ENERGY MARKET OVERVIEW

Tax Loss Selling Season BUYS – Load Up On Favourite Ideas.

Current weakness in the energy sector is providing investors with some fabulous BUYS. From the high of 149 after the attack by Iran against the large processing facility in Saudi Arabia at Abqaiq, the S&P/TSX Energy Index has plunged 7% to 139. The range in 2019 appears to be a high of 171 (April) and a low of 119 (August). Putting this in context the high in 2008 was 470 and the high in 2014 was 340. The lowest energy stocks have traded at over the last 10 years has been the 119 low in late August. Use any meaningful dips to add to positions.

Our favourite indicator the S&P Energy Sector Bullish Percent Index (Chart #1) has retreated from the high of 57% when the Iran attack occurred and has retreated to 46%. This does not give us the low risk entry point we like to see. Investors should take advantage of any bargains out there now, but still hold some cash for a low risk BUY signal when this Index declines below 10%. Low risk bottoms in the past have occurred in the first quarter, as late as February (2016) and March (2009) as examples.

Our focus will be to add to both our dividend focused energy and energy service portfolio and as well to attractive growth stories that have out-sized upside in the Energy Bull Market into 2025. Personally, we are using a ‘bar bell’ approach, with the greater amount of dollars invested in the dividend side due to our personal desire for dividend income.

Chart #1

S&P Energy Sector Bullish Percent Index – Daily

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

I often get asked by subscribers to narrow the field of the companies we cover to the ‘best ones’ only. This is difficult to do as each investor has their own priorities, risk tolerance, income needs etc. Based upon the fundamentals driven research process we have created, these non-weighted check lists for both Energy and Energy Service Companies are for your review and consideration.

Energy Company Criteria

Our focus on the energy side is on the best E&P names that have:

  • healthy balance sheets,
  • significant insider ownership,
  • either are paying a dividend now or have the ability to pay a growing dividend in the future,
  • the ability to grow production volumes as prices recover and have a large inventory of drilling locations.

For those which have attractive exploration potential we also want them to have:

  • a deep inventory of prospects,
  • the financial wherewithal to execute their growth plans,
  • a reasonable time line.

Having an active NCIB (normal course issuer bid program as free cash flow rises) is also one of our desired check list items.

After detailed review of all our Covered Energy Companies, we have nine companies that fit our desired parameters for the energy side. Please go back in the company archives to familiarize yourselves with the fundamentals of those ideas that fit your needs.

We updated these companies as they reported their Q3/19 results. We currently own five of the nine ideas and plan to add to our holdings in these names and expect to add some of the remaining four ideas if they reach prices that are very compelling. Watch the SER Ownership page in each of the upcoming Interim Reports and SER Monthlies to keep up with what we BUY and what prices we were comfortable paying.

In Chart #2, you can see that we have the following information for each of the nine companies: Company symbol, current stock price, recommended BUY price, shares outstanding, market capitalization, long term debt level, balance sheet equity, no LMR issues, strong insider ownership, enterprise value, production level Q3/19, enterprise value per boe, annual dividend, the SERSI cash flow per share forecast (CFPS) for 2020, the dividend being annual or quarterly, the current yield and the payout ratio based upon our 2020 CFPS forecast.

Click here to view the grid of covered companies in a new tab. You can select the company overview page, or view all posts mentioning a company, with the newest posts first.

Click for Details

Chart #2

Tax Selling Season Buys – Energy (E+P) Companies

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: Reported data and SER forecasts – December 13, 2019

This should give you a good screen to focus your investment decision process on the nine companies: Birchcliff, Canacol, InPlay, Surge, Tamarack, Touchstone, Tourmaline, Vermilion and Whitecap. (Charts #3 through #11).

Chart #3

Birchcliff Energy – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #4

Canacol Energy – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #5

InPlay Oil – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #6

Surge Energy – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #7

Tamarack Valley Energy – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #8

Touchstone Exploration – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #9

Tourmaline Oil Corp – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #10

Vermilion Energy – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #11

Whitecap Resources Inc. – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Energy Service Company Criteria

Our focus on the energy service side is on the best names that have:

  • healthy balance sheets,
  • significant insider ownership,
  • modern efficient equipment that can see rapidly rising utilization rates as the cycle unfolds,
  • either are paying a dividend now or have the ability to pay a growing dividend in the future and
  • have the ability to activate meaningful NCIB’s (normal course issuer bids) as free cash flow rises.

In Chart #12, you can see that we have the following information: Company symbol, current stock price, recommended BUY price, shares outstanding, market capitalization, long term debt level, balance sheet equity, strong insider ownership, annual dividend, the SERSI cash flow per share forecast (CFPS) for 2020, the dividend being annual or quarterly, the current yield and the payout ratio based upon our 2020 CFPS forecast.

Chart #12

Tax Selling Season Buys – Energy (E+P) Companies

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: Reported data and SER forecasts – December 13, 2019

This should give you a good screen to focus your investment decision process on the six companies: CES Energy Solutions, Essential Energy, High Arctic Energy Services, STEP Energy, Total Energy Services and Trican Well Service. (Charts #13 through #18)

We currently do not own any of these companies, but plan to add some of the ideas if they reach prices that are very compelling. Watch the SER Ownership page in each of the upcoming Interim Reports and SER Monthlies to keep up with what we BUY during the tax loss selling season and thereafter.

Chart #13

CES Energy Solutions – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #14

Essential Energy Services – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #15

High Arctic Energy Services – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #16

STEP Energy Services – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #17

Total Energy Services – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

Chart #18

Trican Well Service – Monthly

SCHACHTER ENERGY REPORT: December 20, 2019 - 1. Energy Market Overview

Source: stockcharts.com – December 12, 2019

CONCLUSION

Invest cash positions for an attractive buying window now that we are in the annual tax loss selling season in late December. We plan to send out various Action Alert BUYS in the coming days adding ideas to our Action Alert BUY list.
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