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Three top picks from Aston Hill's Joanne Hruska

Joanne Hruska is vice president and portfolio manager at Aston Hill Financial. Her focus is oil and gas stocks.

Top Picks:

Bonavista Energy (BNP TSX)

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Bonavista has streamlined operations in the past couple of years and the result is a focused company with an attractive yield and valuation.

Crew Energy (CR TSX)

This transformed Montney player is at the early stages of significant growth particularly at its Northeast BC core area.

Long Run Exploration (LRE TSX)

Following an incredibly busy 1 8 months of acquisitions and divestitures, we see Long Run as currently the best value play in the yield space in the Canadian energy sector.

Past Picks: May 14, 2013

Enerplus (ERF TSX)

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Then: $15.93; Now: $25.37; Total return: +69.93%

Gran Tierra Energy (GTE TSX)

Then: $6.28; Now: $7.77; Total return: +23.73%

Crocotta Energy (CTA TSX)

Then: $3.22; Now: $4.69; Total return: +45.65%

Total Return Average: +46.44%

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Market outlook:

After a prolonged period of underperformance by the Canadian Energy sector, a compensatory recovery is underway. Despite the 20% year to date rise in the TSX Capped Energy Index, the valuation is still considerably more attractive relative to other sectors and other energy markets.  From the 2009 market bottom, the S&P 500 Index has risen 185%, and the S&P/TSX Composite Index has risen 100%.  Over the same time, the MSCI Energy Index has risen 112%, the S&P 500 Energy Index has risen 138%, and the TSX Capped Energy Index has risen only 91%.  The forward P/E on the TSX Capped Energy Index is currently around 16.3x while the average trailing P/E over the last five years is 21.5x maxing out around 30x (for reference the ten year average is 19x).  There is still a lot of room for valuation expansion within the Canadian energy sector which usually outperforms late in the cycle.  After years of consolidating, re-focusing, and cost cutting, Canadian producers are more efficient than ever and there are less of them to absorb rotating investment capital thus advocating P/E multiples at the higher end of the historical range.

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