According to my dog-eared Webster's Seventh New Collegiate Dictionary, correction is not defined as a butt kicking. It is defined as "a decline in market price or business activity following or counteracting a rise."
If you've been holding on for dear life to those jumpy junior oil and gas stocks during the alleged "correction" in recent months, you're calling Webster's because butt kicking is a far more accurate characterization of the cruel and unusual punishment you've endured. You may also ask Webster's to use the word "crash."
Correction? Somebody on Wall Street probably wrote that definition. The street doesn't care for harsh language. To the street, a tsunami is a whitecap. Correction is the most convenient word in investing. It is heard on the street at least 18 million times per day to calm the masses.
Of course, as a junior oil and gas speculator, correction hardly fits the bill, particularly for those who are still proud owners of Eastshore Energy (TSXV:EST.A), which recently traded at $1.32, 74.1 per cent off its 52-week high of three months ago, or Canoro Resources (TSXV:CNS), which recently traded at $1.66, 66.6 per cent off its high of three months ago, or any of the other oily dogs of spring. Noted Calgary oil and gas analyst Andrew Boland even went so far as to use the word "brutal" recently, in characterizing a particularly painful day for the juniors - many have plunged 50 per cent or more since the March peak that followed a spectacular spike early in the year. Some of those exploration companies had no business being in the stratosphere, running on more hot air than gas fumes. If you tend to play the oilpatch junior sector where the action is wilder than the bull riding at the Calgary Stampede and were poking fun at those boring, old seniors such as EnCana when you were chalking up obscene returns from juniors such as Centurion Energy International (TSX:CUX) over the past couple of years, you might be surprised to know that EnCana has been the oilpatch's answer to widows and orphans, losing a measly seven per cent from its 52-week high (the S&P/TSX Energy Index, encompassing most of the larger energy stocks, is off about 10 per cent from its 52-week high).
While EnCana is a favourite of buy-and-hold investors, you need a cast-iron gut to hold the small caps and microcaps in the oil and gas sector that are more suitable for savvy traders capable of navigating the wild swings driven by volatile commodity prices. Loyalty doesn't pay in penny stocks or politics.
You need to look at the oilpatch juniors the way Belinda Stronach looks at Peter MacKay.
The billion-dollar question, of course, is whether the butt kicking - er, correction - in the oil and gas sector has just about run its course, or if you're still in danger of catching a falling knife by starting to put your money back to work in the junior sector.
Boland, for one, is honest enough to admit that he doesn't have a definitive answer.
"When it comes to commodity prices," says the managing director of research at Peters & Co., "I don't care what anyone says, we're all followers. We're talking about world events, world economics and world dynamics here. It's a very complex system.
"Obviously, Asian (energy) demand is a big part of it, but supply responses in various key producing areas have question marks over them," Boland says, as the oil price breaks under $50 US per barrel. "There's obviously no right answer at this stage. There is speculation over whether Chinese demand will recover in the second half of the year and whether supply will be able to hold up. People are arguing over this and until there's a clear indication, I think the market will go sideways to down. Right at the moment, inventories are going up, which means supply exceeds demand."
Peters & Co. is basing its research this year on a $50 oil price, but is reducing that to $40 in 2006 and $30 in 2007 in what Boland refers to as a conservative view (for Boland's top picks, see Pro's 3 Stars on Page 15).
However, many of the staunch oil bulls don't foresee prices reaching $40 again, including legendary Texas oilman Boone Pickens, a hedge-fund manager who recently told CNBC he would bet even money against the oil price ever hitting $45 again.
Josef Schachter, president of Schachter Asset Management, is forecasting the oil price to dip to the $43 to $45 range by mid-June or late June. At that point, Schachter, an oil and gas specialist, is recommending his clients start going back into names he covers that have been sufficiently hammered since March, including his long-time favourite, Centurion Energy International.
Centurion, which Schachter touted back when it was an obscure penny stock, has been the most prolific of the juniors in recent years, making a magnificent charge from 30 cents to a March high of $19 in a three-year span, based on its successful foray into Egypt and Tunisia.
Centurion shares have come back to earth recently, trading at $11.23. Which ranks as a butt kicking or a correction, depending on your perspective.
* SAGE WORDS: "Chief executives, who themselves own few shares of their companies, have no more feeling for the average stockholder than they do for baboons in Africa."
- Boone Pickens in his autobiography, Boone Pickens: The Luckiest Guy in the World.
HOT STOCK: Bow Valley Energy
Up 40 cents (+15.3 per cent) on 1.2 million shares (based on oil and gas stocks over $1, week ending May 27)
Correction? What correction? That's what Bow Valley shareholders have been asking. While other juniors have been taking a brutal pounding, Bow Valley's stock has been bucking the trend in the junior sector, continuing its ascent without missing a beat. Shares in the unheralded but profitable company have soared 130 per cent in the past nine months.
COLD STOCK: First Calgary Petroleums
Down $1.45 (-11.6 per cent) on 5.9 million shares (based on oil and gas stocks over $1, week ending May 27)
First Calgary continued to disappoint cranky shareholders who have been holding out hope for a juicy takeover to boost a stock that has been taken a 56-per-cent beating since since February. The company is now saying it is in talks with a Spanish company, Repsol Exploration Argelia S.A., concerning a joint venture for its Algerian natural gas play.
(Gyle Konotopetz can be reached at firstname.lastname@example.org)