RBC Capital Markets head of global energy research Greg Pardy’s most recent report notes that oil sands producers, with stock prices previously held back by greenhouse gas (GHG) emissions concerns and a lack of pipeline capacity, are seeing positive news on both fronts. He estimates significant upside ahead for select stocks.
The Pathways Alliance is a joint venture of domestic oil producers to organize and finance the reduction of GHG emissions. Oil sands operations produce GHG at roughly double the pace of global major oil producers and the Pathways Alliance has earmarked $24-billion to cut these emissions by a third in the midterm. The target for zero direct emissions is 2050.
Initial flows of heavy oil are already making their way through the Trans Mountain (TMX) pipeline extension to the west coast. An estimated 379,000 extra barrels per day will be transported by the end of the second quarter of this year.
Fewer landlocked barrels means that the discount between Western Canada Select (WCS) crude and West Texas Intermediate (WTI) is set to narrow, improving cashflow and profits for major producers.
Mr. Pardy estimates that Canada’s primary oil sands producers – Canadian Natural Resources, Suncor, Cenovus, Imperial Oil and MEG Energy – trade at an average 2 per cent discount to large European producers and roughly 3 per cent below U.S. major oil producers.
If markets reward the environmental efforts and higher WCS prices by pricing domestic oil sands producers like European counterparts, this implies 18 per cent of upside for Canadian stocks. Trading on par with U.S. majors suggests 38 per cent upside.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Trump Media & Technology Group Corp. (DJT-Q) Donald J. Trump is not just a U.S. presidential candidate. As of last week, he’s also a stock – and laugh all you want but the stock has a couple of things going for it, says David Berman.
Also see: Trump’s media company raises going-concern doubts; shares tumble
Neo Performance Materials Inc. (NEO-T) Most investors and politicians are aware that the transition to electric vehicles will require huge investments in battery technology and infrastructure. But, EVs also require traction motors to move them and this, too, represents a huge potential market that offers niche investment opportunities. That’s where Neo Performance comes in, and Robert Tattersall was surprised to find it among stocks trading below net-net working capital.
The Rundown
The 2024 Globe and Mail ETF Buyers Guide, Part Three: U.S. equity funds
After a surge of almost 30 per cent for the S&P 500 Index over the past 12 months, many diversified portfolios will almost certainly be overweighted in the U.S. market. If you own U.S. stocks or equity funds, some portfolio rebalancing is probably in order. If you have little or no U.S. exposure, get it. This third instalment of the 2024 Globe and Mail ETF Buyer’s Guide covers 10 funds you can use to cover off U.S. markets.
If this is a bull market, where are the IPOs?
The IPO market has been graveyard quiet for two years now. U.S. companies have been going public at one-fifth their normal pace. The TSX hasn’t had a single IPO in more than a year. Where are all the IPOs? Tim Shufelt explains what’s behind their absence.
Consumers may grumble, but these oligopolies are great for investors
Consumers like to complain about Canada’s biggest telecom players, banks, railways and grocers, and how limited choice in this country is keeping prices higher than in much of the rest of the world. From the perspective of investors, though, Canada’s cozy network of oligopolies – in which a few players dominate one sector – can look very different. David Berman takes an in-depth look.
Bearish bets, torpedo stocks and short squeezes on the TSX
Short-selling activity on the Toronto Stock Exchange in March offered more evidence that short sellers are in retreat as 2024 progresses amidst expectations for lower inflation and interest rates. Larry MacDonald has his monthly update on the stocks short sellers are targeting.
David Rosenberg, once one of the most bearish on Canada’s housing market, is now changing his tune
It was just two years ago, when Canadian real estate prices were surging to records, that David Rosenberg warned that the country might be in one of the biggest housing bubbles of all time. His view has certainly changed more recently. Here’s Part 2 of Darcy Keith’s interview with the economist, including his thoughts on the future of Canada and some personal insight on what keeps him ticking. (Part 1 of his latest thoughts on investing and markets can be found here.)
