Jerome Hass’ Top Picks for August 5, 2026

Jerome Hass, Portfolio Manager, Lightwater Partners

Focus: Canadian oil and gas stocks

Top Picks: Gibson Energy, Cardinal Energy, Surge Energy

MARKET OUTLOOK:

We are in the early stages of a long-term bull market for oil and gas stocks in Canada. Put aside the short-term volatility of oil pricing, when West Texas Intermediate (WTI) can move up or down five per cent any day on the back of a post from U.S. President Trump or a volley of drones or missiles. Let’s focus on the underlying fundamentals of oil stocks.

The Canadian oil patch seems to have found religion with an emphasis on fiscal discipline and shareholder returns. Companies have reduced their exposure to bank debt and significantly reduced leverage overall.

After at least a decade of under-investment in exploration and development, the oil industry globally has seen reduced reserve lives and lower drilling inventories. Conversely, Canada is blessed with a number of oil and gas companies with long-life assets that will produce cash flows for decades to come.

After nine years under a federal government that was hostile to its own oil and gas industry, there is now a more conciliatory tone in Ottawa. The talk of new pipelines to the west coast, Ontario, and a revived Keystone XL is encouraging to investors. Whether the talk materializes into action remains to be seen.

Finally, Canadian oil and gas stocks are cheap in terms of absolute and relative valuation. As more domestic and international capital flows into Canadian oil and gas sector, a re-rating of the sector is inevitable given its superior fundamentals.

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TOP PICKS:

Gibson Energy (GEI TSX)

Gibson is a crude oil infrastructure business. The company owns terminals, storage, pipelines, blending assets, and export infrastructure that help producers store, move, and market crude oil and refined products.

One out of every four western Canadian barrels of oil goes through a Gibson terminal. It is almost 100 per cent crude oil with virtually no natural gas exposure. Most revenues are contracted and fee-based, with take-or-pay structures that support cash flow even when commodity prices or volumes are weaker.

The company has stable cash flows that sustain its six per cent dividend yield. Management aims to grow earnings before interest, taxes, depreciation, and amortization (EBITDA) by seven per cent per year, combined with the dividend, that translates into a 13 per cent targeted return for investors.

Cardinal Energy (CJ TSX)

Cardinal is a conventional oil producer (90 per cent oil and 10 per cent gas) in western Canada. Murray Edwards is its largest individual shareholder.

CJ produces about 25,000 barrels of oil equivalent per day with very low decline rates (10 per cent).

Last year, it added thermal assets, the Redford small-scale steam-assisted gravity drainage (SAGD) project in Saskatchewan.

Despite market skepticism, management delivered the project on-time and on-budget – a rarity for any capital project in Canada. Redford has exceeded its nameplate capacity (6,000 barrels of oil equivalent per day) by 10 per cent and Redford 2 is already under construction.

The stock is trading at 5.5 times enterprise value to debt-adjusted cash flow (EV/DACF) and a 9.3 per cent free cash flow (FCF) yield at $80 WTI and has a 6.2 per cent yield.

Surge Energy (SGY TSX)

We believe that Surge is one of the most underappreciated mid-cap Canadian oil producers, which is why it is the largest position in the All-Canadian Oil & Gas ETF.

SGY is a very good conventional oil producer (90 per cent oil, 10 per cent gas) with high-quality assets focused on the Sparky basin and SE Saskatchewan. It has a long reserve life of 11 plus years. Surge has a large inventory of repeatable drilling locations that provides the reliability we look for in oil producers.

Management has executed well, with Surge consistently among the top wells drilled in Saskatchewan.

It has applied water flooding with strong success in the Hope valley, which reduces decline rates and enhances production from existing wells.

SGY has low decline rates (24 per cent) for a conventional producer, and Surge is among the most levered to high oil prices.

The stock is inexpensive at 3.2 times EV/DACF 2026 and a 15 per cent FCF yield with a five per cent share-buyback and six per cent dividend yield.

The biggest knock-on Surge is its size: a $1 billion market cap. Its size may limit attention from large institutions or international fund flows – at present - but that’s a problem we are more than happy to live with. At a four times EV/DACF 2027, the stock is worth $13.50, representing 35 per cent upside.