BOE) per day with a focus on light oil. The Duvernay upside is a great balance to the steady Viking oil in Alberta and Saskatchewan and insiders own almost 10 per cent of the stock. We have the stock currently trading at 2018 forecast price-to-cash-flow of 4.4 times and debt-to-cash-flow of 0.6 times.

SPARTAN ENERGY (SPE.TO)
Last bought at $6.16 on Feb. 2, 2018.

Spartan was added to the Integral Energy Model Portfolio on January. This liquids-focused company continues our current preference for light oil producers in Canada due to strong oil prices. Spartan Energy has had top-tier organic growth recently, including record Q3 2017 production, while spending within cash flow. We like the unconventional southeast Saskatchewan upside to their lower-risk development assets and management has a track record of exceeding expectations. We have Spartan trading at 3.8 times 2018 cash flow with debt-to-cash flow at 0.4 times.

WHITECAP RESOURCES (WCP.TO)

We added Whitecap to the Integral Energy Model Portfolio today. The company has an enviable collection of light oil plays throughout the Western Canadian Sedimentary Basin. They recently purchased Cenovus’ 62.1-per-cent working interest in the Weyburn Unit in southeast Saskatchewan and this drops their corporate decline rate to 19 per cent from 23 per cent. Whitecap trades at 4.8-timescash flow and 1.3 times debt-to-cash flow. The company also provides a yield to investors of 3.4 per cent.

NO PAST PICKS – LAST APPEARANCE WAS 2014

WEBSITE: www.integralwealth.com