Oil Stocks are Undervalued

I Have been loading up on oil stocks lately because of record low valuations. Oil companies are a screaming buy right now. so cheap that the Chinese are willing to pay more than double the share price for Daylight Energy. 

from CIBC  analyst 

We view the sector's risk/reward as extremely compelling. The large caps

are only 13% off their lows reached in the 2008/09 financial crisis and the

sector is discounting only ~US$70/Bbl oil LT. Our top large-cap picks are

SU, TLM, NXY, & CNQ

Summary on Suncor: 

 Suncor Energy Inc. (SO–$46.00 Target): Our top pick remains Suncor, which we believe is one of the best-positioned companies against downside commodity risk. We believe the stock has far more defensive elements than the market gives it credit for (most FCF generation and one of the best balance sheets at US$70/Bbl) yet it has been among the worst performers during the recent downturn. Even with the sell-off in oil prices, Suncor is being well supported by high Brent and SCO premiums and exceptionally strong downstream results. Given the company’s operational momentum throughout Q3, we should see record CFPS from the company this quarter. Furthermore, following the recent completion of its major turnaround in the oil sands in Q2, we believe the company is now poised for ~18 months of relatively uninterrupted operations.

Summary on Talisman

Talisman Energy Inc. (SO–US$23.00 Target): In our view, Talisman is better situated now than at any time in the past five-plus years, as the company can lay claim to a well-defined unconventional gas portfolio and is demonstrating substantial and sustainable growth. Additionally, Talisman brings a compelling mix of highimpact exploration that could further extend those five-plus years of international growth visibility. Although Talisman does not have the same defensive characteristics as Suncor in the US$70/Bbl case, we note that even if it did have to cut capex by ~$500 million from our current forecasts, we would still expect ~9% of growth next year – one of the highest growth rates in our group. Additionally, we note that its balance sheet remains very strong even at the US$70/Bbl level. Talisman is also one of the least expensive on P/NAV metric – trading at only 42% of risked NAV. Furthermore, Talisman offers more exploration catalyst potential than any other Canadian large cap, in our opinion, which will be the defining factor for the stock’s performance in Q4/11. The company has high-impact wells planned for offshore Indonesia (South Makassar Strait) and Kurdistan but it is Colombia that most interests us given the lower risk, large size and relatively short cycle times.

Worlds First Fiat Currency

Fiat Money is Not New

The first time fiat money was ever used was in 11th century china, during the Yuan and Ming dynasties. Surprisingly this ended with hyper-inflation and the notes were discontinued in 1455.

That's a nice little fact, but then after more research it seems that every fiat currency ever used throughout history has ended in devaluation and eventual collapse. 

Fiat Money Never Worked

From Louis IV to Napoleon to Post-World War I Weimar Germany .The Treaty of Versailles was essentially a financial punishment placed on Germany to make reparations. The sums of money to be paid by Germany were enormous. (Huge unpayable debt, sounds familiar?)

Can you look at this graph that shows gold in USD and tell me that inflation is around 2% and that we need looser monetary policy because we are at risk of deflation. All that while keeping a straight face?

How does one profit from this eventual collapse?

The general idea is to own leveraged hard assets. of course the best hard asset to fit this bill is real estate. If you don't own your own home go buy one. It is possible that the gold bullion ship has already sailed but you can still find some gold miners trading at some good valuations.

The US dollar is a fiat currency like many before it throughout history, why would it be different this time?

How to profit from the eventuality peak oil using dividend stocks.

I was reading about the peak oil theory over at The Oil Drum and I came to the conclusion that peak oil ( the world reaching it's maximum oil production  as in the highest production amount possible in barrels per day ) will likely happen in our lifetime. ( oil will never run out only become more and more expensive to increase / maintain production levels )

So how does one profit from peak oil ?
Simply put, by investing in oil companies, especially ones with large oil reserves and long life assets.

What does that mean ?

It means oil Juniors like BMO Junior Oil Index ETF If you like the conservative hands off approach and don't mind paying 0.50% in management fees. Investing in Junior producers or exploration companies is a risky business that is why an ETF is a good idea.

What about unconventional oil ?
Yes Oil sands, Cardium, Bakken, etc are all good investments because of the large reserves and long production life.