Trailing or forward P/Es: Here’s which one has the better predictive power for picking winning stocks
Value investors like to search out bargains by sorting stocks into quartiles according to their P/E ratios and then focus on the lowest P/E ratio group. They believe that the lowest P/E stocks, on average, outperform stocks with high trailing P/E ratios. Other investors, however, like to use forward P/E ratios to identify stocks they expect to outperform. But which metric has a better predictive power as far as stock returns are concerned? Investing professor Dr. George Athanassakos has crunched the numbers to find the answer.
Two ways for dumpster-diving investors to play an old standby sector now fallen on hard times
The S&P/TSX Capped Utilities Index lost 11 per cent in 2022, 0.4 per cent last year and was off about 3 per cent for the current year through late March. These numbers remind us of the vulnerability of utilities stocks when interest rates are at high levels. Rates are expected to decline later this year, which would make conditions for utilities stocks more favourable. Rob Carrick looks at some ETFs that will benefit from an expected turnaround.
Investors eye Fed rate cut, earnings as key to sustaining market rally
After a stellar start to the year for stocks, investors are on guard for potential bumps in the second quarter as they gauge whether the Federal Reserve delivers on an expected interest rate cut by June and turn their focus on the health of upcoming earnings. David Randall of Reuters takes a look at what investors need to know as the quarter gets underway.
The Canadian Free Cash portfolio offers sweet returns
Investors hunting for bargains might like what the Canadian Free Cash portfolio has to offer, says Norman Rothery. The portfolio generated sweet returns over the past 24 years but at the cost of high volatility. (For a full update on Norm’s portfolios for dividend and value investors, click here.)
China’s forecast-beating economic data buys officials time to figure out fix
China’s $18.6-trillion economy has skirted some near-term downside risks as suggested by recent indicators, analysts said, buying officials more time to convince investors they can fire up a new growth engine for 2024 and the years ahead.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
John Heinzl’s model dividend growth portfolio as of March 31, 2024
Number Cruncher: Six attractive dividend stocks that recently went public
Number Cruncher: 12 high-rated U.S. smaller cap funds
Ted Dixon: Cineplex insiders bet the big screen is back
Monika Rizk: Bullish on Goldman Sachs Group
Monday’s analyst upgrades and downgrades
Globe Advisor
How this $36-billion money manager is finding dividend-paying winners amid higher interest rates
Why a strong April for the loonie could be a good time to increase exposure to U.S. dollar assets
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Ask Globe Investor
Question: My wife and I are both retired and lucky enough to have defined pensions with an annual cost of living index as an additional benefit. I therefore see this as reliable income and do not invest in bonds. Am I wrong to think in this way? – Joseph S.
Answer: I suggest you’re missing a key point. The bonds in a portfolio are not just for income. In fact, high-yield stocks offer better cash flow. Bonds provide portfolio diversification and reduce volatility. In normal times – 2022 was an exception – bonds provide a buffer if the stock market falters.
The volatility meter on the Steadyhand website (steadyhand.com) illustrates the effect of owning some bonds. In 2018, a 100 per cent equities portfolio would have lost 4.7 per cent. A traditional mix of 60 per cent equities, 40 per cent bonds would have reduced that loss to 2.3 per cent. In 2011, a loss of 5.9 per cent with an all-equity portfolio would have become a small gain of 0.1 per cent with a 60-40 balance. The most dramatic impact would have been 2008, where an all-equity loss of 29.4 per cent would have been reduced to 15.2 per cent.
The meter also tells us that over the long term, an all-equity portfolio generates superior results. Each investor most decide if they can handle the increased volatility.
--Gordon Pape (Send questions to gordonpape@hotmail.com and write Globe Question on the subject line.)
What’s up in the days ahead
David Berman will crown the winner of the Globe’s Investing Club Challenge. Plus, Gordon Pape provides an update on his high-yield portfolio.
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
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Compiled by Globe Investor Staff