Energy Trend Setters: Canadian Income and Small Cap Stocks

Canadian Income and Small Cap stocks are trend setters with all seven in our coverage in an upward stock price trend defined by price above the 200-day average. Low McDep Ratios give fundamental support. Buy- recommended Canadian Oil Sands Trust (COSWF.PK) has the appeal of long-life oil outside the U.S. and its income potential rises with oil price. Shorter-life, oil-oriented Canadian Income Trusts, namely hold-rated Penn West Energy Trust (PWE), Enerplus Resources Fund (ERF) and Pengrowth Energy Trust (PGH), have joined the stock price uptrend by crossing above their 200-day average.

Adding to McDep Ratio coverage in April and classified in our newly designated Top Line Cash Payer group, Freehold Royalty Trust (FRHLF.PK) has been in a stock price uptrend for weeks. Looking past the next few months of excess natural gas supply, investors in the past few days have taken $US stock price into an uptrend above the 200-day average for Canadian Small Cap Birchcliff (BIREF.PK) and Canadian Income Trust Peyto (PEYUF.PK).

Investors are seeing 200-day stock price uptrend in five of twelve U.S. stocks. Small Cap Independent Producer buy recommendations Cimarex (XEC) and Encore (EAC) are appreciating by that standard along with Top Line Income Payer buy recommendation Dorchester Minerals (DMLP).

The most out-of-favor stocks and classic McDep Ratio opportunities are four U.S. royalty trusts, buy-recommended Hugoton (HGT), hold-rated San Juan (SJT), Bottom Line Cash Payer Mesa Royalty Trust (MTR) and Top Line Cash Payer Permian Basin Royalty Trust (PBT). The fundamental characteristics are not much different than those of trend setters, while the return potential appears high. A built-in two to three month lag in income payments may contribute to a lag in stock price uptrend. Patient investors are likely to be rewarded, we believe.

Originally published on July 24, 2009.

Comments

[Jimbo:]

I have been an investor in many of the trusts you mention. The Sword of Damocles hanging over these stocks includes not only the markets but the taxation policies and plans of the Canadian Government.

Aug 20 09:44 AM

[cyberclark:]

COS.UN and SU (Suncore) remain the most undervalued stock on the market. All physical indicators are; both are going to fly. Suncore is stepping up its output while Esso is looking again at its nearly 40,000 bbl per day of fresh production which will go to Suncore.

As far as taxes are concerned I am prepared to pay my share. Income Trusts were a nonsense deal put in by previous Governments. If this one had not put them in the tax mix, the next Government surly would.

Aug 20 10:34 AM

[argumentum ...:]

To cyberclark;As with all arguments against income trusts yours is thoughtless.The tax fairness plan is not designed to stop an unfair tax advantage .It is the destruction of an investment choice by investment vendors who could not or would not compete with them. It is an action by a govt interfereing in in the marketplace on behalf of a private interest unprecedented in canadian history.Start your study of income trusts by looking at the PricewaterhouseCoopers report on them so that you can speak with knowledge and not catchy sound bites.That sir,is not nonsense.

Aug 20 12:03 PM

[yank:]

Argumentum:
bravo. You nailed it with your comments on the "red herring" tax fairness argument that Flaherty made in crushing the income trusts. In addition to Price Waterhouse, CanAccord Adams did a phenomenal study which "destroyed" any credibility that the Govt had in its argument to defend the tax change. This was a sellout to ManuLife and the other giant finance/insurance cos that as you say could not or simply would not compete fairly with the income trust model. Sad to say the US Govt is not far behind with its incessant meddling in throwing money at banks, banning the shorting of financial stocks, and other idiotic ideas. It is a very pathetic state of affairs we are facing today. One final note to hearten energy investors is the fact that no currency that has ever lost more than 95% of its value has ever survived. The US Dollar has lost 98% of its value since 1930. You draw your own conclusions.




On Aug 20 12:03 PM argumentum ad crumenarum wrote:

> To cyberclark;As with all arguments against income trusts yours is
> thoughtless.The tax fairness plan is not designed to stop an unfair
> tax advantage .It is the destruction of an investment choice by investment
> vendors who could not or would not compete with them. It is an action
> by a govt interfereing in in the marketplace on behalf of a private
> interest unprecedented in canadian history.Start your study of income
> trusts by looking at the PricewaterhouseCoopers report on them so
> that you can speak with knowledge and not catchy sound bites.That
> sir,is not nonsense.

Aug 20 03:51 PM