Hi Lou,
I read your column on a regular basis. Very informative.
I'm interested in Arc Resources. Fundamentally it looks strong, especially as a low cost producer of gas and a growing portion in oil. I'm comfortable with the mix and I'm interested in the company for the long term (5+ years). I noticed ARX seems be much less volatile then its peers, especially the former trusts. I'm tempted to get my first tranche of ARX. What's your opinion?
Thanks,
Brian
Hey Brian,
Thanks for your kind words. They are very much appreciated!
ARC Resources Ltd. reported third-quarter production of 85,178 barrels of oil equivalent per day making it one of the top 20 energy producers in Canada. Their current dividend yield is 5.10 per cent which is a decent rent to collect. By the law of 72 your invested capital will double in about 14 years on the dividend alone. With capital gains it could happen sooner.
Let's examine the case for starting to buy at these prices.
The three-year chart indicates that the shares have been having trouble getting over $26.00 and that the MACD and RSI are both suggesting that the selling pressure will continue.
On the six-month chart the MACD generated a buy signal in early October at $20.00 but the advance off the lows ran out of stream when the stock hit resistance at $26.00. If you are looking to buy your first tranche of ARX it would be prudent to wait for the RSI and MACD to indicate that the selling pressure has eased up.
There is also what looks like a double top that has formed and I don't generally recommend taking on a reversal pattern. In addition, the shares are testing support along the 50-day moving average and that is a question I would want resolved before putting in a buy order.
The company announced that it would be spending $720-million in 2012 and expects to increase production by 12 per cent. That news came out on Nov. 02, 2011 and didn't do much to generate buying. With all the good news already baked in to the stock you would be well advised to be patient for a while longer.
Make it a profitable day and happy capitalism!
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Lou Schizas