What should you be looking at right now?
In my opinion: junior and mid-cap oil and gas stocks. They’re poised to blast even higher as oil prices resurge and investors grab the bull by the horns.
And in 2011, the biggest, juiciest stocks that fit this description reside in Canada’s energy sector.
But why Canada? And why now?
Why Canada, Why Now
Few countries escaped the wrath of the 2008 global financial crisis. Canada was one of them.
Sure, the Canadian economy did suffer a major short-term pullback in late 2008 as the financial system quickly came undone. But within months of the March 2009 bottom in world asset prices, Canada became the beneficiary of massive international fund-flows.
What worked in its favor? First, its prudent mortgage lending and strong bank capitalization ratios. Second, it suffered only minimal losses from esoteric fixed-income and mortgage-backed securities. And third, foreign investors just love Canada.
Americans are piling into Canada and opening local bank accounts at an unprecedented rate. They’re desperate to diversify their banking risk following scores of U.S. bank closures since 2008.
Foreign portfolio inflows have gone through the roof since 2009 as investors chase Canada’s solid economic fundamentals, an energy-led export boom, and a surging currency. The Canuck buck has blasted away from the greenback over the last eight years. It has outpaced the Mexican peso, too.
In a nutshell, Canada is hot!
Plus Western Canada is Enjoying a Commodity-Led Export Boom
Canada’s merchandise exports rose 9.7% to $37.8 billion in December 2010, led by a 16.5% gain in volumes of energy products. That trend is likely to continue into 2011 as high oil prices and political turmoil in the Middle East/North Africa drive prices higher.
While the United States is Canada’s biggest consumer for energy products, they’re not the only ones chasing after our natural resources.
The reality of the commodities bull market is that the world, especially China, is hungry for raw materials. And nowhere is this more pronounced than in the energy sector. The Chinese continue to invest the equivalent of billions of dollars to seize future oil and natural gas supplies, which will benefit companies in Canada’s oil and gas space.
How to Tap into this Oil Income and Growth
Canada has an enormous number of natural resource companies traded on the Toronto Stock Exchange (TSX) and the more speculative Toronto Venture Exchange (Venture). For growth and income – and for exposure to Canada’s strong currency – I like the mid-cap oil companies at these prices.
One of my favorites is Daylight Energy (DAYYF.PK)
Based in Calgary, Alberta, Daylight Energy produces more than 40,000 barrels of oil-equivalent per day and an enterprise value of more than C$2 billion.
The stock has a market-cap of C$2.1 billion ($2.2 billion) and pays a regular monthly dividend of C$0.05 per share or 5.82% over the last 12 months. From its all-time high in 2007, DAY is down more than 30%.
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In 2010, the company converted from an oil trust to a Canadian corporation.
Daylight Energy also trades in the United States in the Pink Sheet market – but I prefer the Toronto Stock Exchange where trading volume is far greater. OTC stocks are very thinly-traded. Higher volume offers you better liquidity and a better bid/ask price. Plus, buying stocks in Toronto means you’re also directly investing in the mighty Canadian dollar (which we affectionately call the loonie). Daylight focuses on exploiting numerous resource plays on its extensive land base in the Deep Basin of Alberta and northeast British Columbia. It has a balanced mix of crude oil, liquids-rich natural gas and natural gas.
Canada is red-hot right now. Our loonie is flying high, the Chinese are gobbling-up our resources and oil prices are in a secular long-term bull market. With supplies in the Middle East once again threatened by political turmoil and revolution, Canada’s oil supply is nearby, reliable and safe.
That makes stocks like Daylight Energy winner in my book.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
