Why I Traded Petro-Canada for Husky Energy

On Friday, in an uncharacteristic move, I sold all my shares of Petro-Canada (PCZ) for a profit, and used the capital and proceeds to initiate a position in Husky Energy (HUSKF.PK).

Why was this move uncharacteristic?

According to my investment philosophy I rarely sell stocks.

I bought Husky near its 52 week high (I usually buy stocks that are well off of their highs due to valuation reasons).

I am buying an energy company while oil is trading north of C$118/barrel, this probably represents some downside risk.

I sold Petro-Canada within two years of buying it, whereas I fashion myself as a holder of stocks for the long term.

So, why did I make the trade?

I purchased Petro-Canada before I developed my current dividend growth strategy. Husky is a better fit for a dividend growth investor as it prioritizes returning growing earnings as cash to shareholders.

Petro-Canada has failed to execute, and has underperformed the entire universe of energy stocks by a wide margin for the entire time I've owned it. I even trimmed my position when the stock hit C$60 in July of 2007 because I felt the company was overvalued, and in hindsight I turned out to be correct on that call, as these days it trades around C$50.

Husky's dividend growth record speaks for itself, and it currently yields 3.5%, whereas Petro-Canada yields 1.1%.

Husky's regular and special dividends allow me to directly profit from high worldwide energy prices today, hedging me against my personal energy expenditures. This is not including the potential for captial gains long term. This may come in handy when gasoline reaches $2.25/liter in the year 2012.

Husky is well-managed, and really emphasizes shareholder returns as its company's aim.

Husky has higher returns on equity than Petro-Canada does.

The only advantage that Petro-Canada holds over Husky that I can see is that its stock is cheaper. However, I am tired of owning PCZ for its valuation, besides I am not getting paid to wait.

I was in a profit position in Petro-Canada anyway, so owning the laggard actually did yield modest gains in the end.

Buying Husky Energy allows me to keep the same exposure in my portfolio that I had with Petro-Canada. Husky, explores, refines, and markets just like Petro-Canada.

I'm sure now that I have sold out of Petro-Canada the company will report fabulous earnings and the stock will shoot past C$60/share. I'll find comfort in the fact that, at least on Friday, I increased my income from investments without having to add a dime of new money to my portfolio.

PCZ vs. HUSKF.PK 1-yr chart:

Comments

[R. Ennis:]

You should have bought Oilsands Quest instead. Oh well, it's not too late!

Largest oilsands exploration in Sask...HUGE reserves and more than likely an M&A candidate.

2008 Apr 27 11:49 AM

[Football Geek:]

PCA (PCZ) has not reaised their dividend in a couple years, after showing good growth in the past. I agree they need to show
shareowners alittle "love". Long term it could do well, but who wants to
wait?

2008 Apr 28 09:06 AM

[Steven Ward:]

A good and correct move I believe, your trade to husky from PCZ. Problem with PCZ and her oil sands is cost, cost, and cost. It will drag the stock down and the only bright spot are her conventional assets with rising prices. If you don't have an upgrader on-line or comming on line soon you're sucking cash and the market is unforgiving.
That makes Opti of Canada the best oil sands buy at this time and Husky has a better heavy oil strategy than PCZ as well.
If BP lives up to their end of the bargain, Husky will cash flow her heavy oil projects out far sooner than PCZ.

2008 Apr 29 06:10 AM

[Sean Hodges:]

May 20th - any regrets on your decision?
PCZ has climbed to nearly $60 in only a few weeks since you sold.

2008 May 20 05:28 PM

[moneygardener:]

No regrets Sean. Since April 27 both stocks are up about 15%. The nice thing about keeping the exposure in the same sector is that theoretically they should both have the same reaction to high oil. The yield and dividend growth are the key factors for the switch though.

2008 May 23 08:31 PM

[blueskies7o...:]

I just found your blog and did the exact same thing as you did about a week before you did I hope great minds think alike. Husky profit was up by 89% was a good start. I'm sure in we will get a special dividend and feel even better. PCA for HSE was the right move

2008 Jul 23 08:34 PM

[ing_rivera:]

IMO is better.

Mar 27 01:15 AM