Canaccord Analyst: Expect Short-Term Bounce in Oil Stocks

Expect a short-term jump in oil prices to drive a recovery in recently-beaten down oil and gas stocks, says Canaccord Adams analyst Nick Majendie. 

In a follow-up to his strategy note last week, Mr. Majendie wrote:

We think the likelihood of a bounce in the oil (and natural gas) price in the short term is very likely.  In that circumstance the oil and gas stocks could well recover at least half of the declines they have suffered from their peak.

Last week he reaffirmed his 12-month TSX target of 16,400.

Since rising north of C$145 earlier this month, oil prices have fallen roughly 15% to around C$122 on Tuesday. The price drop brought oil stocks down with it. However, on Wednesday, oil stocks rallied as oil prices surged more than $4 to $127. Canadian Natural Resources Ltd. (CNQ), down 22% on the month at the start of this week, jumped 7%, and EnCana Corp. (ECA), also down 22% on the month through last Friday, jumped 5%. 

Mr. Majendie also reiterated his position on bank stocks, saying it is still too early to move into a more neutral weighting, despite the group's recent rally that has seen the TSX Financial Services index recover by 13% since their lows on July 15.

He wrote:

We have often stated that, based on our interviews with CFOs of the major banks over the last few months, we expect the financial turmoil to last at least through this calendar year end. That is why we do not believe the latest market panic over Freddie Mac and Fanny Mae is likely to be the last.

As a result, the strategist said gold will remain a "place of refuge for investors," and gold stocks as a group will continue to be the best performers on the TSX over the duration of the year.

Comments

[Larry House:]

I'm afraid gold stocks are not living up to that expectation. I think now is the time to hold the metal and not the stocks. The companies have to deal with rising costs and lower profits even if the price of the metal stays up. My costs are not rising while I hold the gold bullion.

2008 Aug 01 05:10 PM

[jjason:]

Help to end the speculation in oil futures trading. Go to:

www.stopoilspeculation.../

Oil Is way overpriced and this is contributing to the US recession.

2008 Aug 03 02:36 PM