(Every week, Business Edge columnist Gyle Konotopetz profiles the top three stock picks of one of Canada’s top investment pros.)

FEATURED PRO: Bruce McDonald has been the oil and gas trust and pipeline trust analyst for Canaccord Capital (www.canaccord.com) for the past year. He was previously director of planning and corporate finance for Prime West Energy Trust.

McDonald’s Perspective: “Despite the strength in (oil and gas trusts), I don’t see a catalyst for it to pull back over the next couple of months. I don’t see any kind of an immediate correction, but I could see a softening of the sector in the fall.

“I think the trust model is here for a long time. It has outperformed (the oil and gas index) because I believe it’s a better business model and a better tax model.”

Commodities Outlook: McDonald calls for oil prices to average $29 US per barrel this year and $25 US next year (recently $30.05 US), and natural gas prices to average at least $7 US (NYMEX) this year and $6.50 US next year (recently $6.38 US).


FIRST STAR
* Vermilion Energy Trust (VET.UN-TSX)
* Recent Price: $12.71.
* 52-Week Range: $11.30-$13.30.
* McDonald’s Call: Buy.
* 12-Month Target: $13.75.
* Snapshot: Vermilion is an oil and gas income trust formed in 2002 from Vermilion Energy. It also owns 72 per cent of Aventura Energy (AVR-TSX). The company’s outlook is for an average daily production of 23,000 boe in 2003.
* CEO: Lorenzo Donadeo.
* Head Office: Calgary (139 employees).
* Vital Stats: Revenue (last 12 mos), $262.6 million; 5-Yr Revenue Growth, 47.1%; Profit (last 12 mos), $35.4 million; 5-Yr Profit Growth, 44.5%; Market Cap, $662.54 million; Shares Outstanding, 52.13 million; Current Monthly Distribution, 17 cents per unit.
* McDonald’s View: “Vermilion is relatively inexpensive for the (oil and gas trust) sector. Our price to net asset value (NAV) for Vermilion is about 89 per cent and the sector is trading at a price to NAV of about 125 per cent.
“I like it from a valuation point of view and I like the management. They also hold Aventura Energy as an equity within the trust, but it doesn’t require capital.”
* Risk Rating: High (McDonald deems all oil and gas trusts as high risk relative to the income trust sector).
* Web watch: www.vermilionenergy.com

SECOND STAR
* NAL Oil & Gas Trust (NAE.UN-TSX)
* Recent Price: $9.17.
* 52-Week Range: $8.46-$10.55.
* McDonald’s Call: Buy.
* 12-Month Target: $8.75.
* Snapshot: NAL is an oil and gas income trust with a diverse portfolio of assets in Alberta, Saskatchewan and Ontario. It operates 80 per cent of its properties.
* CEO: Donald Driscoll.
* Head Office: Calgary.
* Vital Stats: Current Price/Earnings Ratio, 11.5; Revenue (last 12 mos), $98.5 million; 5-Yr Revenue Growth, 24%; Profit (last 12 mos), $16.2 million; Market Cap, $348.61 million; Shares Outstanding, 38.05 million; Current Monthly Distribution, 15 cents per unit.
* McDonald’s View: “NAL does not have a lot of debt in place, it has a high productivity per well, a high amount of proved producing reserves in place, good predictability on its assets and it doesn’t require a lot of capital. But what I really like about this company is that it tends not to hedge (on commodity prices), which makes them a bit of a contrarian versus the rest of the sector.”
* McDonald’s Risk Rating: High.
* Web watch: www.nal.ca


THIRD STAR
* Canadian Oil Sands Trust (COS.UN-TSX)
* Recent Price: $35.60.
* 52-Week Range: $32.26-$42.90.
* McDonald’s Call: Buy.
* 12-Month Target: $40.
* Snapshot: Canadian Oil Sands is an oil and gas trust that generates income from its 31.7-per-cent working interest in the Syncrude Joint Venture. It ranks as the largest pure-play investment in the Alberta
oilsands.
* CEO: Marcel Coutu.
* Head Office: Calgary (six employees).
* Vital Stats: Current Price/Earnings Ratio, 7.0; Revenue (last 12 mos), $735 million; 5-Yr Revenue Growth, 33.9%; Profit (last 12 mos), $303.3 million; 5-Yr Profit Growth, 44.3%; Market Cap, $2.83 billion; Shares Outstanding, 79.54 million; Current Monthly Distribution, 15 cents per unit.
* McDonald’s View: “What I particularly like about this company is that we’re probably 18 months away from a
stage-three expansion being completed and, as we get
closer to 2005, we’re going to see this investment trade
up to its net asset value (NAV) as it moves closer toward a period where they’re going to have higher cash flow and likely a higher distribution payout.
“I think it’s going to be a quiet mover in the market over the next 12 months, but I’d be surprised to see it below $40 after that.”
* McDonald’s Risk Rating: High.
* Web watch: www.cos-trust.com
* Disclosure: McDonald says Canaccord Capital has acted in financing for two of the featured companies, NAL Oil & Gas Trust and Canadian Oil Sands Trust.