₪ David Pescod's Late Edition September 13, 2006
A CONVERSATION WITH ALEX SQUIRES
OF BRANT SECURITIES:
CRUDE OIL $63.97 +0.21
GOLD $589.10 +4.70
TUSK ENERGY (T-TSK) $3.17 -0.18
OILEXCO INC. (T-OIL) $7.01 +0.06
It’s been a pretty ugly September and of course September isn’t
normally pretty, but still the decline in many commodity prices has
been worse than we would have ever thought. Meanwhile, the worries
are out there that with some analysts from big firms such as Morgan
Stanley, suggesting that the commodity bull market is over—one
should rightfully be a little bit concerned.
So we went to Alex Squires, senior partner at Brant Securities for a
little bit of hand holding or at least hoping he would still be one of the
bulls remaining in this commodity story. Apparently, we are not disappointed.
Back in the year 2000, Squires reminds us that he became
a big believer that oil would be strong for some time down the road.
The sector was suffering from lack of re-investment in the sector, under
capitalization and he thought the supply/demand imbalance could
last for some time, possibly a decade or two.
Now six years later, he says, “I don’t see an end to the higher price
as it doesn’t seem to be deterring demand at all.” In terms of demand
he suggests, “Indian, China and North America continue to see increased
demand and a big chunk of that is coming from the ever
growing automobile market.”
When we ask Squires about this talk about the end of the commodity
boom, he reminds us about the headline article in
“The Economist” many years ago, when oil dropped under $10.00.
The Economist suggested oil was on its way to $5.00. Never happened.
Same thing could happen here as far as suggestions by some
brokerage houses that the commodity run is over.
Okay, we say. What do you think about commodities for the next
while and where you peg oil, natural gas and gold for Christmas of
this year and Christmas for next year, cutting to the chase? We have
to admit that oil and gas is Squires forte, but why not toss gold in
there to see where he stands...
As far as gold, he figures $650 this Christmas would be about right,
but obviously, he is bullish on that commodity as he figures $900 for
Christmas next year.
Oil he doesn’t see running away anytime soon, predicting $65.00
for this Christmas, but a pretty aggressive $85.00 target next Christmas,
which shows a decidedly bullish bent.
When we get to natural gas, we get to something that’s been creating
big problems in the oil and gas sector for the last few weeks and months.
For the next few months, considering the big supply in inventory, he
doesn’t see a very pretty story for natural gas prices for September/
October and suggests “a pretty shaky market.” “But it won’t last, as we
get into winter” he suggests.
For those who really want some hand holding, he comes up with some
numbers that could please the longer term gas players. “Look at the
longer term strips for two and three years out” he suggests. There you
are looking at prices of $8.00 or $9.00 an mcf which is decidedly better
than current prices. “It’s a short term concern” he says. (Wow! We hope
he’s right about that!)
So as far as his prediction for natural gas, he can see $7.00 this Christmas
and $8.00 next Christmas. Not the prices one would have hoped for
after the huge numbers of last year, but certainly better than what we are
seeing today.
As far as the last couple of weeks and months, we’ve seen in the market,
Squires suggests he hasn’t seen anything like it as far as extremes go
until you go back to 1980. “We’ve seen a healthy pause in the market after
a year of ups and downs of one extreme to the other. Every month
seems to have had its ups and downs and it has persisted through much
of the last few months.” Eventually, he suggests we will see a stabilization
(and it can’t come soon enough).
Part of the concern is the higher prices, he suggests which has affected
markets, but so far it hasn’t much affected global demand for many
of the resources.
Then of course, we get our favorite part of any interview, asking for
favorite stock picks. One story he is quite fond of is Tusk Energy, which he
suggests isn’t so much a current cash flow story, but is based on their
huge land base and one that they are drilling as fast as they can. The
building of all-weather roads in some areas will make quite a different to
them and he suggests their current 170 million market capitalization could
easily, down the road, be closer to 400 to 500 million.
Another favorite story and one that he was a pioneer on ROB-TV of
talking about is Oilexco. He figures it’s a $10.00 to $15.00 story down the
road, probably around $12.00 in the first quarter of next year. They will be
drilling Shelly, Sheryl, Disraeli and Kildare and while price targets depend
somewhat on results, obviously, he thinks some of them are going to
work out. Then there is Laurel Valley. He suggests that the odds of success
at Laurel are probably only 10% to 15%. It’s such a big target that
when they start drilling it, it should create some interest.
Then we ask the one question, we ask a lot these days of market veterans,
if you could only buy one stock today, what would it be? Oilexco is
still his answer and he suggests that later next year, $15.00 to $20.00
would be his target.
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