2 blue chip stocks most favoured by analysts

Every month Investor’s Digest of Canada surveys security analysts for their buy, sell, hold recommendations on more than 1,000 Canadian companies. Most recently, Canadian Natural Resources topped the list with seven analysts rating it a ‘buy’.

Blue_Chip_Stocks Calgary-based Canadian Natural Resources Ltd. (TSX—CNQ; NYSE—CNQ) is an oil and natural gas producer in Western Canada. Its portfolio includes light and medium oil, heavy oil, bitumen, synthetic oil, natural gas liquids and natural gas.

CNQ Executive Vice-Chairman Steve Laut said that the past year was one of balanced capital apportionment.

“The company’s focus on balanced capital allocation was evident in 2017 as economic resource development, increased balance sheet strength, execution on transformational acquisitions, and free cash-flow generation combined with our ability to execute with excellence, drove a strong year for the company,” Mr. Laut was quoted as saying.

During the final quarter of 2017, the company funds flow added up to around $2.3 billion, which translates to a debt reduction of around $460 million at the end of the year compared to the debt load as of the end of the third quarter of 2017. As of April 1, it also boosted its quarterly dividend 22 per cent to $0.335 per share. This marks this dividend aristocrat’s 18th-straight year of dividend hikes.

In a March 2 research note, AltaCorp Capital analysts Nick Lupick and Daniel Morgan look at Canadian Resources’ results for the fourth quarter of 2017. They view the results as positive, as cash flow for the final three months of last year beat the high end of the consensus estimate even though production was more or less in line.

Production for the quarter averaged 1.02 million barrels of oil equivalent (BOE) per day, up 18 per cent year-over-year, but slightly less than the analysts’ and the consensus estimates of 1.04 million BOE per day.

Messrs. Lupick and Morgan keep their ‘outperform’ recommendation and their 12-month target share price of $52.

Meanwhile, Desjardins Capital Markets analysts Justin Bouchard and Petur Radevski say in a March 1 research note that Canadian Natural’s performance over the final quarter of 2017 underscores why the company was selected as one of the research firm’s best investing opportunities for this year.

“The investment thesis for CNQ is straightforward: growing free cash flow, a strengthening balance sheet and a disciplined management team with a track record of delivering results,” say Messrs. Bouchard and Radevski, who reiterate their ‘buy’ recommendation, and $55 target share price.

All seven analysts who cover Canadian Natural Resources rate it a ‘buy’, good for top spot among our top-10 ‘buys’.

CP among four stocks tied for 2nd place

Canadian Pacific Railway Ltd. (TSX—CP; NYSE—CP) has added a grain industry veteran to its leadership team.

The Calgary-based transcontinental freight company which operates in Canada and the US, announced in early March that Joan Hardy will come aboard as vice-president, sales and marketing, grain and fertilizer. Ms. Hardy has 20 years of railroad expertise and more than 10 years of experience in grain and fertilizer shipping.

The company says she is the right person to further enhance CP’s position as a major player in the grain supply chain.

In a March 13 research note, Odlum Brown analyst Stephen Boland explains why CP is his firm’s favourite railroad.

“Already one of North America’s most profitable railroads, the company continually finds new ways to improve efficiency and drive incremental revenues,” says Mr. Boland. “We also like the diverse mix of goods CP transports, which reduces the impact of weakness in any one product grouping.

“For decades, railroads were notoriously bad investments. However, a confluence of factors has aligned and railroads now have good pricing power and are consistently profitable. We think favourable conditions for railroads will persist well into the future.”

Noting there are only half a dozen major railroads in North America, the analyst says competition in the sector is limited. He adds that there is little chance of another railroad being built due to the massive capital, property, and regulatory requirements.

“For many products, particularly those travelling long distances, rail is the only reasonable shipping option,” says Mr. Boland. “In comparison to trucking, railroads are more fuel efficient, more environmentally friendly, and do not suffer from highway congestion and driver shortages. Meanwhile, scheduled railroading, where trains move according to a set timetable, has resulted in significant improvements to both efficiency and customer service.”

The analyst keeps his ‘buy’ recommendation and target share price of $265. All six analysts who cover Canadian Pacific Railway call it a ‘buy’, which puts it in a four-way tie for second place with CGI Group Inc. (TSX—GIB.A; NYSE—GIB), NuVista Energy Ltd. (TSX—NVA) and Whitecap Resources Inc. (TSX—WCP) on our top 10 ‘buys’ list.

This is an edited version of an article that was originally published for subscribers in the April 27, 2018, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

Investor’s Digest of Canada, MPL Communications Inc.
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