Looks like the momentum appears to be shifting sectors.
March 20, 2000
StockHouse News Desk
By Crystal Quast (cquast@stockhouse.com)
StockHouse Columnist
Stock Alert Looks Ahead: Oil And Gas, Base Metals Get Ready To Spin Heads
Last week's frightening downturn in the markets led by the high techs and biotech stocks is something many industry insiders have been waiting for. With the phenomenal returns being charted since the new year, one broker said the sell-off shouldn't have come as a surprise to anybody. Now everybody is wondering if last week's carnage is the signal of a new trend, one where the techs no longer rule the roost, or just a pit-stop on the way to even higher valuations.
Toronto, ONT, March 20 /SHfn/ -- Even with the threat of a high-tech correction, a good tech story is hard to resist. Carbiz [V.CZ] is one stock that has had a lot of buzz surrounding it recently. The stock lost some ground last week after a recent run-up. Traders will be watching for the company to make a major announcement early this coming week. StockHouse feature writer Carol Hood suggested the news could relate to either a strategic alliance or an acquisition of some sort. Company officials refused to comment on the possibility of a news release in the coming days.
Another high tech story that felt the heat last week was eDsipatch.com Wireless Data [V.EWD]. After announcing an alliance with Nextel [NXTL] in February, the stock roared to new heights in a matter of days. It took a turn for the worst with the rest of the sector last week, but industry watchers say the company may be close to releasing another announcement that could rock it higher. Analysts like the stock; Barry Richards at Sprott has a 'strong buy' recommendation on the stock, while Rob Millham at Research Capital rates it a 'speculative buy'.
The question on many people minds may not be on the next big high-tech story, but where the money will move if it's out of the tech sector. One broker told StockHouse he's not sure if last week's late stage recovery will last or if another slide is imminent. He did say if there is a correction in the market and there is rotation of money out of one sector and into another, "It will happen so fast, heads will spin."
One obviously ignored sector that investors may want to take a closer look at is oil and gas.
Oil and gas stocks have suffered as investors have virtually ignored them in favour of high tech high-flyers. Unprecedented oil and gas prices are causing consumers to line up for blocks (and hours!) in Toronto to fill their tanks at a Canadian Tire gas station offering a discounted price. Even if OPEC increases production, one analyst thinks, it won't be enough to ease prices at the pumps. Jeff Fiell at Canaccord Capital in Calgary is predicting OPEC will increase production by 2 million barrels a day. But that number is still shy of the amount needed to start bringing prices down significantly. Fiell suggests the magic number is closer to 2.5 million barrels per day. Keeping that in mind, Fiell says, "money should flow into this sector, looking at the bargain basement prices on some of these stocks," and is looking for an average 50% lift in the shares of major oil and gas producers. Fiell was good enough to let StockHouse in on his three top picks in this sector.
Berkley Petroleum [T.BKP] is currently one of his top picks with its long term potential at East Lost Hills. The company announced in February that it had substantially completed its purchase of Symmetry Resources Inc., a publicly-traded oil and natural gas exploration and production company headquartered in Calgary, Alberta. Fiell's price target on Berkley is $17. He also mentioned Cypress Energy [V.CYZ.A] as a top pick with a target of $9. Genesis Exploration [T.GEX] is also considered a great oil and gas play by Fiell, who has a $15.50 price target on the stock.
Another broker mentioned Vermillion Resources [T.VRM] for investors looking for an undervalued oil and gas play that is poised to blow higher. The company has good cash flow, and is "definitely one to watch." This same broker also likes Talisman Energy [T.TLM] and Penwest Petroleum [T.PWT] in the sector, but said he is really keeping an eye on Ivanhoe Mines [T.IVN]. Robert Friedland, of Diamond Fields glory, is involved in the producing copper mine in Myanmar. The company recently released details of its ongoing exploration program in Northeast Kalimantan, Indonesia. To date, Ivanhoe has drilled 41 core holes at Seruyung. Preliminary results indicate a resource of approximately 350,000 ounces of gold.
Another broker thinks if the money starts moving anywhere, it's going to be in the base metals.
Inco [T.N] bounced higher last week as investors looked for base metal value plays that could really move higher. The company announced a major deposit at Kelly Lake near Sudbury Ontario that could yield higher concentrations of nickel and platinum group metals than is currently mined by Inco in the province. National Bank analysts John Lydall and Kerry Smith are calling Inco one of their top picks in the base metals. Raymond Goldie reiterated his 'buy' recommendation on the stock. Manford Mallory at Research Capital said "I've been totally shocked at the way (Inco) has performed given the price of nickel in recent months," adding that nickel inventories are low, demand is up, and nothing is about to change anytime soon.
Zinc inventories are currently at their lowest levels since 1992. Strong demand in Europe has caused a decline in inventories, and analysts are not expecting the price pressure to let up in the near future.
Breakwater Resources [T.BWR] may be one zinc company poised to finally move higher, and take advantage of high zinc prices. The company announced last week that it would buy two zinc mines from Cambior [T.CBX] for $48 million. One analyst likes the deal, considering the buy price is less that three times cash flow, and that Breakwater will be able to increase its annual production by over 30%. Last year, Breakwater produced 383 million pounds of zinc, and would be able to add the 145 million pounds that Cambior's mines produced. George Topping at Sprott Securities reiterated his 'buy' recommendation on the stock. Dundee is also calling the stock a buy, as is National Bank Financial, and Scotia Capital Markets. Price targets on the stock range from $4.50 to $6.00. |
