WestJet soars, Schachter speaks and Ambrose Evans-Pritchard thinks the commodity super-cycle still has legs
by Max Fawcett
WestJet (TSE:WJA) shares are on the verge of reaching an altitude they haven’t hit since 2007 – the $20 level. That might be a new floor for the company’s shares if its recent success – November was yet another month of record load factors – and plans for the future are any indication. CEO Gregg Saretsky recently outlined his plan to introduce premium seating on WestJet flights (an idea that was once verboten) in an interview with Reuters. According to the story, WestJet plans to introduce a new online booking system by late January that will offer three different tiers of ticketing – economy, mid-tier and premium. “Economy tickets under the new system will continue to sell the lowest available fare,” the story said, “but the cancellation fee for them will jump to $75 from $50. Mid-tier tickets will have a $50 cancellation fee.”
Speaking of $20 per share, that’s the price target that Joseph Schachter, the head of Schachter Asset Management, has on Niko Resources (TSE:NKO). In an afternoon appearance on BNN’s Market Call, he tabbed Niko as one of his top picks, noting that the $20 target doesn’t assign any value to its holdings in India or near-term drilling possibilities. If Niko enjoys any drill-bit success or sees movement on the stalemate it’s in with India over the pricing of natural gas, Schacter said, they would be increasing its price target “significantly.”
His other top pick was Long Run Exploration (TSE:LRE), the company that was created earlier this year from the assets of Westfire Energy and Guide Exploration and is run by former Penn West executives Bill Andrews and Dale Miller. The company is expecting to exit the year with approximately 23,000 boe/d of production, has a relatively healthy balance sheet and is trading at a considerable discount to its peers (three times annual cash flow versus five to seven times), and Schachter thinks it could hit $6 a share by this time next year. “There’s a big upside here as they begin to execute,” he said. “I think management will break through with market support over the next 12 months.”
And over at the Telegraph, columnist Ambrose Evans-Pritchard has a fascinating column about those prophesying the end of the commodity super-cycle – and why he thinks that’s a load of bunk. He thinks concerns about an end to the frenetic Chinese build out of infrastructure, and the knock-on effect that would have on demand for commodities ranging from oil and gas to copper and iron, are overblown.
”Standing back, you might argue that commodities have held up remarkably well this year given that Europe has crashed back into double-dip slump, that the US slowed to stall-speed over the early summer, and that China itself has been through a quasi-recession with falling electricity use and rail freight, and a collapse in steel output,” he says. “For Brent crude to trade at $111 a barrel in such a bleak world suggests that Asia’s industrial revolutions have pushed oil prices to a structurally higher plateau. Energy costs may well punch higher once the next cycle of growth is under way. No doubt the Malthusian narrative – peak this, peak that – at the top of the commodity boom four years ago was overblown. The US energy revival has shown how quickly human ingenuity can sweep away assumptions. Yet all the nagging worries about resource depletion are still there. New supplies of oil are mostly deep in the ocean beneath of layers of salt, or in Russia’s arctic High North, or in Canadian tar sands at a production cost of $90.”