(Business Edge writer David Hatton profiles the top stock picks of some of Canada's most accomplished investment pros.)
FEATURED PRO: Josef Schachter is president of Schachter Asset Management, a Calgary firm that specializes in institutional research in the oil and gas sector. Jason White, a researcher with Schachter Asset Management, provided the firm's investment strategy.
Investment Strategy: "We are still in the camp that energy stocks, with natural gas-focused stocks in particular, are extremely cheap. Some of these companies are trading at two to three times current (depressed) cashflows. Currently, oil-focused companies have been the stars with many of their stock charts matching oil's meteoric rise to just under $100/barrel.
"Natural gas stocks, specifically those operating in the Western Canadian Sedimentary Basin, have continued to languish in the doghouse due to tepid natural gas pricing, high cost structure and the high level of uncertainty that has been brought into the market with last year's trust tax changes and the recent Alberta royalty reviews.
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| Josef Schachter |
"Drilling for natural gas in the basin is at five-year lows; we believe this lack of investment by industry in the natural gas supply, as well as a pullback in LNG (liquefied natural gas) imports should set the stage for a relief rally in natural-gas pricing if any sort of prolonged winter conditions visit the eastern U.S.A. It is our belief that investors should accumulate natural gas producers with strong management teams, concentrated asset/land bases and relatively strong balance sheets that are trading at extremely cheap valuations.
"Our recommendations include Galleon Energy (GO.A), Accrete Energy (GZ), Tusk Energy (TSK), Delphi Energy (DEE) and Vero Energy (VRO). The S&P/TSX Energy Index (currently at 328) has been sold down with the general market and the far-reaching asset- backed paper problems. It is our belief that the energy sector can rally in excess of 400 by Q2/08."
First Star
* Oilexco (TSX:OIL)
* Recent Price: $14.46
* 52-Week Range: $17.92-6.02 (10/15 - 12/11/2006)
* Snapshot: Oilexco Incorporated is involved in oil and gas exploration, development and production.
* CEO: Arthur Millholland
* Head Office: Calgary
* Vital Stats: Price/Earnings Ratio (ttm), 30.77; Revenue (last fiscal year), $3.73 million; Earnings Per Share (ttm), 0.47; Market Cap, $3,053 million.
* Schachter's View: "They are in production in the (United Kingdom) right now. This is a very well-financed company that could do 100,000 barrels of oil per day in 2010, assuming no other successes. There is a high-impact well being drilled right now that would add materially to production. The downsides are protection of the balance sheet and production. But we currently have a $25 one-year target on Oilexco, which I believe is quite achievable."
* Risk Rating: Medium
* Web Watch: www.oilexco.com
Second Star
* Gran Tierra Energy (OBB:GTRE)
* Recent Price: US$1.98
* 52-Week Range: $2.16-$0.88 (08/07 - 01/11)
* Snapshot: Gran Tierra focuses on oil and gas exploration, development and production.
* CEO: Dana Coffield
* Head Office: Calgary
* Vital Stats: Revenue (last fiscal year), $12.1 million; Earnings Per Share -0.16; Market Cap, $152.4 million.
* Schachter's View: "They are currently in Colombia, Argentina and Peru with most of the production in Colombia. They are planning to expand production in Costayaco (Colombia) next year, which could produce in excess of 5,600 boes (barrels of oil equivalent) per day. It has a lot of upside potential if everything works out. Their CEO is very highly qualified; formerly with AEC International. Right now we have a 12-month target of US$3 for Gran Tierra."
* Risk Rating: High
* Web Watch: www.grantierra.com
Third Star
* Sterling Resources (TSXV:SLG)
* Recent Price: $2.32
* 52-week range: $2.99-$1.43 (07/23 - 12/05/2006)
* Snapshot: Sterling Resources is engaged in the exploration, development and production of crude oil and natural gas.
* Vital Stats: Revenue (last fiscal year), $1.25 million; Earnings Per Share (ttm), -0.03; Market Cap $218 million.
* CEO: Stewart Gibson
* Head Office: Calgary
* Schachter's View: "They have had quite a bit of success in the U.K. with Sheryl and they also have a 50-per-cent working interest in Breagh. They are scheduled to commence work at Doina Sister in Romania. On the risk side, there are always weather-related issues that could affect drilling activity, but this company has a lot of potential. We're looking at about a $5 price target over the next 12 months."
* Risk Rating: High
* Web Watch: www.sterling-resources.com
* Disclosure: Schachter Asset Management provides research on the featured companies for Maison Placements Canada and members of Schachter Asset Management have positions in all three stocks.
NOTE: This feature is provided for informational purposes. Investors are advised to do their own research or consult a qualified investment professional before making investment decisions.
(David Hatton can be reached at hatton@businessedge.ca)
