China: the bottom is in
Also: the bullish case for Parkland Fuel
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 firstname.lastname@example.org
by Max Fawcett
The macroeconomic story driving rising oil prices right now is obviously the conflict (and looming possibility of even more of it) in Syria. But if Credit Suisse’s research department is to be believed, the Chinese economy may have found a bottom, something that would be equally supportive – and more reliable – for oil prices than the prospect of geopolitical conflict in the Middle East. “We think improved growth momentum can last as: 1) Housing policy is easing and sales are robust ; 2) Local governments are investing again ; and, 3) The export outlook has brightened, slightly,” Credit Suisse analysts Dong Tao, Weishen Deng and Henry Mo wrote. “None of the above-mentioned new supports to growth are robust. But they should support the cyclical upswing in a more sustained way than just a pure inventory correction.” They note that China isn’t out of the woods just yet, and that the lack of robust private investment remains worrisome. But, they say, the third plenary session of the party congress may produce some reform initiatives that could change that, even if concrete policies aren’t likely to be implemented in the near term.
And on BNN’s Market Call Tonight, James Telfser, a portfolio manager with Caldwell Investment Management, came armed with two Alberta-specific top picks. The first was Parkland Fuel (TSE:PKI), the fuel marketing and retailing company that pays out a six-per-cent yield. Telfser likes it for far more than its yield, though, noting that it plans to aggressively grow its market share and expand its operating margins through expansion. “There are a lot of acquisitions out there for them, and as they make them it should bump up their EBIDTA, bump up their multiple and hopefully get the share price going,” he said. The company will pay for that, he suggested, with the room that it’s been able to create on its balance sheet because of a lucrative contract with Suncor that has allowed it to take advantage of lucrative refining spreads. “They made a lot of money off that,” Telfser said, “and instead of blowing it on fancy cars they filtered it back into the business and started making acquisitions and paying down their debt. They’re at very comfortable debt levels.” He’s not alone in liking Parkland, either. Back in July, Globe and Mail columnist David Milstead made a similarly bullish case for the company.
Telfser also picked Essential Energy Services (TSE:ESN), a company that he thinks is well positioned to take advantage of the uptick (or, perhaps, the explosion) of drilling activity in the natural gas plays in northeastern BC. “What we like about Essential is that they have a lot of deep coil tube servicers in their fleet, and what these are good for is areas like northeastern BC, where we’ve got Chevron and Apache and all these companies that are coming in to do the drilling for the liquefied natural gas. We think that they’re going to be in high demand going forward.” Its shares have been punished of late, after a wet spring break-up made for a bad second quarter, but he thinks that’s been overdone. “When you look at the valuation of the company, they’re trading below eight times earnings and they have all this growth built in. We just kind of scratch our heads and say ‘why?’ We recognize that it’s going to be a volatile stock, but they pay you a four per cent yield while you wait, and you get all this upside of the projects that are coming in.”