North American Portfolio Strategy: Martin Roberge has put out an interesting piece comparing this week’s rout of Canadian energy stocks with the September 2007 episode when the Alberta government suggested changes to the royalty structure. Needless to say all anyone can talk about in Alberta over the last few days is the demise of the (formerly) Prentice-lead PC dynasty, and the rise to power of a party that has radically different views on proposed pipelines, corporate taxes, royalty structures, environmental regulations…you name it! Martin’s work concludes that trying to raise royalties during a low commodity price environment might be easier said than done. Canadian energy stocks may have already accounted for the NDP factor.
US Equity Strategy: Tony Dwyer takes a look at the latest comments from US Fed Chair Janet Yellen. Tony says the statements are seemingly rational as they note high equity valuations, and that interest rates will jump upon a return to “normalization”. The uncertainty of timing around a Fed rate hike has kept US markets in consolidation mode for months now. While a surging US $ has kept the Fed on the sidelines to-date, the dollar has pulled back over the last few weeks, giving the Fed some wiggle room on rates it may not have enjoyed before. What’s all this mean? More uncertainty. A slight rise in the Fed funds rate could prove to be the catalyst for the long-awaited (and some would say far overdue) correction in US markets. Tony goes on to note that there hasn’t yet been a signal to warrant a more aggressive stance with stocks – they haven’t moved up enough to signal a new break-out, nor have they dropped enough to be deemed “oversold”. As Tom Petty said, the waiting is the hardest part!
Canadian E&P Research: Dennis Fong joined Canaccord Genuity a few months ago and has launched his initial coverage on 10 Canadian E&P names. An interesting time to start your new role as an energy analyst! The selection criteria for his coverage list notes an emphasis on strong balance sheets, a track record of execution, and long-term growth visibility. Dennis’ Top Pick is Buy-rated Vermilion Energy (VET). Report attached.
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