BofA Securities’ New York-based energy analyst Asit Sen covers 30 large cap oil and gas stocks across North America, but his list of top picks for 2021 is dominated by Canadian names.
Mr. Sen sees “an emerging Canadian advantage” in the sector that he believes will see domestic companies outperform.
He has four top stocks picks as the year begins and two of them – Canadian Natural Resources Ltd. and Suncor Energy Inc. – are Canadian (the others are Diamondback Energy Inc. and Ovintiv Inc.).
The analyst cites the sustainability of free cash flow as the primary reason he’s urging U.S. investors to look north of the border for oil and gas plays. Mr. Sen estimates that lower fixed costs leave domestic energy companies with a free cash flow yield more than 4.0 per cent higher than U.S. shale drillers.
Oil inventories in Canada are lower and export bottlenecks are easing, according to Mr. Sen. He notes there has been progress on export pipelines, with the capacity expansion for the Line 3 Replacement Program between Alberta and Wisconsin set to begin and the continuation of the Trans Mountain Expansion project.
The analyst expects increasing investor sensitivity to ESG (Environmental, Social, and Corporate Governance) issues will remain a headwind for the sector. However, he notes that Canada has a much better national ESG ranking than most oil producing nations – the U.S., Brazil, Russia, Mexico and Saudi Arabia in particular. Domestic energy companies have undertaken far more initiatives to limit environmental damage than U.S. firms, and B of A sees them “relatively well ahead in the journey towards a cleaner future.”
Mr. Sen has a 12-month price target of $40 for Canadian Natural Resources and a $29 target for Suncor. The stocks started Wednesday trading at $33.66 and $23.13, respectively.
-- Scott Barlow, Globe and Mail market strategist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Noted money manager Jeremy Grantham says stocks are in an ‘epic bubble’
U.S. stocks are now “a fully fledged epic bubble,” according to Jeremy Grantham, the bearish money manager who has earned a reputation for his timely forecasts of impending market plunges. As Ian McGugan reports, his warning highlights the potential risk that goes along with the extreme monetary policies put into place to deal with the pandemic. (for subscribers)
The exclusive club of dividend stocks that at least doubled their payouts in the past 10 years
We’ve heard a lot about the risks of using dividend stocks to generate income, notably that you forgo the stabilizing effect bonds bring when stocks crash. But when you hold stocks with a record of consistently increasing their cash payouts to shareholders, you get a flow of income that grows by amounts that can easily exceed the inflation rate. Rob Carrick has this helpful list of Canadian dividend stocks that increased payouts by more than an average 7.2 per cent annually from 2010 through November, 2020. (for subscribers)
When going green, diversify your bond bets
Debt issued to back sustainable projects has gone mainstream as companies, institutions and governments rush to fund projects that lower carbon emissions. Do these bonds belong in your portfolio? David Berman shares his thoughts. (for subscribers)
Others (for subscribers)
Others (for everyone)
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.
Ask Globe Investor
Question: Back in the summer I purchased shares of Brookfield Renewable Partners and between then and now they soared upward 50 per cent. But this morning [as of when this question was submitted], instantly, they have fallen the same amount. I’d love to understand what happened! - James
Answer: BEP announced some time ago that is would implement a 3-2 stock split on Dec. 11. Its corporate equivalent, Brookfield Renewable Corporation (BEPC), went the same route. This means investors received a half unit of BEP.UN for each one previously owned. So, if you owned 100 units before, you now have 150. The same applies to BEPC shares. The share/unit prices were adjusted accordingly, as was the dividend.
-– Gordon Pape
What’s up in the days ahead
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff