“40X Bigger Than the Bakken… And you don’t have to buy a single oil stock to make a fortune…”

By Travis Johnson, Stock Gumshoe, August 4, 2014

That’s the headline for the latest ad from David Dittman, who inherited leadership of the Canadian Edge newsletter when Roger Conrad left for greener pastures.

And I was intrigued enough to take a look — not least because he’s touting some ancillary stocks that benefit indirectly from oil money… but also because, unlike every other energy pitch these days, he’s not talking about Midland, Texas and the Permian Basin/Wolfcamp Shale/Cline Shale/Spraberry Shale.

Not that there’s anything wrong with those — there’s a lot of oil still in the permian for those willing to frack it out — but I’m getting a little tired of hearing about it. So we’ll check out this pitch to see what Dittman’s touting up in the Frozen North.

Here’s how he gets the story going:

“It’s cold, dark and wind-swept…

“Yet it’s a magnet for job-seekers—the country’s top relocation destination.

“New housing can’t go up fast enough to keep up with surging demand.

“Home prices and rents surpass those in the nation’s largest cities—in one locale, average rents have jumped from $400 a month to $1,200 a month in just one year.

“Restaurants, gas stations, shopping centers and dozens of other services struggle to serve the burgeoning population….

“Sounds like the fabulous North Dakota Bakken, doesn’t it?

“But it’s not. It’s nearly 40 times larger in PROVEN oil reserves.”

This is all about Alberta, as you’ve probably figured — and he’s not keeping that a secret.

Or actually, not just Alberta — the Western Canada basin is too big to fit in one province:

“While the Bakken possesses an impressive 7.4 billion barrels of proven oil reserves, this massive 54,900-square-mile oilfield (larger than 24 U.S. states) boasts a jaw-dropping 300 billion barrels of proven oil reserves.

“There’s another important reason why the Athabasca oilfield of Western Canada is better than the Bakken for investors.

“Unlike the U.S. Bakken—where the future of oil and gas production is often held hostage by domestic politics—this oilfield is located in a friendly country that’s solidly committed to becoming a global energy superpower, supplying whoever has the money to buy. It has customers lined up from all over the world.”

Well, the US still isn’t letting anyone export crude oil — but I’d hesitate to say that the Bakken and the Permian are “held hostage to domestic politics” more than Canadian production is. You’ll see lots of terms bandied about for the large oil fields and basins in Western Canada, the Athabasca usually refers to the heavy oil/oil sands of northern Alberta or the uranium deposits of northern Saskatchewan (Lake Athabasca straddles the two provinces).

And there are a lot of resource boomtowns in the area, even more if you include the other oil and gas fields of the Western Provinces (or the full Western Canada Sedimentary Basin, WCSB) and also look at the major exporting efforts underway — like the proposed Kitimat LNG export terminal in BC that will require lots of infrastructure building, lots of workers, and miles and miles of pipeline as they try to sell their LNG to Japan and China now that their neighbors to the South (that’d be us) have no need for imported natural gas.

Profiting from that is Dittman’s basic goal — here’s how he puts it:

“I’m writing you today about 6 select stocks I believe are positioned to profit hugely from the economic miracle unfolding in Western Canada.”

OK then … so what are they?

Well, as is their wont, they do give us one freebie…

“At the top of my list is Bird Construction (TSX: BDT, OTC: BIRDF). Aptly, this outfit is a leading contractor in the commercial, retail, multi-tenant residential, industrial, mining, energy and civil sectors.

“In other words, Bird is a perfect fit for the needs of the booming Canadian West. It specializes in large, complex projects requiring sophisticated engineering—think pipelines and LNG export terminals. Think big, big profits ahead.

“This construction leader is up 404% for us since 2008, and currently rewards us with a hefty 5.4% dividend yield. This is a great company, in business since 1920 and a perfect way to profit hugely from the growth explosion taking place in Western Canada.”

So that’s one you can consider if you like — I can vouch for the fact that the Canadian Edge folks have been interested in this stock for a long time, Roger Conrad teased it back in 2009 when it was still an income trust. The stock has been pretty flat over the last year, hovering around $12, and indeed has mostly bounced up and down slowly between $10-15 since Conrad teased it. It does pay a decent yield, though it pays out considerably more in dividends than it earns in income and the stock is pretty clearly driven by the yield — much like a REIT or a MLP would be. Other than that, I haven’t looked at them closely in recent years — they were teased as the big builder for many of the Vancouver Olympics facilities, presumably any pickup in building in western Canada would tend to be good news for this kind of company but I don’t know the specifics.

