Good morning Lou!
Could you please dissect ERF, they have been on a significant downtrend for a couple of weeks. Is the dividend unsustainable?
Thank you!
Peter
Hey Peter,
This will be the fourth time that I have examined the case for Enerplus Corp. since June of 2010. My most recent effort was posted Feb. 15, 2012 on an assignment from James. The shares were trading for $23.55 and the yield was 9.2 per cent. At that time it was observed that there was a downtrend in place and it would be prudent to wait and see if support at $23.00 held.
Unfortunately the shares melted through $23.00 and are currently trading near its long-term low of $12.90 which they hit in January of 1999. A review of the current trend will help inform a go forward plan.
The three-year chart tells the tale of woe that has engulfed the shares of ERF since January of 2011 when it was trading over $32.00. The death cross that surfaced in July of 2012, when the pain was limited to a $2.00 retreat, indicated that the punishment was not over.
Resistance along the 200-day and the 50-day moving average was a call to action to investors who valued capital preservation. Rarely do stocks blow up overnight. Often times there is plenty of time to make a decision to sell and take a smaller loss. Trust me, often your first loss is your best loss. After the break below $23.00 it was all over but the crying.
The six-month chart has some features worth noting. The RSI is signalling a stock that is deeply oversold and has been for most of the last two months. Long term residency in oversold territory is a classic sign of weakness.
In addition the MACD has yet to make a significant move towards an uptrend. The stock currently offers a 15.3 per cent yield which, as I mentioned in February, can be a distraction to the true objective of generating a positive total return.
As to your question about the dividend, I honestly can't evaluate the sanctity of the payout. Management has declared that they have no intention of cutting the dividend and nothing has surfaced to suggest otherwise.
Here's the way you should deal with this stock. It is close to retesting the historical low of 1999. Put ERF on your watchlist and let's see if we get capitulation. Once the sellers are washed out there could be a bounce off the lows and a reversal of the downtrend.
Make it a profitable day and happy capitalism!
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Lou Schizas