The Trans Mountain Expansion (TMX) pipeline is 98 per cent complete, with full operation expected in the coming months. Bay Street analysts believe energy stocks remain underpriced relative to the expected financial benefits of the added oil transportation capacity.
The TMX, once it becomes operational, will increase Western Canadian pipeline capacity from roughly 4.6 million barrels per day to 5.2 million barrels. The most important consequence, according to BMO analyst Ben Pham, is higher prices for Canadian oil prices relative to the U.S. benchmark West Texas Intermediate crude. WTI is currently US$19 more than the Western Canadian Select (WCS) spot price and Mr. Pham expects this to narrow to US$10-12.
Mr. Pham forecasts that domestic producers Canadian Natural Resources, Imperial Oil and MEG Energy will be the biggest winners from the pipeline startup. The analyst estimates that every US$5 narrowing in the WCS discount relative to WTI will translate into an approximate 2.0 per cent, 7.0 per cent and 18 per cent increase in cash flow for each oil producer, respectively.
Canadian Natural Resources trades near $82 per share and BMO has a 12-month target of $105, which reflects a strong balance sheet, strong operating efficiency and a strong asset base. Imperial Oil, another firm with a strong balance sheet, is projected to return high rates of cash flow to investors through buybacks and dividends. Currently $80, BMO has a $95 price target on the stock.
As a pure play on heavy oil price, MEG Energy is potentially the biggest beneficiary of the TMX pipeline. The stock price is close to $24.50 and Mr. Pham has a price target of $30.
Mr. Pham’s colleague Randy Ollenberger leads North American oil and gas coverage for BMO. In a late January research report, he noted that despite media coverage of the pipeline startup, the investing benefits are “not adequately reflected in Western Canada Select futures prices or Canadian equity valuations.” This implies significant upside for investors when the pipeline begins operating.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Shopify Inc. (SHOP-T) The stock has been rallying for more than three months, with gains that put it in the same league as the Magnificent Seven – those AI-fuelled U.S. tech giants that have been dominating investor attention for much of the past year. But is Shopify truly magnificent? David Berman has some thoughts ahead of the Canadian tech firm’s earnings later this week.
The Rundown
What investors can learn from the woke investing disaster
Woke investors became broke investors over the past couple of years. They incinerated their cash by betting on plant-based foods. They lost even more money by loading up on clean-energy producers. Why did investments as admirable as these fail to produce even a hint of a decent return? In Ian McGugan’s view, the troubles that have befallen socially aware investing in recent years demonstrate why it is difficult to make money by betting on broad trends – even if you happen to be right about those trends.
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The Magnificent Seven may get all the attention but Canadian technology stocks offer strong profit potential as well, says Gordon Pape. He profiles a handful of domestic players producing big returns for shareholders.
Market breadth suggests narrowing rally as S&P 500 hits records
As the S&P 500 has soared to fresh highs, fewer stocks have been participating in the rally, stirring worries that recent gains could reverse if the market’s leaders stumble, reports David Randall of Reuters.
Real estate pain for U.S. regional banks is piling up, say investors
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The most oversold and overbought stocks on the TSX
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Globe Advisor
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Ask Globe Investor
Question: I recently switched my financial accounts from a mutual fund adviser to a discount brokerage and am hoping, over time, to convert most of my mutual funds to exchange-traded fund equivalents. My concerns are related to my non-registered mutual funds, which I have had for quite a while. Cashing out those funds will trigger large capital gains. Can I presume that the adjusted cost base stated by my service provider are correct?
Answer: It may seem simple on the surface but calculating the ACB of your investments can be deceptively complex.
A few of the lesser-known factors that affect ACB are: accounting for reinvested distributions, stock splits, return of capital or phantom distributions; calculating ACB across multiple non-registered accounts; verifying the transfer of ACB records when accounts are transferred from one service provider to another; adjusting your ACB for fees and commissions; accounting for foreign currency transactions; errors made by your service provider.
Your brokerage or service provider will do their best to calculate the ACB on your positions correctly, but the reality is that you, as the taxpayer, are responsible for keeping accurate records and reporting your capital gains and losses to the Canada Revenue Agency. Providers will usually place a disclaimer on their statements or reports reminding you that the ACB information they provide you should not be used for official tax purposes.
If you work with an accountant, they can help you calculate it. If not, there are some online tools available – but in the end, the onus is still on you to get it right.
(A fuller response to this question can be found here.)
--Mark McGrath, financial planner and associate portfolio manager with PWL Capital Inc.
What’s up in the days ahead
Former fund manager Tom Czitron argues the contrarian investment case for real estate investment trusts. And that includes office REITs.
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Compiled by Globe Investor Staff