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

FEATURED PROS: Gord Currie, oil and gas analyst, and Martin Pelletier, oil and gas research associate, at Canaccord Capital (www.canaccordcapital.com)

Pelletier’s Outlook: “We’re using a $21 (US) oil price, which is considered aggressive by some of our colleagues on the street. We’re using a $2.75 US NYMEX gas price (mcf-per thousand cubic feet). Both current prices are above our forecasts. The market seems to be pricing in an economic recovery into the stocks.

“Using the fundamentals in comparison to the current price of oil, we have a hard time believing it can sustain itself at this level ($25 range). On the natural gas side, we’re a little more bullish and we’re using a $3 plus (US) gas price towards the end of the year.

“Drilling has come off considerably and it still is expected to fall about 20 per cent. With oil prices, we still see some strength, but to justify a $25 price, I think there may be a little bit of a market risk premium with an Iraq (political) situation or some sort of disruption in the Middle East that may be priced into the current commodity.”



FIRST STAR
* Ketch Energy (KCH-TSE)
* Recent Price: $4.90.
* 12-Month Range: $2.95-$8.25.
* Currie’s Call: Buy.
* Currie’s 12-Month Target: $6.25.
* Snapshot: Ketch is a junior oil and gas company with properties focused in northwestern, central and southern Alberta.
* CEO: Grant Fagerheim.
* Head Office: Calgary (19 employees).
* Vital Stats: Price/Earnings Ratio, 6.8; Revenue (last 12 mos), $116.8 million; Profit (last 12 mos), $19.3 million; Market Cap, $204.1 million; Shares Outstanding, 19.3 million.
* Currie’s Comment: “We think Ketch is being a little bit unfairly punished for financial leverage. They do have a lot of debt, but they also have a lot of hedges in places and they would benefit disproportionately from a recovery in oil and gas prices.”
* Currie’s Risk Rating: Medium
* Web watch: www.ketchenergy.com



SECOND STAR
* Keywest Energy (KWE-TSE)
* Recent Price: $2.20.
* 12-Month Range: $1.52-$2.45.
* Pelletier’s Call: Buy.
* Pelletier’s 12-month Target: $2.50.
* Snapshot: Keywest is a junior oil and gas company with a strategy of building through a combination of mergers, acquisitions and drilling opportunities.
* CEO: Harold Pedersen.
* Head Office: Calgary.
* Vital Stats: Price/Earnings Ratio, 9.2; Revenue (last 12 mos), $49.6 million; Profit (last 12 mos), $11.2 million; Market Cap, $108.3 million; Shares Outstanding, 49 million.
* Pelletier’s Comment: “Probably the most important factor we look for is management and management’s ability to actually create value for the shareholders. If management has demonstrated that ability previously, they tend to get somewhat of a premium in our books and by the market per se. (CEO) Harold Pedersen and his crew from the old Jordan Petroleum days did a pretty good job over there and they’re employing the same type of model at Keywest. Hopefully, they can replicate the same type of success.”
* Pelletier’s Risk Rating: Medium.



THIRD STAR
* Thunder Energy (THY-TSE)
* Recent Price: $3.40.
* 12-Month Range: $2.30-$5.20.
* Pelletier’s Call: Buy.
* Pelletier’s 12-Month Target: $4.
* Snapshot: Thunder is a natural gas-weighted (80%) junior oil and gas company operating in five core areas of Alberta.
* CEO: Doug Dafoe.
* Head Office: Calgary (9 employees).
* Vital Stats: Price/Earnings Ratio, 12.8; Revenue (last 12 mos), $63.9 million; 5-Yr Revenue Growth, 118%; Profit (last 12 mos), $8.1 million; 5-Yr Profit Growth, 100%; Market Cap, $106.5 million; Shares Outstanding, 30.9 million.
* Pelletier’s Comment: “Thunder hasn’t moved as much as some of the other gas-levered producers, the reason being that there has been some concern over its debt on the balance sheet. However, if you’re a firm believer in the commodity coming back, that’s not necessarily a bad thing. They spent a lot of money on facilities last year which resulted in above average costs. However, they’ve expanded their total processing capacity to over 50 million cubic feet a day of gas. They’ve got a lot of room to grow with over 140 drillable locations so there’s a lot of upside.”
* Pelletier’s Risk Rating: Medium-to-High.
* Web watch: www.thunderenergy.com
* Currie’s Record (Jan. 10 picks): +16% (Zargon Oil & Gas +22%, PanCanadian Energy +21%, Petro Canada +5%). Currie continues to recommend these.
* Disclosure: Currie and Pelletier may hold positions in the companies featured.