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Another quarter, another profit at WestJet

Also: Sprott's Eric Nuttall thinks it's time for energy investors to start buying again - and he's got three names he thinks are worth picking up

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

Jul 29, 2014

by Max Fawcett

Make that 37 in a row. WestJet booked another quarterly profit for the second quarter of this year, generating $51.8 million versus $44.7 million in 2Q13 on revenue of $930.3 million. “We had a great second quarter, reporting record earnings, exceeding our ROIC target for the eighth consecutive quarter, and achieving an on-time performance rate of 84.5 per cent, a year over year improvement of 3.5 percentage points,” said WestJet President and CEO Gregg Saretsky. The company, meanwhile, continues to move forward with its Encore service, which marked its first year in business in June, and with plans for extending its international service. It expects to expand its operation in those markets – Europe, for example – in the summer of 2016.

Meanwhile, Sprott Asset Management’s Eric Nuttall was on Market Call last Friday, and suggested that now (or, technically speaking, then) is the time for energy investors to step back in with some buying. “Multiples got a little high, relative to where I thought oil and gas would shake out,” he said. “I thought we were due for a pullback and we’re getting that now, and I’ve been deploying cash. I’m down to 10 per cent from a high of 34 [per cent].” That’s due, in part, to the read he got at Stampede, where the sentiment was markedly bullish. “It’s the best in four or five years – really because the fundamentals are the best they’ve been in four or five years. As an energy investor, I think now is the time to be adding.”

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In terms of his three picks, he brought some old favourites along with him this time. First up was Whitecap Resources (TSE:WCP), which Nuttall said was his biggest holding in his fund due to its ability to grow production and pay a dividend using less than its annual cash flow. There’s a little extra left in there that he thinks will lead to a dividend increase in 2015. “If they were to take just half of their free cash flow next year and roll it into the dividend, they can it increase it by 33 per cent.” And, he said, there’s a good chance of some capital appreciation as well. “I think it’ll be a $20 stock at some point over the next year or so as they get multiple expansion to about seven and a half to eight times [cash flow].”

He also liked Spartan Energy (TSE:SPE), which he described as a “sleep easy” stock to hold given that management owns 13 per cent of the float (and 20 per cent when fully diluted with their options). “They’re really, really aligned,” he said. And the company’s size, for the time being anyhow, gives it an edge when it comes to making accretive transactions. “Because of their market cap size, they can still make acquisitions that are too small for the Crescent Points of the world.” Nuttall said he can’t see any immediate catalysts that will move the stock, but given that it is consistently drilling wells with a payback of less than a year and expects to grow production by 49 per cent in 2015, maybe it doesn’t need one. Finally, he tapped Tourmaline Oil (TSE:TOU), a company that he thinks still has a lot of upside despite its strong performance of late. “Tourmaline, in my mind, shows how people mistake large cap stocks with low performance at times. I think Tourmaline has 40 per cent upside from today’s levels – it’s a $75 stock.”

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