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Woeful Wednesday

Markets sell off across the globe, with the TSX seeing its worst single-day loss of the year

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Apr 4, 2013

by Max Fawcett

Ouch. The TSX shed almost 260 points in its worst day of the year yesterday, erasing all of its year-to-date gains in the process. It finished the day at 12,422, more than 2,000 points below the Dow Jones Industrial Index and almost 3,000 points shy of the all-time high it made in June 2008. The energy sector was smacked particularly hard yesterday, declining by 2.8 per cent.

That wasn’t exactly the best backdrop for FirstEnergy analyst Darren Engels to appear on BNN to talk about his picks for the energy sector, but he did his best despite the rough day on the markets. Engels, who focuses primarily on international explorers and producers, explained that he remains bullish on Colombia. “What we see and what we continue to see is that the preferred investment destination is probably Colombia in South America,” he said. “Other jurisdictions have opportunity, but with the opportunities and fiscal terms and government support, we think Colombia is the safest jurisdiction to put investment dollars to work.”

His favourite companies in Colombia are Parex Resources (TSE: PXT) and Gran Tierre Energy (TSE:GTE). FirstEnergy has an $8 target on Parex shares, and Engels noted that it has “very compelling valuation multiples. It trades at roughly two-times debt-adjusted cash flow, and around its core NAV. It’s a light oil player, which I think is important in Colombia, and it has a diverse set of opportunities throughout the Llanos basin.”

Gran Tierra Energy, which FirstEnergy thinks should be worth $9.50 in 12 months’ time, sports similarly attractive valuation metrics. “The stock currently trades below its 2P reserve value, which is roughly around $7 a share, so there should be upside on that point alone. Gran Tierra just recently announced a fairly substantial discovery in Peru that has the potential to more than double the reserves of the company. That’s not reflected in the current stock price.”

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