Full episode: Market Call for Monday, January 15, 2018
Josef Schachter, president of Schachter Energy Research Services Inc.
FOCUS: Energy and energy service stocks
During tax loss selling season in December 2017, we became bullish on natural gas and land-drilling stocks (which we mentioned on the December 18 show). Many of these stocks were down 50 to 70 per cent in 2017 and had reached bargain valuation levels. We added at that time 12 stocks to our Recommendation BUY List. Viewers interested in seeing a complimentary copy of our research can go to www.schachterenergyreport.ca to view at their leisure.
We expect natural gas stocks to rise; we're seeing more strong drawdowns from inventory as the cold polar vortex increases home heating use and more is used for creating electricity as more utilities convert form coal to cheaper natural gas. A side benefit is lower environmental emissions. We remain cautious on crude oil and see it having significant downside. U.S. production will start to rise again and reach over 10Mb/d in February and 10.5Mb/d in 2H/18. In addition, OPEC cheating is rising, U.S. exports are taking market share away from OPEC and the risk premium for worries about Iran sanctions are likely to dissolve over the coming months. On commodity prices we expect to see NYMEX over US$4.00/mcf in the coming months and for WTI crude to fall below US$50/b.
BELLATRIX EXPLORATION (BXE.TO)
BXE is a natural gas-focused company that had production in Q3/17 of 37,710 boe/d, of which 75 per cent is natural gas. It is focused on the Spirit River liquids rich natural gas play in Alberta which has economics as attractive as the popular Montney area. In 2017 we see the company keeping production flat and using any excess cash to pay down debt. The stock is cheap on a price to book value (Q3/17 of $15.93 per share). We have a 12-month target of $7.00 per share and a three to five year bull market target of $20.00. BXE traded at $58.25 during the heady days of 2014.
BONAVISTA ENERGY (BNP.TO)
BNP is a natural gas-focused company that produced 71,191 boe/d in Q3/17, of which 71 per cent is natural gas. To keep production flat in 2018 they only need to spend $160M, so any excess cash will be allocated to pay down debt. At the end of Q3/17 debt was $722M and BNP expects to pay down $100M in 2018 and a further $100M in 2019. BNP pays a dividend of $0.04 per year ($0.01 per quarter). We expect in 2019 they should be able to increase the dividend. Our 12-month stock price is $7.00 and our 30 year target is $20.00 per share. Book value at the end of Q3/17 was $6.63 per share. The stock traded at over $15 per share in the heady days of 2014. The all-time high was in 2011 when it traded at $22.24 per share.
CREW ENERGY (CR.TO)
CR is a natural gas stock (74 per cent natural gas, 26 per cent liquids) with a focus on the Montney. Production in Q3/17 was 23,251 boe/d and this will rise in Q4/17 as the West Septimus plant expansion to 120Mmcf/d (doubled) came on in mid-November. We forecast 2018 production rising to 32,500 boe/d with a 2018 exit level of nearly 40,000 boe/d. Cash flow per share should come in at $0.70 per share in 2017, rising to over $1.30 per share in 2018. Book value at the end of Q3/17 was $5.81 per share. Our target into Q1/19 is $7.00 per share and our three to five year bull market target is $22.00 per share. Crew traded at nearly $13 per share during the cold winter of 2013-2014. The all-time high was $21.56 per share during cold weather in early 2011.
PAST PICKS: JUNE 12, 2017
In June we mentioned that we would wait to buy these shares into weakness that we expected in late 2017. This did occur during the tax loss selling season and we added the names to our Recommended BUY list. We like all the names and would recommend investors buy these stocks on any period of weakness.
BIRCHCLIFF ENERGY (BIR.TO)
We added this one to our buy list on December 15 at a price of $3.91 per share. Our Q1/19 target is $9.00 per share. Buy on current weakness.
- Then: $5.97
- Now: $3.58
- Return: -40.03%
- Total return: -39.17%
SURGE ENERGY (SGY.TO)
We added this one to our buy list on December 13 at a price of $1.91 per share. Our Q1/19 target is $3.70 per share. Buy on any upcoming weakness.
- Then: $2.24
- Now: $2.16
- Return: -3.57%
- Total return: -0.98%
WESTERN ENERGY SERVICES (WRG.TO)
We added this one to our buy list on December 22 at a price of $1.16 per share. Our Q1/19 target is $2.50 per share. Buy on any upcoming weakness.
- Then: $2.03
- Now: $1.39
- Return: -31.69%
- Total return: -31.69%
TOTAL RETURN AVERAGE: -23.94%