Elliott Gue made a name for himself as an energy stock analyst before he took over the much larger Personal Finance, and he still gets the teaser ads rolling pretty frequently for his Energy Strategist newsletter (now he calls the subscribers the “Energy Society” … feels more special, no?)
And lately he’s been pushing a few of his favorite ideas in oil and uranium, with ads that throw out a whole mess of teasers. I’ve looked at this ad and written about it before and much of it is unchanged, so these may sound familiar for folks who’ve been around for more than a few months (the old comments from the original article are still appended at the bottom, FYI) — the new pitch is that this is “better than buying Exxon 20 years ago,” and that Elliot Gue is predicting 60% gains in oil in less than six months.
Let’s take a look at a few of the stocks he teases:
First, the oil ones …
He teases several different kinds of companies here — an oil driller, a potential Iraqi oil play, an oil sands company — and more.
His first forecast is that we’re going to see $70-90 oil by the end of this year (the ad was probably first written in late April, when oil was below $60), so he’s certainly on the right side of the market over the last several months, at least (and as we’ll see in a moment, all the stocks he picked for this letter are up from the prices he still mentions).
What are the companies?
First one is a giant oil sands firm …
“… a giant producer working the Athabasca, Peace River and ColdLake tar sands in the western Canadian province of Alberta. While this company has the region more or less locked up, transmuting tar sands (also known as oil shale or bitumen) into refined products — gasoline, diesel, home heating oil, jet fuel — is devilishly difficult.
“It’s mining, not drilling, and strip mining at that — earth-moving machines big as houses scraping greasy rock out of a resistant earth, never mind howling winds and numbing cold. The shale is then heated in huge retorts to sweat out the crude, with natural gas providing the flame. What’s left is a “sour” high-sulfur crude that takes costly additional refining to sweeten and upgrade.Are you getting our free Daily Update
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“Not pretty. And not cheap. But … crude oil at $70-$90 per barrel makes it worth doing!”
And a few more specifics for us:
“It’s already the dominant player in Canadian tar sands. And last month it strengthened its dominance many times over by announcing it will become — via acquisition — Canada’s leading integrated oil company. I rate this firm, now trading around $24, a candidate to double by the end of 2009.”
OK, so most folks who pay attention to the oil sands will probably recognize that this is Suncor Energy (SU), probably the most frequently mentioned play on the oil sands, and a great performer during the oil runup that ended (at least temporarily) last Summer. Suncor was at about $24 when this ad was likely written in the Spring, but since the oil price is now right around the oil sands “sweet spot” and climbing, it’s had a great few months — it hasn’t doubled yet, but the shares are now at about $32. Still plenty of room to go if we’re to get a double this year as Gue predicts, but it’s been a quick run so far, so be careful.
He likes deepwater drilling, specifically mentioning the need for semi-submersible rigs for huge underwater fields like Tupi (offshore Brazil) … and he mentions one of the drilling rig owners:
“Those submersible rigs? I know a company in Norway that owns 13 of them. They’re busy constantly, contracted to developers around the world on contracts executed at higher day-rates than those of many competitors. This firm has customers around the block too — $600+ million worth, more than enough to cover the year’s revenues even if it doesn’t book one more order in 2009.
“The stock is still cheap, though, currently trading below $11. When oil prices rise past $70 or so, this relatively small company will offer close to a pure play on deepwater drilling. Be prepared for this company’s stock to double at least in the next eight months.”
Well, this just touches my little heart — this is an old favorite of mine, too, Seadrill (SDRL in Oslo, SDRLF on the pink sheets). It was around $11 back when this ad first started circulating, it has since shot up to $18 or so on good earnings and some positive conference call comments — but it’s still way below where it was when I wrote about it in my first article for the Irregulars well over a year ago (at the top of the chart for this stock, unfortunately), and I personally started buying it a few years ago. I sold off some of my holdings back in February, and some more just this week for personal reasons, but this remains a significant personal stock holding for me.
Gue, too, has recommended this stock in past years — it’s a lot more volatile and probably more leveraged to high oil prices than US-based drillers like Transocean and Diamond Offshore, which, as the last couple years has shown, can be both bad and good (the US-based offshore drillers have had the reputation of being cautious with their investments in the past, battening down the hatches in case of financial storms, it’s the Norwegians like Seadrill who have taken chances to aggressively build market share over the last few years).
And there’s more!
“I follow a company that’s trading around $13 — way undervalued, in my view. Why? Partly because it’s thought to have underbid for a massive job in the Chicontepec field.
“What many investors don’t know, however, is the importance of Chicontepec to Pemex, Mexico’s giant state oil company. This outfit has whip-smart management and has said all along it expects to make big money in Chicontepec. I believe them, but that’s not the only reason I pay close attention to this stellar company. It has plum contracts to perform work in Iraq’s Rumaila North and Zubair oilfields. Iraq development will be massive in coming years. This company is in position to be the fastest-growing major oil servicer over the next two years and to double by Dec. 31st.”
This one is Weatherford International (WFT), and like all other oil stocks it’s up substantially over the last month or so, so it’s no longer at $13 — in fact, this one is a bit more leveraged than others, apparently, because it’s already up to $20, more than halfway to a double. I don’t know a lot about these guys, but here are some articles about their Chicontepec underbid, and about their work in Iraq, to get you started.
