Energy shares a hot play - Some analysts predict 50-per-cent climb in share prices
Calgary Herald, May 19
Chris Varcoe, Calgary Herald, with file from Bloomberg News Service
The oil and natural gas sector continues to be the hottest play on the Toronto Stock Exchange this year, but the looming question is how much steam is left in the engine.
"I'm concerned about what we do for an encore," said Don Patterson, vice-president of equities at Jones Heward Investment Council, which manages almost $13 billion in assets.
"We probably need a little pause here to consolidate the move."
Investors, however, weren't catching their breath Thursday, driving the TSE's oil and gas index up 106.88 points to 7868.20, reaching the highest point in 2 1/2 years.
Since the start of the year, the oil and gas index has rallied 34 per cent, making it the best-performing group of stocks on the TSE 300 this year.
Gas-levered producers led the way Thursday.
Alberta Energy Co. Ltd. was up $1.30 to $61.20, Anderson Exploration Ltd. rose $1.20 to $27.45, while Canadian Hunter Exploration Ltd. climbed $2.45 to a record high of $34.50.
Eight weeks ago, Canadian oil stocks were in the doldrums, but a flurry of takeovers, stellar first-quarter earnings, along with a move by investors out of the high-tech sector, have pumped new blood into the industry.
"We have a momentum play here," said Patterson.
Some mutual fund managers believe the sector is still in the early stages of a bull market.
"A lot of the analysts are saying these stocks could rise 50 per cent in the next year; I think it could be even more," said Joseph Schachter of Schachter Asset Management Inc. "I've been buying Canadian energy stocks for the last couple of days."
Commodity prices have stoked the fires for eager investors.
Oil prices have jumped more than $7 US a barrel since the Organization of Petroleum Exporting Countries forged a deal to increase crude production last March.
Crude for June delivery closed at $30.33 US a barrel Thursday, up $1.01 on the New York Mercantile Exchange.
The price hike has been "fortified by current market fundamentals," said a market alert issued this week by the Canadian Energy Research Institute.
Calgary-based CERI said oil prices are moving up because of low inventory levels and the arrival of the U.S. driving season, which should increase demand south of the border.
"CERI does not expect the price of (benchmark oil) to surge past $30 a barrel in any sustained way, barring any major supply disruption," the organization said.
While consumers are now paying more at the pump for gasoline because of high oil prices, producers are set to reap bigger profits.
Meanwhile, natural gas remains on a roll after a new report showed U.S. inventory levels continued to fall this week, raising the spectre of possible shortages later in the year.
Alberta spot gas climbed to $4.45 per gigajouleThursday, the highest sustained price since the commodity was deregulated in 1986.
Given these factors, energy analyst Peter Linder of Harris Partners in Calgary believes the TSE oil and gas index will rise another 25 to 40 per cent this year.
And if North America experiences normal weather this winter, Canadian natural gas prices could go higher.
"Natural gas is blowing the doors off the market," said analyst Wilf Gobert of Peters & Co. "Americans are buying Canadian stocks like there's no tomorrow."
Gobert expects the TSE oil and gas index will reach an all-time high, breaking the previous record of 8031.57 set in October 1997.
Patterson is more cautious, predicting big-cap stocks have another 14 per cent to rise, while mid-cap stocks (with a market capitalization between $250 million and $1 billion) should increase about 11 per cent.
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