What’s your take on the oil sector in Canada currently? Currently oil prices, sentiment is low for various known reasons. However , in this cycle would you consider the sector near bottom yet? And any potential catalysts on the horizon? With potential of new government possibly coming in by year end (conservatives ) , and a hopefully new wake up call for all of Canadian politicians and policy makers hopefully leaning towards a more self sustainable country and development of our resources and pipelines; would you consider this a opportune time to buy a quality oil stock? In specific I was looking at Wcp after its recent added drop after its acquisition. I am looking at a 8.7% dividend with possible upside potential if sentiment recovers . Would you buy this name today considering I have almost 0 sector exposure currently ? If not; a better name from today’s levels suggested?
Thanks ,
Shane
We would be fine buying WCP; CNQ, SU and TOU might be 'safer' positions if a positive thesis does not play out. But certainly we would be comfortable with some sector exposure. Maybe not as much as the TSX's 16% weighting, but we think 5% to 10% would be fine. The sector will always be cyclical. Valuations have been this low before, BUT the key this time is that corporate balance sheets are better than they have been in any other cycle. Negative oil prices scared the sector into discipline starting in 2020. The could be positive developments in Canada but a global economic slowdown (which is seen as increasingly likely) could take some of this glow off. But unless oil goes to $40, most dividends should be OK. We are potentially setting up a good trade, but there may not be a big catalyst in the short term.