Do you have any picks ?
My top pick is SUNCOR ( SU ) with 50 year plus reserve life, and a nav of 54$ a share it is trading at a huge discounted valuation. my other picks are DAYLIGHT ENERGY ( DAY ), PENN WEST PETROLUIM ( PWE ) and PETROBAKKEN (PBN) all of which pay dividends.

What if peak oil does not happen ?

Even If peak oil does not happen, some other energy crisis or oil bubble will happen sooner or later. Either escalation of the situation in Syria, Yemen, Iran, The middle east will have another crisis sooner or later.

Disclamer I am long SU, DAY, PWE and PBN. I am often invested in the companies I mention. I believe they are good investments otherwise I would not mention it.

Successful People are Proactive

Every hear you boss say the word proactive, or reaching out etc. These CEO buzz words used to make me giggle. I've met many Entrepreneurs and Business owners. What successful share in common is that they are proactive. They have an idea and they are relentless in going after it..

They follow through with it, by making phone calls assigning it to their employees etc. Then they keep following through by checking up on the progress and hounding the person working on it until the work is done. In other words they go and act on their ideas. They are proactive.

In my opinion being proactive is more important to success than being smart. How many people are smarter than their boss, many. If you look at technology companies you'll find very smart engineers working for some guy with either a business degree or sometimes no degree at all. These proactive dumb dumb's surrounded themselves with smart people and so do not need to be smart themselves. That is why being proactive is more important to success than being smart.

RIM is the next Nortel ? Nope, Not at all, Buy RIM now.

I went to Future shop to check out the playbook. Though I would never spend 600$ on a gadget playbook or Ipad as you can see my previous post. Other people do buy such devices and pay a lot for it. I took a look at the device, played a game of tetris on it, watched some movie previews. it seems like perfectly good tablet. 

I also spoke to my cousin, who is a doctor that does not know anything about investing his money other than buying high MER mutual funds. When I suggested RIM to him he said that RIM is going to go bankrupt like Nortel. so that makes me think that the sentiment is very very negative.

Now here are the reasons why you should invest in RIM at 26$

1. Each share has 5.48$ worth in cash.

2. The remaining 21$ of valuation is 4.3 P / E

For those who do not understand P / E it means assuming that RIM does not grow its earnings 1 cent more, even thought the smartphone sector is exploding. Each share will earn the remaining 21$ in 4.3 years.

This compares with 4.9 P/E for nokia ( RIM is now cheaper than nokia !!! ) and 11.8 P / E for Apple

Here is what The CIBC analyst had to say, with a price target of  65$ :

At these depressed levels, we continue to recommend buying the shares. Our view is that the product transition is now well advanced with delays
already anticipated in the share price. The product refresh will help restart
shipment growth later in F2012.

so to recap, go buy some RIM shares,
you have panic,
you have good valuations
you have experts calling it cheap
you have limited downside

Disclaimer I have a covered call position in RIM

Luck Favours the Prepared

How often do you come across a great opportunity that you cannot take advantage of either because you were fully invested in something else. or because you were too slow to react because of the many distractions that eat up your time.

That is why I believe that being prepared to take advantage of these lucky opportunities that present themselves is just as important as the opportunities themselves. It doesn't matter how great the price of this property because the owner is an ignorant divorcee wife or the panic that is going on with RIM at the moment. If you are not prepared to take advantage of the situation you will not gain anything.

Many people got rich from the recession, Think about it, was it luck? The same opportunities were available to everyone. However only the prepared were able to take advantage of the panic. Now we call them Lucky.

How can you be prepared? It is simple. never be 100% invested. always keep some cash or credit available. you could tie it up for that 3 or 4% returns, or you can sit on it and wait even for 1 or 2 years for that great deal that will give you 20% or 30% returns.

How much money is sitting on the side lines ?

 I was reading a monthly report about Canadian asset management companies, I want to share this graph.

Bulls make money when the market goes up, Bears make money when the market goes down, and Pigs get slaughtered.


There is only 1 type of investor who holds money in a money market fund in an investment managed by an asset manager. The Pig. pigs invest in a money market mutual funds, instead of high interest savings accounts because they don't know better.

And this graph is telling us that the pigs have been deploying their cash. in fact they are holding less cash than before the recession.