Crude-Oil Weighted Stocks Favored by UBS

Includes: CEO, CMZ, CNQ, SU
by: FP Trading Desk

UBS has rejigged its commodity price outlook for the next two years, with the changes favoring crude-oil weighted stocks, Andrew Potter, analyst at UBS said.

“The impact of our revised assumptions varies considerably throughout our coverage universe, with crude oil-weighted names experiencing the largest increases in estimates, while natural gas weighted companies are negatively impacted,” he said.

Mr. Potter said oil is now expected to trade at about $85 a barrel in 2008, up 15% from previous estimates, and $78 a barrel in 2009, up 6%.

The price outlook for natural gas has been cut by 10% to $7.40 per mcf (thousand cubic feet) in 2008, and $7.75 per mcf in 2009. UBS has also downwardly revised its near-term Canadian dollar outlook to $1.00 from $1.03, adding positive tailwinds to all the names, Mr. Potter said.

He said long-term commodity and exchange rate forecasts were unchanged.

Within the large cap exploration and production integrated stocks, Mr. Potter said the top picks were Suncor Energy Inc. (NYSE:SU), Canadian Natural Resources Limited (NYSE:CNQ), Nexen Inc. (NXY) and UTS Energy Corporation [UTS/TSX].

Compton Petroleum Corporation (CMZ) remained its top pick among the juniors, with Addax Petroleum Corporation [AXC/TSX] preferred among the junior internationals.

Mr. Potter said Crescent Point Energy Trust [CPG.UN/TSX] and Vermilion Energy Trust [VET.UN/TSX] were the top picks in the energy trust space.

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