John O’Connell.Tibor Kolley/The Globe and Mail
John O'Connell is chairman and CEO of Davis Rea Ltd. His focus is North American large caps.
Top Picks:
Stanley Black & Decker Inc.
Stanley is an exceptionally well run business that continues to create and sell innovative tool, electronic security and monitoring product, access solutions and industrial products. The company continues to consolidate a fragmented industry. We feel it is a highly leveraged way to play a housing and industrial recovery both in America and globally. The company supports a growing dividend and trades for a below market multiple.
RMP Energy Inc.
RMP is best in class growth – CFPS (debt adjusted) projected to be 62 per cent in 2014, but not valued like a growth stock – EV/DACF of 5.3x in 2014 which decreases to 4.1x in 2015 as a result of added volumes from behind pipe production. The company has a clean balance sheet (0.4x D/CF 2015e). Imminent production uplift is coming as the company completes its pipeline project at Ante Creek. While current production is ~7,500 BOE/d, the company has five high-rate wells (all with IP rates over 1,000 B/d of oil, plus gas) that are shut in. RMP also plans to drill four more, expected to be completed by the end of Q1. With the pipeline on schedule to be completed by the end of February, the behind pipe production will start flowing and RMP should be producing somewhere between ~10-15 MBOE/d corporately. Excellent capital efficiencies and strong cash flow netbacks result in best-in-class recycle ratio (2.9x is expected to be the single best recycle ratio in our junior universe).
Kelt Exploration Ltd.
Kelt is the spin-off of the highly successful Celtic Explorations. The management team continues to aggressively consolidate an outstanding acreage and grow production at rates well above industry averages. We feel that one-year out, the company will be producing in excess of 12,000 barrels for growth out of their expected 4th quarter average production of 5,200 bbl. The company has very high operating net back and enjoys an outstanding recycle ratio.
Past Picks: February 5, 2013
Oracle Corp.
Then: $35.48; Now: $38.11; Total return: +8.56 per cent
Raging River Exploration
Then: $3.20; Now: $7.39; Total return: +130.94 per cent
Paramount Resources 7 5/8% bonds Due 12/04/2019
Then: $100; Now: $102; Total return: 9.63 per cent
Total return average: +49.71 per cent
Market outlook:
Investors continue to hold an optimistic bias in their investment decisions. This strategy of buying dips has been rewarded for the past four years and will likely continue to be rewarded for so long as the interest rate environment remains supportive. If economic growth surprises on the strong side and 10-year interest rates climb to in excess of 3.5 per cent, the optimistic case will become much more challenged. We give these 60-per-cent odds and given that bargains are becoming harder to find we continue to focus on deep value opportunities and maintain a healthy cash reserve.