That’s a trio of interesting oil names, all of which have had substantial price runups since the ad was written on the back of improving oil prices and the continuing market rally, and apparently they haven’t even bothered to update the ad copy. You never know what you’ll find when a newsletter uses stale copy in its ads (these are still going out to huge lists of people, I’ve gotten this particular ad several times this week).
When I first wrote about this ad, I didn’t include every single pick he mentioned (either that, or maybe he added some new ones in for this version). One that’s in there now that I didn’t mention last time is for a high-yielding oil and gas stock … here’s what he says:
“14% yields and they’re totally hedged through 2011
“Yes. This stellar oil & gas performer will continue paying you dependable, 14% yields.
“They’re totally, absolutely 99% hedged through 2011 and they’ll keep paying you 14+% dividends like clockwork. And, more amazing still —they’ve even hedged their basis risk. So they’re not even exposed to that—and neither are you.
“Plus, they have no heavy production costs and they’re sitting on a pile of cash, to boot. They’re also sitting on 1.2 trillion cubic feet of oil and gas with proven reserves of 21 years. So, they’ll be generating tons of cash with their current asset base for years to come. And when/if they decide to expand, they’ve parked plenty of cash to make any new acquisition they cast their eyes upon.”
We’ll consider that to be a little bonus pick for you — a reward for reading this far, but I’m afraid it’s also a stock that I’ve written about before, albeit for other teasers … this one is …
Linn Energy (LINE), an oil and gas producer that’s structured as a high-yield partnership. The yield is no longer 14%, but it’s still around 11%. I wrote about this for Bryan Perry ad back in June, and my opinion hasn’t changed, you can see that article here.
Linn did announce their CEO succession plan this Summer, but it seems to be an orderly and internal succession, with founder Michael Linn stepping back but still playing a key role in the company — the stock may have dipped slightly on the news, but the fact that they pay a consistent dividend and have widely pledged to maintain it thanks to their active hedging through 2011 has kept investors buying. If natural gas doesn’t eventually recover, the distribution might start getting called into question in a year or so, as 2011 approaches, but for now no one seems terribly worried.
But there’s more!
I promised that we’d take a quick look not just at Gue’s oil picks, but at his ideas for uranium investing — what does he tease us with in the world of yellowcake and nuclear fuel?
“Uranium’s Blue Chip Company. They own 15% of the world’s uranium market and they’re the world leader in low-cost uranium production. While most uranium producers have cash costs $30-$40 per pound mined, this company mines the stuff for under $20 a pound — adding heaps to their profit. They’re operating mines in Canada, the US and soon, in Kazakhstan — far and away the world’s richest and highest-grade uranium mines. To put this into perspective, some of their mines have ore grades over 20 percent uranium oxide; some mines being mined globally and commercially have ore grades less than 0.5 percent.
“This mining company sells much of its production under long-term contracts. But in markets like this, they’re still rolling over legacy contracts and earning much higher rates. Of course, the stock isn’t riskless, but any production issues are already priced in, and we should see steady-on-course production growth in coming years. Investors are already showing appreciation for this company, the 800-lb gorilla of the industry — but you see see 60% gains by year-end if you get in now.”
That’s pretty well got to be Cameco (CCJ), which does supply about 15% of the world’s mined uranium. And yes, this one has moved up smartly over the last month, too. Their primary operations are in Saskatchewan and they’ve been one of the leading miners in this space for years (other big producers include Rio Tinto and BHP Billiton — Canada and Australia are the dominant countries in uranium mining, followed by Kazakhstan, where quite a bit of development is underway by several firms.)
Cameco now is trading for close to the price Gue first teased it at earlier in the year, up 10% or so as I read it, so if you believe his prediction of 60% gains there’s certainly plenty of room left.
And there’s one more bit of teaser bait for us:
“Uranium’s FAST Company. We expect this company to give you double your money at least by the end of this year. And if it’s a takeover target, you could see 300% returns. We hear the Chinese may be hot on the acquisition trail of this fast-moving producer — now the world’s eighth-largest. The company’s profitable and adroitly-managed operations in Namibia and Malawi are just too tempting for the Chinese, who want to cinch their uranium stake in Africa.
“These Namibia and Malawi operations are the world’s newest uranium projects. And this “can-do” company has joint venture interests in Australian uranium deposits, as well. They’ve already got over 240 Mlb of uranium in reserve. Not bad for a newcomer! This company is a strong buy in my Gusher’s portfolio and it’s an aggressive position. I have faith in the performance of this company because so far, they’ve cleared every hurdle and then some. And the takeover potential here could handily reward investors with a 300% return on the money!”
I’ll wager that here we’re looking at Paladin Energy (PDN at home in Australia and in Canada, PALAF on the pink sheets). This one has been on fire for almost a year, it has been rumored by others recently to be a Chinese acquisition target, but it’s also often mentioned as an acquirer, especially with their newly higher share price. They do have projects in Namibia and Malawi, and are working to advance at least one mine in Australia, and investors still seem quite enthused despite the fact that their recent production numbers were a little bit light, but I know little else about them.
So … there you have it, a handful of interesting names in the energy space, all of which have moved up rather quickly during this recovery in the oil price and in the stock markets — would they be a better buy after a pullback, or is it time to jump on now for the rest of Elliott Gue’s expected double as the year closes? That’s your call, of course — it is, after all, your money … but do let us know what you think with a comment below.
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