ARC Resources (ARX-T) top pick from Jason Mann on BNN.ca Market Call Thirst-day Apr 5th @ 1300ET
This pick is a bit of an outlier in that it’s an energy stock in a sector that’s well and truly been left for dead. If we see rotation away from expensive growth stocks and toward more cyclical value stocks, and if we’re in a correction and not the start of a new bear market, then the energy sector may be poised for some positive flow of funds.
ARC is conventional oil and gas producer with assets in the Montney in B.C., and Cardium in Alberta. They’re largely insulated to the AECO pricing problems, which is a key differentiator versus gas peers. It’s a small long for us on a valuation basis. On that metric, it scores in the top 15 per cent of all stocks in Canada, not just among energy stocks.
6.1 times EV/EBITDA, 1.3 times book value, 7.4 times backwards cashflow. They pay a yield of just over 4 per cent, so not the highest in the sector, but with a solid balance sheet and a reasonable payout ratio, the yield is sustainable, which isn’t something you can say about peers.
Its momentum is tough like everyone in the sector, although on a relative basis it has fared much better than others. You don’t have the same operating leverage here,which means they won’t go broke while you wait for a turn.
ARC is a bit of a contrarian pick – small position for now, but one of our top energy picks that will be bigger as the sector turns higher. |
