Stock Talk- Energy sector standouts

Petroamerica Oil Corp. tops the list

Ashley Redmond 27 March, 2013 | 6:00PM
Facebook Twitter LinkedIn

 

 

Ashley Redmond: Hi everyone, and welcome back to this month's edition of Stock Talk. Since the Canadian marketplace is dominated by a few sectors, we thought it'd be a great idea to focus on some energy companies.

Melissa Kahnert: Exactly. The energy sector represents a huge portion of the Canadian marketplace and there are many different ways that you can actually find opportunities in this sector. For today, we're going to concentrate on cash flow estimate revisions to find some good financially healthy companies.

Redmond: So, Melissa, why don't you tell us about the CPMS Backtest tool that you used?

Kahnert: For sure. The CPMS Backtest tool is going to use historical simulation to select Canadian energy stocks with the highest cash flow estimate revisions over the previous two months. If we hypothetically assume that an investor will reselect the top 20 stocks using this analysis each quarter, then we see some impressive returns.

Redmond: And I know that you wanted to pay attention to something specific in this list.

Kahnert: Exactly. For the purpose of this exercise, we want to make sure that we're paying attention to the upward cash flow estimates. So, we're looking for companies that have a positive swing in this area, and that's what we'll be taking a look at in the chart today. You'll see most companies at the top of this list have upward revisions between 16% and 20%.

Redmond: Okay, great. And I'm sure everyone watching wants to know, what are some of the companies on the list?

Kahnert: Okay. So, if we take a look at the companies, we have 20 on the list today. We'll just concentrate on the top few; Petroamerica Oil, looking at the past revisions in 60 days, is up 20% as far as cash flow is concerned; Africa Oil is falling just behind at 17.5%; and Bellatrix, again 16.5%, some very strong cash flow estimate revisions.

Redmond: And it's interesting, because when you take a look at the list, there are a few major players missing in the Canadian energy sector.

Kahnert: Yes, and that's completely normal. In this case the list that we're showing is the final reselect on the Backtest. So, assuming we've reselected this list every quarter for the historical period, we could have seen many different Canadian companies that have come into play and actually contributed to historical performance in the past. This will just be the last list. So, any companies missing from this period might not have had any cash flow revisions or changes at all in the past 60 days.

Redmond: Okay. So, just taking a look here, are there any other Canadian energy companies that could have contributed to a return measurement for this Backtest? And if so, what do the numbers look like?

Kahnert: Okay. So, taking a look at the numbers on total since December 1998, the portfolio would have generated an annualized return of 27.8%. In terms of measuring performance, this is quite impressive. When we look at the S&P/TSX Energy Index, the total return is only 14.3%, and the S&P/TSX Composite Index comes in at 7.1%.

Redmond: So the cash flow earnings factor definitely adds value?

Kahnert: Absolutely. It's just one way to explore how CPMS can leverage our data and help investors identify different opportunities. It's not the only thing to consider, and we must also consider the actual market and how energy companies do flow in and out of favor, depending on the fluctuations. But that's the whole point of investing, trying to uncover the best opportunities and do your own due diligence.

Redmond: That's great. Thanks so much, Melissa.

Kahnert: Thank you.

Redmond: And stay tuned next month for another segment, where we're following-up with this idea and we'll be speaking with a U.S. analyst who covers some of these companies. So, stay tuned.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Africa Oil Corp1.90 CAD-2.06
Bonterra Energy Corp3.30 CAD-3.79
Centaurus Energy Inc1.77 CAD-11.50
CES Energy Solutions Corp9.44 CAD-3.58
Computer Modelling Group Ltd11.08 CAD-1.34
Kolibri Global Energy Inc6.28 CAD1.13
Parkland Corp36.34 CAD-1.30
Perpetual Energy Inc  
Shawcor Ltd13.59 CAD-1.88

About Author

Ashley Redmond

Ashley Redmond  Ashley Redmond is a Vancouver-based freelance writer.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility