Oil sand CNQ. In Barron's Roundtable this week, Mr. Giroux says:
"I am equal weight energy. My pick today is Canadian Natural Resources, ticker CNQ, an oil-sands company with a market cap of $73 million. The company produces 1.33 million to 1.38 million barrels of oil equivalent a day. It trades for 12 to 13 times free cash flow, and its free-cash-flow yield is around 8% at current prices.
CNQ’s reserve life is 29 years; the average major oil company’s is nine to 13 years. This means the company doesn’t need to make acquisitions. It can grow production by 3% to 5% a year in a capital-friendly, low-risk way. Here’s another nice thing: CNQ is going to hit its net debt target of 10 billion Canadian dollars [$7.4 billion] by the end of the first quarter. Once that happens, it will start paying back 100% of its free cash flow to shareholders, up from a previous 50%. You’ll get a 4.3% dividend yield plus a 3%-4% reduction in the share count. If the oil price is in the low $70s, you’ll get low-teens returns in the next five years, and at around $80, you’ll get a midteens rate of return. CNQ is one of the best capital allocators I have ever dealt with."
The idea here with this stock is similar to that of my buying CVE -- long-lived assets, company intending to pay back lots of its free cash flow of which it might have plenty. The company is bigger than similar oil sands company CVE, and pays a larger dividend. CVE has a lower p/e though. For me, as I like what both these companies are planning (and they are not the only oil companies saying they will be more investor friendly), I'll maybe reduce possible CVE specific business risk, and now diversify with buys of similar (imo) CNQ. |
