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An oil rig worker uses a dipstick to check water levels and temperatures in a series of tanks at an Encana Oil & Gas (USA) Inc. hydraulic fracturing operation outside Rifle, Colo. (Brennan Linsley/AP)
An oil rig worker uses a dipstick to check water levels and temperatures in a series of tanks at an Encana Oil & Gas (USA) Inc. hydraulic fracturing operation outside Rifle, Colo. (Brennan Linsley/AP)

Schizas’ Mailbag

Encana not currently a buy and hold stock Add to ...

Lou,

I have Encana shares in a LIRA account I cannot access for five years. Bought them for $19.77 in January of 2012.

My strategy is to accumulate shares using a DRIP for five years. By that time, I expect ENCANA will be worth much more than $20.00. It has been one year and five months with no appreciation in value. I am getting a little impatient.

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What is your opinion of my five-year plan? Should I wait or cut my losses?

Regards,

Tim

Hey Tim,

Thanks for the assignment. This will be the second time that I examine the case for the Canadian gas giant Encana Corp. The last time a study was undertaken on May 9, 2012, the shares were trading for $21.48 and Lou wanted to know if it was time to pack in his investment. After conducting research on his behalf it was advised that the stock had a fair opportunity to run to $24.00. Retrospectively the stock did hit $24.00 but that was all the gas left in the tank and the stock pulled back.

Another run at the charts will help you better manage your investment in ECA.

The three-year chart illustrates the move to $24.00 in 2012 and the retreat that followed. What is worth noting is that in 2013 the stock has not been able to get through resistance along the 200-day moving average which puts a caution flag on the track as far as further appreciation goes. There is talk on the street that the dividend at ECA is at risk with the pending appointment of a new CEO which adds another layer of risk to the analysis.

The MACD and the RSI on the six-month chart booth seem to be poised to turn lower. In addition the chart depicts a range bound pattern with support at $18.25 and resistance along the 200-day moving average. The best way to approach your investment would be to trade for profit within the range until there is better clarity as to the direction that ECA might track. I am not convinced that a buy and hold strategy will work at this point.

It would also be in your best interest to pay very close attention to how things transpire on the appointment of the new CEO. If a decision is made to cut the dividend it would hit the shares like a ton of bricks.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

 
Security Price Change
ECA-T EnCana Corp. 23.88 0.10
0.421 %
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