Fort McMurray captured everyone’s attention for the past few weeks. Would the winds drive the wildfires through the entire town? Would major oil and gas companies face huge losses of their assets? It seems those shifting winds have signalled some investment opportunities in the Investor’s Digest of Canada Morning Call survey of 1,000 Canadian companies.
The world has watched and been captivated by the resilience of Albertans and by the many heartwarming stories that emerged from the aftermath of the forest fires that consumed swaths of Fort McMurray, Alberta.
Exceptional emergency management practices have been noted. The generous response of neighboring communities has been inspirational.
Before the disastrous fires, Fort McMurray, and the nearby oil sands, may have been a ‘whipping boy’ for a variety of environmental activists. In addition, the town has been synonymous with the decline in the value of most investments in the Canadian oil and gas sector. Nonetheless, everyone loves a story about good news in the middle of a tragedy.
2 most recommended Canadian oil and gas stocks
There are two specific emerging stories that investors should follow. The stories are Cenovus Energy Inc. (TSX─CVE) and Canadian Natural Resources Ltd. (TSX─CNQ).
Both companies are oil and gas stocks, both have clear strategies for managing through a pricing downturn, and both have strong financial fundamentals. The companies have also faced the threat of shutdown and loss of operations as a result of the recent events in Fort McMurray.
Interestingly, both Cenovus and Canadian Natural Resources were in the top 10 on the ‘buy’ list from our analysts’ survey of about 1,000 Canadian companies.
Cenovus is followed by 12 analysts and 10 of them rate it ‘buy’ while two rate it ‘hold’. Analysts Jason Frew and Brian Ho of Credit Suisse reiterated their sector outperform rating noting that “Cenovus is operating well with a strong balance sheet.”
The share price is edging up towards more historical levels as overall results continue to improve on the strength of solid management.
The quality of Cenovus management’s decision-making was evident throughout the crisis of the approaching forest fire. Fortunately, while the company evacuated some workers, operations were uninterrupted at the Christina Lake facility.
Messrs. Frew and Ho also reiterated a $20 target price based on the strength of Cenovus’ operations, improving cash flow and the overall enterprise value.
Canadian Natural Resources is followed by 14 analysts and 11 of them rate it ‘buy’ while three rate it ‘hold’. Canadian Natural Resources’ first-quarter 2016 numbers underline that not every oil and gas stock is posting negative results.
On May 6, 2016, analysts Justin Bouchard and Zaakir Karim of Desjardins Capital Markets rated the company as ‘hold’ but increased the target price from $35 to $36.
They said: “We believe the stock remains fairly valued at current levels.”
The market appears to be prepared to go a little further than Mr. Bouchard and Mr. Karim based upon Canadian Natural’s current share price.
Horizon Oil Sands, one of CNQ’s facilities was in the path of the advancing fires and the company flew over 2,300 evacuees out to safety while continuously monitoring the shifting weather conditions and air quality. The company was able to maintain stable operations and has been bringing the operation back to normal in recent days. As the drama unfolded, the company demonstrated excellence in its proactive communication strategy and its comprehensive emergency evacuation plan.
Peter Drucker once said that “management is doing things right – leadership is doing the right things”. In business, leadership and management go hand in hand.
Leaders need to lead with clarity and vision, but they also need to ensure that plans are implemented and that people are empowered to act tactically as the winds shift. With the shifting winds in Fort McMurray it was important to preserve infrastructure above all else.
The true test of any organization is how the leadership team responds to the challenges that inevitably come.
Companies with solid leadership and good fundamentals are always able to respond when the winds shift and they emerge as stronger entities when momentum shifts in the marketplace.
Investor’s Digest of Canada, MPL Communications Inc.
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