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Number Cruncher Sixteen oil and gas companies for the safety and value-focused investor

What are we looking for?

Inspired by the recent strength in the price of oil, my associate Allan Meyer and I thought we would analyze oil and gas companies using our investment philosophy focused on safety and value. It’s important to note that this sector can be cyclical and volatile; we tend to have a relatively small allocation to it in our client portfolios.

The screen

We started with Canadian-listed oil and gas companies with a market capitalization (the total value of a company’s outstanding shares) of $1-billion or more, sorted from largest to smallest. This can be viewed as a safety factor as larger companies tend to be more stable and liquid.

Dividend yield is the annualized projected dividend per share divided by price per share. All companies on this list are projected dividend payers. Mr. Meyer and I (and our clients in particular) like to get paid while we wait for capital appreciation, and dividends generally reflect safety and stability.

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Debt-to-equity is another safety measure – a lower ratio implies lower debt levels or leverage and often lower risk. As we always like to say, it’s tough to go bankrupt without owing any debts.

Price-to-cash-flow is the share price divided by the projected cash flow per share. It is a valuation metric – the lower the number, the better the value. In the oil and gas sector, cash flow is often considered to be more reliable than earnings-based valuation ratios because of the high level of costs related to non-cash items such as depreciation, amortization and deferred taxes within the sector.

EV/EBITDA is known as the “takeover multiple." It is the enterprise value divided by earnings before interest, taxes, depreciation and amortization. It is also a valuation metric, but unlike most common valuation metrics, it also considers the undertaking of debt by the acquirer. A lower number is preferred. We’ve included the 52-week total return to track performance, and the average and median numbers to allow for better comparability among the group.

What we found

Crescent Point Energy Corp. scores well across the board for safety and value while Birchcliff Energy Ltd., Husky Energy Inc., Peyto Exploration & Development Corp. and Whitecap Resources Inc. also look attractive on most measures. The BMO Equal Weight Oil & Gas Index ETF (ZEO) is an option for those who like the sector but want to diversify away individual security risk.

Investors should contact an investment professional or conduct further research before buying any of the companies listed below.

Select TSX-listed oil & gas stocks

Company Symbol Mkt. Cap. ($ Bil.) Div. Yield (%) Debt/Equity (%) P/CF EV/EBITDA (%) Recent Price ($) 52W Total Rtn. (%)
Suncor Energy Inc. SU-T 81.7 2.9 34.3 6.5 8.0 50.19 21.2
Canadian Natural Res. Ltd. CNQ-T 52.0 3.1 71.0 4.7 7.7 42.57 4.3
Imperial Oil Ltd. IMO-T 33.5 1.8 21.3 7.6 10.9 42.10 9.0
Husky Energy Inc. HSE-T 22.5 2.2 33.1 4.9 6.4 22.40 47.0
Encana Corp. ECA-T 16.4 0.5 87.9 4.8 11.9 17.17 20.8
Cenovus Energy Inc. CVE-T 14.9 1.6 47.6 4.6 9.5 12.13 -2.6
Vermilion Energy Inc. VET-T 6.6 6.4 83.4 5.8 11.5 43.41 2.1
Tourmaline Oil Corp. TOU-T 5.8 1.9 21.4 4.1 6.1 21.45 -18.8
ARC Resources Ltd. ARX-T 5.1 4.2 24.8 6.1 7.0 14.28 -17.5
Crescent Point Energy Corp. CPG-T 4.5 4.4 44.9 2.1 4.5 8.15 -17.5
Enerplus Corp. ERF-T 3.9 0.8 42.0 8.0 7.1 15.91 30.4
Whitecap Resources Inc. WCP-T 3.4 4.0 38.5 3.9 9.2 8.07 -15.2
Peyto Exploration & Dev't PEY-T 1.8 6.7 74.6 3.7 6.8 10.70 -48.6
Torc Oil & Gas Ltd. TOG-T 1.4 4.0 17.5 4.0 7.2 6.58 7.5
Freehold Royalties Ltd. FRU-T 1.3 5.6 10.8 8.8 11.2 11.33 -21.1
Birchcliff Energy Ltd. BIR-T 1.3 2.1 34.6 3.4 5.9 4.72 -23.4
Average 16.0 3.3 43.0 5.2 8.2 -1.4
Median 5.4 3.0 36.6 4.7 7.4 -0.3

Source: Thomson Reuters, Wickham Investment Counsel Inc.

Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.

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