Four top energy infrastructure stock picks for 2014

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CIBC World Markets has named its four top energy infrastructure picks for 2014, a year the brokerage says will be marked by expansion in the oil and gas sector as well as rising interest rates.

The four companies are AltaGas Ltd., Newalta Energy Corp., Pembina Pipeline Corp. and Canadian Utilities Ltd.

CIBC analyst David Noseworthy believes that weaker commodity prices in the spring and summer will create buying opportunities. At the same time, he expects announcements about project expansions that will drive up energy infrastructure stock prices. These projects include those in the Montney shale gas lands that straddle Alberta and B.C., the Duvernay shale field in Alberta, and on the West Coast where several liquefied natural gas projects are planned.

Mr. Noseworthy sees three dominant forces in the sector this year:

Interest rates

Energy infrastructure companies typically carry large debts and are sensitive to changes in interest rates. CIBC expects the yield on the 10-year government of Canada bond will climb to between 2.9 per cent and 3.25 per cent, and that the fast-growing companies will be best able to withstand the rise.

Lower commodity prices

Greater production of oil and natural gas this year will drive demand for new pipelines, storage and other infrastructure. At the same time, weaker petroleum prices will help drive demand. Both factors are good news for the energy infrastructure sector.

Growth

Oil patch growth will be another dominant theme this year, and the companies that build the projects will benefit. Oil sands companies are expected to announce various expansions, including rail terminals, storage and power generation to support new production. The producers working in Duvernay and Montney fields are also expected to make commitments to building out their projects, CIBC said.

Here's more on CIBC's top energy infrastructure stock picks:

AltaGas Ltd. runs gas plants and storage facilities in addition to hydro and wind generation stations. The bank's share price target has been raised to $45 from $41 with an unchanged rating of "sector outperform." The average price target of analysts surveyed by Bloomberg is $42.33.

Newalta Energy Corp. handles waste generated by the petroleum industry. CIBC has raised its share price target to $19.50 from $18.25 with a "sector outperform" rating. The average price target of analysts surveyed by Bloomberg is $19.06.

Pembina Pipeline Corp. owns and operates oil and natural gas pipelines in Western Canada. Mr. Noseworthy raised his stock price target to $40.50 from $39 with a "sector outperform" rating. The average price target of analysts surveyed by Bloomberg is $39.

Canadian Utilities Ltd.'s operations include pipelines and electricity plants. CIBC's share price target is unchanged at $41 with a "sector outperform" rating. The average price target of analysts surveyed by Bloomberg is $41.88.