How about the “secret” stocks that he doesn’t want to reveal to non-subscribers? That’s what gets us interested, let’s see how he teases ’em:

“… here is a peek at a few of the other extraordinary opportunities I want to tell you about:

“This real estate powerhouse commands 23% of the Canadian real estate brokerage market. With over 15,000 agents spanning the country, it processes $35 billion of real estate annually. With China’s growing interest in controlling oil from Canadian tar sands, the outlook is positive for continuing growth in real estate markets for the foreseeable future. Underscoring its strong commitment to the oil region, the company is building Western Canada’s tallest tower in downtown Calgary, the largest city in booming Alberta. This is a great long-term buy that rewards you, right now, with an ultra-generous 8.3% yield.”

This is slightly misleading because the tower in Calgary is being built by their parent company, but this particular stock being teased is Brookfield Real Estate Services (BRE in Canada, BREUF on the pink sheets). They are effectively an umbrella company that owns some major brokerage franchises, largely in Canada, and earns royalties from the agents who market real estate under those names. The yield is right around 8.5%, they pay monthly at ten cents a share (Canadian) and the stock is right around $14 — it hasn’t spent much time below $12 or above $15 in the past few years, and appears to be relatively stable.

Interestingly, they don’t seem to be dependent on transaction volume or pricing — which has kept the stock from going crazy over the last few years as Canadian real estate has been on fire. They earn their royalties mostly as fixed fees from the realtors in their network, so their profitability depends on the number of realtors and on the fees that they charge — the number of realtors isn’t increasing very rapidly (yes, it is around 15,000), but they did implement a small price increase this year, but it hasn’t generated a huge amount of revenue growth for them. Here’s how they put it:

“The Company’s revenue is primarily fixed in nature, based on the number of REALTORS® in the network. This structure provides revenue protection from the impact of revenue declines when the market cools, but also reduces the degree to which the Company participates in periods of rapid market expansion.”

So… my worry would be about a cooling off in the Canadian market that drives a substantial number of realtors out of business, but that’s not necessarily around the corner. It’s not exactly leveraged to the “boomtowns” to a large degree, unless they happen to be adding new agents in those towns as they grow (and that would be a relatively slow and muted impact, is my guess), but it is a pretty solid and steady cash flowing company that sends most of its operating cash flow through to investors in the form of that high dividend. I don’t see a lot of reason for the stock to rise dramatically from here, you can check out their presentation and see if you can find that kind of promise, but an 8%+ yield that has little to do with energy ain’t all bad.

Next?

“No matter where they live or move to, people crave entertainment. This outfit has a pretty simple strategy: Deliver media content to consumers wherever they are through whatever medium is cost-effective. To meet the demand, this company is aggressively expanding into these new markets to retain and add customers. It operates movie theaters (over 1,600 screens), food services, gaming, alternative programming, digital networks, plus online sales of content via a wide array of computing devices, including smartphones, laptops and tablets. After a tough day on the oilfields, a horizontal driller wants a Hollywood thriller—this company delivers the goods. We’re up 139% since we first recommended it and looking for more.”

This one, sez the Thinkolator, is Cineplex (CGX in Canada, CPXGF on the pink sheets). Cineplex is primarily a movie theater chain, they get at least 90% of their revenue from the box office and concessions sales — and a bit more than that if you include in-theater advertising and “special events” (the simulcast showings of things like big sporting events or the Metropolitan Opera that are done in some theaters). They had a relatively weak first quarter, with earnings down a little bit from the previous year, but that kind of fluctuation is apparently somewhat common — particularly as theaters are impacted greatly by weather and by whether or not there are enough big, popular films to show in a given quarter.

Cineplex reports earnings on Wednesday morning. They do carry a decent dividend yield of about 4%, paid monthly as with so many Canadian companies, and they are slowly growing by raising concessions prices and getting more “upsell” to stuff like 3D films, but presumably substantial expansion is expensive as new theaters have to be built. Don’t know this one well, but it’s by far the biggest theater chain in Canada so it will likely have some impact from growing cities in the West — even though, as with so much of Canadian consumer stocks, their revenues will probably continue to be dominated by the major population centers and the East for the foreseeable future (about 10% of Canadians live in Metro Toronto, and about 60% live in Quebec or Ontario, though Alberta does have the fastest growing population). The stock doesn’t look particularly cheap, but it’s a strong and established brand — and from a quick glance at their numbers, they have less debt than I’d expect for a company with 160+ large, physical locations (it may well be that they don’t own the real estate, I haven’t checked).

