O Canada, O EnCana (duh!)

Includes: COP, ECA
by: Jake Berzon

EnCana (NYSE:ECA) is basically a Canadian natural gas producer with large holdings of oil sands in Alberta, Canada. They also have a large US operation and an integrated oil business with Conoco Phillips (NYSE:COP).

On Sunday, May 11, 2008, ECA announced their plans to split the company into two parts - a pure-play natural gas company and a separate oil company. Wall Street went ecstatic over the announcement and the stock immediately ascended to a new 52-week high on Monday. Anybody who is a somebody in the world of money wrote an article on EnCana, and the buzz, well, it buzzed! With their 20/20 hindsight vision, several analysts responded by raising their ratings and price targets. And Friday, the stock made a new 52-week high.

There is no question that EnCana is one great company (and soon to be two). The only trouble is that after the recent run-up in share price, it is now a company that is at least fairly valued, trading at a trailing 12-month PE of 20, above its historic 5-year average of 13 and at a premium to the industry average of 17.

And that's not to mention that EnCana's Q1 quarterly results were rather miserable. Expectations run high that this quarter earnings will recover, yet they are still expected to fall short of the year ago quarter. All in all, I see the latest run-up in price as a great opportunity to jump ship. I sold today, exactly two years after purchase, at $94.05 /share for a gain of 98.8% accounting for dividends, but ignoring taxes and commissions.

And the best thing of all, is that I don't anticipate having to pay any taxes on this transaction - in 2006 US Congress in their infinite wisdom reduced long term capital gains taxes for years 2008 - 2010 for poor folks in my income tax bracket to 0% - nice!

Disclosure: No position EPA, COP

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