Samuel Oubadia is a portfolio manager at Lorne Steinberg Wealth Management in Montreal.
What are we looking for?
We are drilling for value in the oil and gas sector.
The large, integrated oil and gas producers, or the oil majors, as they are often referred to, have seen their share of problems in recent years. This is due to issues such as the higher operating costs that are required to develop their complex projects, or the consequences of producing oil in countries experiencing political unrest. Given the fairly steep decline in the oil price in recent weeks, we set out to find stocks among the oil majors that trade at lower valuations and that have seen a drop on their share price.
The screen
Using S&P Capital IQ, we screened for larger oil and gas companies that are based in developed markets. To screen on valuation, we limited our search to companies that have a forward price-to-earnings ratio of less than 14.0.
We also only included companies with a trailing enterprise value to earnings before interest, taxes, depreciation and amortization ratio (EV/EBITDA) of less than 8.0.
We only included stocks that have seen a share price decline of more than 5.0 per cent in the last three months. Finally, we also wanted to see the dividend yields of the stocks that appeared on our list.
What we found
Several of the companies on our list are well-known multinationals. It is worth noting that most of the companies, aside from trading at low multiples, trade at attractive dividend yields. Of course, there is always the risk that management decides to cut the dividend in the future.
As can be seen from the table, Canadian companies have not been immune from the recent slide in the oil price, as a couple of them have also seen fairly significant declines in their share price.
One of those Canadian companies includes Suncor, which has seen its share price drop by more than 15.0 per cent. As discussed above, the lower oil price is increasing the urgency for the company to find more efficient ways of developing its oil sands in Alberta. Another company on list, the Norwegian giant Statoil, recently announced plans to delay its Corner oil sands project for at least three years due to its rising labour and materials costs.
Investors are advised to do their own research before purchasing any of the companies listed here.
Lorne Steinberg Wealth Management may be a shareholder in one or more of the stocks listed here.