And … one more?

“Canada’s top landlord for tenants in shopping malls, this REIT is the sector’s star performer in total returns so far this year. Nothing new, this outfit has delivered 285% gains to date for Canadian Edge subscribers who bought in. Small wonder. The REIT focuses on three major Western markets—Calgary, Edmonton and Vancouver. Back east, it’s the real estate big dog in Toronto, Montreal and Ottawa. It’s also Walmart’s biggest rent collector in Canada. If there’s a better position on the planet, I don’t know what it is. Don’t miss out.”

This one has been a long-time favorite of the Canadian Edge folks, too, the mega-REIT RioCan (REI in Canada, RIOCF on the pink sheets). Riocan has a slightly-above-average yield of about 5% for a large ($8 billion market cap) and diversified retail REIT, they primarily own malls and similar retail centers but also own some office properties. This was, for quite a while, teased as a play on Target’s aggressive expansion and on Target and Wal-mart’s fight for space in Canada, but that’s not the “hook” anymore now that all the pundits are wringing their hands about how miserable Target’s expansion north of the border has been. Wal-mart is their second biggest tenant, Target is also in the top ten, and Alberta is their second biggest market (though it’s wildly smaller than their biggest — Ontario generates 56% of revenue, Alberta 10%).

And… those are the only ones hinted at in the ad, so whaddya think? Looking for some exposure to Canadian growth without betting on commodities directly? These are perhaps some decent plays on that, though they are not necessarily super-levered to the population boom in northern Alberta or elsewhere in the oil patch.


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13 Comments on "“40X Bigger Than the Bakken… And you don’t have to buy a single oil stock to make a fortune…”"

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Lorne Cutler
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Lorne Cutler
While these may be good stocks they are so peripherally affected by the oil sector (other than if the oil sector would to collapse, as wished for by several environmental groups, the Cdn. economy would go into recession), that one could try to invoke truth in advertising regulations. Not that stock pitches and teases know much about truth in advertising. Dittman must be pitching at U.S. investors who might think that a movie chain is going to get more business out of a province with 3.5 mln. people than one city with 5-6 mln. people in its greater metropolitan region.… Read more »
David B.
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Interesting list of fairly conservative growth and income plays. Since I have an emphasis on growth, my favorite of the list would be the cyclical construction play Bird Construction which also has a solid dividend.

quincy adams
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quincy adams

I couldn’t find any fast fortunes on the list, but a real winner would be any company that invents a way to reduce the carbon footprint from extracting the stuff and production of syncude. If this problem isn’t solved, the Canadian gov’t will either have curtail the expansion plans or trash their Kyoto agreements. If I had to bet on one or the other, it would be the latter. Any comments from you footprint folks?

T.L.Walker
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T.L.Walker

I enjoy this service and I would like to ask travis if he would publish a bio about himself to let us know more about his background and how he came to do this work and how he finds these companies.

William F Tilson
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William F Tilson
I just skimmed this article because I was not interested in the investments, I simply wanted to know what the “gotcha” was, and Travis laid it bare as always. I am making a fairly comprehensive list of guys like this Dittman because I plan on using the list someday in a consumers’ revolt against the prevarication practiced by these carnival pitch men playing investment advisor. Tom Dyson and his “770 Account” was the first one I put on my list over a year ago, and it surprises me how it grows and grows and grows. You don’t even have to… Read more »
Boris
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Decent article. Yes Alberta does have lots of oil, but the differentials are killing the players in that area. Best stocks right now are all getting higher premiums for their crude. Lately in thr junior sector many TSXV stocks drilling in America are getting attention CRS.V, MAH.V and KFG.V. All though CRS and MAH are in a testing phase right now, KFG already has close to a couple dozen wells in production and getting Lousiana Light Sweet pricing for them. Even if you don’t believe in cheap stocks, just do your research on it. Hard to find a play with… Read more »
Roger Stevens
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Roger Stevens

Travis, I haven’t received the Gumshoe Letter for 2 days. Favorite report. Look forward to seeing it. Please get me back on the list. (I am an irregular.)

who noze
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who noze

HAPPY BIRTHDAY EVEN THOUGH ITS SOMEWHAT BELATED HAD I KNOWN I WUD HAVE BAKED A CAKE

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