Michael Decter is president and CEO of LDIC Inc. His focus is on Canadian large caps.
Top Picks:
Surge Energy
We like Surge energy for a number of reasons. First is the drilling inventory: 400 net drilling locations. Estimate of net asset value is $15/share (doesn't include waterflood upside which could be worth another $5-10/share.) Second is the production growth: it has grown production from 2,000 barrels per day to 9,000 barrels per day in 18 months (140% compound annual growth rate ). And it has inventory potential to grow production to 50,000 barrels of oil equivalent per day. Finally, waterflood efforts - a method to extract secondary reserves - could materially increase the company's reserves.
Bombardier
This has been a challenging environment for BBD, but we see them emerging and will benefit from improving global economic activity. Prime Minister Harper is promoting BBD in China this week – and announced China Express Airlines is the undisclosed customer in its prior announced order for up to 11 CRJ900's – China is a big growth market and this is a good foray in for BBD. Singapore air show is Feb 22-24, and we expect another big order announcement. Bombardier is currently trading at 8.1 times 2013 consensus estimated earnings per share, compared to its peer group at about 12 times. The 32% discount to its peers is well below Bombardier's historical discount of 7%. The full value of its share price today could be justified by the transportation business alone. We think there is considerable upside in the higher margin aerospace division.
Pembina Pipelines
The acquisition of Provident Energy is a positive move for Pembina. The deal increases the asset base, and mitigates frac spread and marketing exposures. We expect good relative peer outperformance to come from revenue synergies and a new end-to-end business platform that will improve earnings momentum as they attract a larger share of E&P business. The new PPL will warrant top premium amongst the midstream group – with about a $10-billion market cap post-merger.
Past Picks: Feb. 3, 2011
Cline Mining
Then: $4.33
Now: $2.08
Total return: -51.96%
HudBay Minerals
Then: $16.81
Now: $12.07
Total return: -27.13%
Inter Pipeline Fund
Then: $15.02
Now: $18.60
Total return: +31.44%
Total Return Average: -15.88%
OUTLOOK:
We expect recovery in the U.S. economy and labour market to support further appreciation in equity prices. We also expect some progress on European debt. We believe China will have a soft landing. All of these factors will be positive for equity markets. Canadian markets will benefit from the U.S. recovery and Asia growth through commodity prices.
Compiled by Franklin Cameron, BNN Market Call Tonight
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