Somehow, you expected Bruce McDonald to be standing on the roof of the Canaccord Capital building on Eighth Avenue and bawling into a bullhorn: “Buy, buy, buy!!!”

McDonald is not just an equity analyst – and we know all too well how these types like to holler ‘buy’ – he’s an analyst who specializes in a sector investors have fallen hopelessly in love with, the oil and gas income trusts.

But, on this day, McDonald is not screaming “buy.”

While investors back up the truck to oil and gas income trusts and the non-trusts in the oilpatch rumoured to be joining the trust parade, the analyst is whispering ‘hold’.

Hold, hold, hold, hold, hold, hold, hold.

Yes, seven times he said it. He has seven hold recommendations among the 10 oil and gas income trusts he covers.

And that’s a screaming indicator it may be time for oil and gas trust punters to cool their heels.

The other three stocks he covers are buys – two with modest upsides and one that has already busted through his 12-month target (he revises his recommendations and targets every two weeks).

It’s not that the upstart $16-billion oil and gas trust sector is falling out of favour. In fact, it may be unwise to bet against their ability to continue to steal the thunder from the relatively listless senior producers.

Most of the seniors have shown minor gains or even losses in share price in recent months with the exception of Canadian Natural Resources (CNQ-TSX), up 14 per cent year to date.

It’s more a case of the oil and gas trusts having run so far so fast that they’re running out of legs and due for a breather.

“You should’ve called me eight weeks ago,” sighs McDonald, who lost his voice hollering ‘buy’ earlier in the year. “I’m running out of buys.”

Although seven oil and gas trusts, including stalwarts such as the Pengrowth Energy Trust (PGF.UN-TSX), Primewest Energy Trust (PWI.UN-TSX) and the Enerplus Resource Fund (ERF.UN-TSX), are rated holds, McDonald advises investors with short-term horizons to consider taking some profits.

“It’s a good week to be a seller,” says the analyst, who joined Canaccord a year ago as the firm beefed up its coverage of income trusts. “If you’ve been in the sector for a while and you were going to take some profits, it’s a good week for that.”

McDonald honed his skills in analysing the income trust business while director of corporate planning and finance with Primewest, which he helped build into a billion- dollar company.

Year to date, nine of the 10 oil and gas trusts he covers are up for an average return of 7.6 per cent.

McDonald believes the voracious appetite for energy trusts, which pay monthly distributions to unitholders, won’t subside any time soon.

“I think the trust model is here for a long time because, year after year, they out- perform,” says McDonald, whose top pick in the sector is Vermilion Energy Trust (VET-TSX). “It’s a better business model and a more tax-efficient model in terms of there not being any taxation at the corporate level.”

As McDonald spoke, investors were frothing over the latest convert, Baytex Energy (BTE-TSX). But McDonald wasn’t cartwheeling over the prospects of Baytex as a trust as investors were in boosting the stock nine per cent on 6.4 million shares on the news.

“It wouldn’t be the first thing that jumps out in my mind of what should be a trustable asset. Investors have to do their homework and make sure the cash flow looks solid.”

McDonald’s favourite prospects to convert into energy trusts are Penn West Petroleum (PWT-TSX) and Compton Petroleum (CMT-TSX), but he’s not giving odds. “Jeez, I won’t make another bet,” he quips. “I just lost a bet on Baytex!”

For McDonald’s three buys, see Pro’s 3 Stars column this week.

* FIRING FROM THE HIP: Newsletter writer Danny Deadlock tore a strip off Ottawa-based Corel Corp. (COR-TSX) recently after the company stunned investors by announcing it had a buyout offer from Vector Capital that was lower than a previously announced figure of $1.10 US.

“Well, to say I am not happy with Corel would be a gross understatement,” Deadlock wrote in a lively note to StreetSignal’s online subscribers. “Something really stinks here and it’s an embarrassment to corporate Canada, as the majority of Corel’s shareholders are U.S.-based and about to riot over the deal.

“What seems really coincidental is that one of the major backers/investors behind Vector Capital is Paul Allen, co-founder of Microsoft, Corel’s main competitor that lost major software bundling deals to Corel last year.”

Shortly after Deadlock’s rant, Corel made it official, saying the acquisition price would be $1.05 US ($1.43 CDN).

That’s still a 17-per-cent premium over the price of Corel when StreetSignal touted the stock recently.



HOT ALBERTA STOCK: DEFIANT ENERGY
DEF-TSX $3.45
Up 50 cents (+16.9%) on 1,104,100 shares (for week ending June 6).
For weeks, this junior’s charts have been defiantly screaming, BREAKOUT! BREAKOUT!! And Defiant has been true to form, spiking mightily since breaking the $2 barrier. A few more cents and investors who caught the 52-week low of $1.20 will be shouting, TRIPLE! TRIPLE!!



COLD ALBERTA STOCK: PARAMOUNT ENERGY TRUST
PMT.UN-TSX $9.00
Down $4.85 (-35.0%) on 4,395,300 shares (for week ending June 6).
Here’s a timely wakeup call for investors who think income trusts are money in the bank. Paramount showed just how vulnerable an oil and gas trust can be with a devastating single-day plunge of 33 per cent on news of a proposal by the Alberta Energy and Utilities Board (AEUB) requiring as much as 240 million cubic feet per day of natural gas to be shut in. Paramount is the company with the largest stake in the Fort McMurray area affected.