Wednesday, February 16, 2011

First Round Picks

As I mentioned the stocks I select will vary for both short and long term using fundamental analysis, technical analysis or some combination of the two. That said, here are a few of the stocks I think that are poised to do well.

I think one smart sector worth researching is energy, primarily from Canada.

Why:  The United States Energy Information Administration expects the average of oil to rise to $93 in 2011 (up $14) and then to $98 in 2012. The EIA is also predicting the production of US oil to decrease, which means we will have a larger reliance on foreign oil. The website at the U.S. Department of State states that "CCanada is the single largest foreign supplier of energy to the United States--providing 20% of U.S. oil imports and 18% of U.S. natural gas import". 20% is a considerable number and with oil production decreasing, it can only grow larger. That said, I think Canadian oil stocks are going to be key in a winning portfolio. Here are some of my picks for some major players in 2011+.

Who: Pengrowth Energy Corp (NYSE: PGH) $12.39

   Pengrowth was part of several other Canadian royalty trusts (CANROYS) that switched over from being trusts to corporations in late 2010 and early 2011. This is because trusts don't pay federal income taxes if they distribute it to shareholders. However, the Canadian government was losing around $500,000,000 in revenue due to this structure, and so consequently made trusts pay the same for taxes as corporation did. This resulted in a lot of these old trusts ditching a percentage of their dividend to make up for the loss. While this companies dividend fell as well, its currently yielding 7.40% annually. Its also currently holding a P/E ratio of 14.30 which is a lot lower then most other Canadian oil companies. The dividend dropped in October of 2009 but has essentially maintained or slightly risen since at around $.0700. This gives me confidence that the stream of monthly dividends this stock provides wont just disappear on me, and the fact that its located in Canadian Energy which is becoming such a hot spot for equity trading recently, I have even less reason to believe in any drop in dividend payment.

Suncor Energy (NYSE: SU)

   Suncor recently completed their acquisition of Petro-Canada a former large integrated oil company and I think it will have a large impact on their role in the Canadian oil industry.  Their revenue has increased over the last several years with annual rev in 2009 of $22.3B, $30.5B in 2010 and a projected $36.4B and $41.0B in 2011 and 12 respectively. Their cash flow per share has increased as well, giving me confidence that this company is pretty healthy financially.  Additionally, their EPS growth rate is at 414.9 greater then 98% of its oil industry peers. I feel like the combination of increased demand for crude oil driving up prices with the increased value in Canadian tar sands in Alberta (where Suncor's oil sands business is located) supports these revenue projections and will lead to a nice increase in stock price over the next year+. Their dividend is nothing to get excited about yielding only 1.20% compared to Pengrowth, but I am in this company for growth as I think they have a strong potential to hit around $50.00 within the next few months. 
I currently hold SU in my portfolio.

There are plenty of other Canadian energy stocks poised to blow up in the near future, but I have firm belief Suncor will continue to rise in price and that Pengrowth will continue paying its steady dividends.

Additionally, another stock in my portfolio that I was holding primarily for the dividend but has experienced a recent jump in price, most likely catalyzed by the turmoil in Libya, is Genesis Energy (NYSE: GEL). Genesis is a MLP that supplies crude oil, refined products and pipeline transportation services for oil, natural gas and C02 in the Gulf Coast region of the US. They are fairly new, formed in 1996 but are dedicated to being a major energy player through growth from construction and expansion projects combined with strategic acquisitions.  They bring a 5.46% div yield with a payout ratio of 266.63% which is slightly intimidating as a ratio like that can be hard to support, however a high payout ratio is a sign of higher earnings growth (There is a chart posted on another stock blog that you can find here that supports my reasoning). While Revenue dipped in '09 it has increased since, and is projected to steadily increase into 2012. 
I currently hold GEL in my portfolio.

The world is always in need of oil,  and a barrel of crude oil is currently going for $98.23. After the situation in Libya dies down, I expect a slight decrease in these stocks price, however longterm I see no way how this oil can dip too low, and as long as this commodity is high, these stocks will be high and if you look at US oil consumption levels over the last decade, you would see that there is no sign of ending our oil obsession anytime soon...or later.

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