Connect with us

Precious Metals

Follow the Money: A Guide to Gold Technical Analysis

Want to know more about gold technical analysis? Here’s a breakdown of what it is and how it could help your portfolio.
The post Follow the Money: A…

Share this article:

Published

on

This article was originally published by Investing News Network

While gold is not seen as a volatile asset, it is also not immune to gains and losses within the market. For this reason, understanding the trends that move the gold price in either direction is important for investors with this precious metal in their portfolio. 

By understanding gold technical analysis, market participants will have the tools they need to make more informed decisions when trading the yellow metal.

Here the Investing News Network (INN) examines what gold technical analysis means, the tools that are used to conduct this analysis and why it can be an important asset for investors to gain prosperity in the gold space.

 

Gold In 2021 - Will It Be Another Wild Ride?

   
What's Next For The Gold market?
Our Exclusive Report Provides You With All The Information Needed To Make An Informed Decision.
 

What is gold technical analysis?

In order to understand why gold technical analysis is important, let’s first break down what it is. Technical analysis forecasts the direction of prices through the study of past market data, which is primarily done through exploring price and volume.

“I think (technical analysis) provides an objective viewpoint, removes the emotion and it gives us an opportunity to really see,” John Roque, managing director of Wolfe Research, told INN. “Especially if we take a longer-term look at the history of the particular item and ask — has it acted like this before, and what has it done when it has acted like this before?”

Roque also told INN that technical analysis revolves around determining trends. So, since gold moves three ways — up, down and sideways — technical analysis is done through an either upward trend, downward trend or sideways trend perspective.

An uptrend deals with the analysis of past price increases that may give evidence for future gains, while a downtrend speaks to declines that the yellow metal faced in the past and how they could indicate further slumps. As for sideways trends, this generally means that gold prices hover around a certain level for a certain amount of time and this trend then suggests whether a rally or decline should be expected in the future.

It is important to keep in mind that due to different market perspectives — long term and short term — the yellow metal can actually be viewed as experiencing more than one trend.

“From a long term perspective you might observe an upward trend, while if you zero in on a particular part of this trend (therefore switching to a short term perspective) it is possible that you will notice a downward trend,” Sunshine Profits noted.

 

What's On The Horizon For Precious Metals In 2021?

   
Trends, Forecasts, Expert Interviews and more! All The Answers You Need To Make An Informed Decision.
 

Three important components of gold technical analysis

Technical analysts attempt to identify gold price patterns and trends within the market and then make an effort to use that data to make future price predictions, which can ultimately bolster an investor’s portfolio. Although price is undoubtedly the most crucial aspect of technical analysis, momentum and sentiment are also important components in understanding gold’s movements.

Price:

Most technical analysts will agree that price is the most important factor in what they do and how they track gold trends. In a recent presentation made by Roque, he stated, “it’s no secret that price is one of the three most important inputs for technical analysis.”

“There are, of course, other important inputs for technical analysis — like indicators, but they are, for the most part, derivatives of price — but any indicator viewed in isolation without considering price is sort of like saying that the crime fighting duo of Batman and Robin was better as just Robin,” he added.

The method of tracking the price of gold is known as price action. Investopedia states, “Price action is the movement of a security’s price plotted over time. Price action forms the basis for all technical analysis of a stock, commodity or other asset chart. … Many short-term traders rely exclusively on price action and the formations and trends extrapolated from it to make trading decisions.”

Price action is interpreted through the use of charts that plot prices over time. Analysts then use these charts as a way to help them determine trends, breakouts and reversals of the yellow metal within the market.

Roque believes that, when tracking the price of gold, it is important to research what it has done in the past.

“I think (looking at historical gold prices) is wholly appropriate for investors to consider. We can look at gold’s price today and we don’t have any idea of gold’s price historically. So, I think it is important to consider the current price relative to its history,” he said.

While Roque is the first to admit that understanding gold’s price history will not 100 percent determine where it is going, it does act as an informative base for which direction investors should expect it to move.

“What has gold done in prior advances? It’s very easy to determine that,” he said. “And then we come to some average or median advance, and we say, could gold do that? Maybe it can, maybe it can’t. But at least we have a basis for some future observation for gold.”

 

Silver Price Forecast - What Happened And Where Do We Go From Here?

   
Our Jam-Packed FREE Silver Report Highlights Key Insights, Exclusive Interviews And Promising Stock Picks!
   

Momentum:

While momentum still deals with price, it functions in the form of measuring the speed or velocity of changes in the price of gold.

Tracking momentum is beneficial for analysts when they are trying to determine the strength or weakness of gold’s spot price. It is worth noting that momentum is generally more useful during rising markets than during falling markets. This is because markets rise more often than they fall.

Essentially, momentum or the momentum indicator compares where the current price of gold sits in relation to where the price was in the past. The calculation of momentum is done by taking the current price of the yellow metal and subtracting it by a historical price.

By following this method, it is safe to say that, if the current price is higher than the price in the past, then the momentum indicator is positive. However, when the current price is lower than the price in the past, then the momentum indicator is negative. This indicator can alert market participants to whether they should buy or sell the precious metal.

Sentiment:

This aspect of technical analysis puts the spotlight on investors because it is how they feel about a particular commodity that helps shape and shift its value.

Sentiment refers to the feeling or tone of a market, which is evident through the activity and price movement of gold as it is traded within that market. Technical analysts often rely on market sentiment due to the fact that it influences the technical indicators.

As an example, market sentiment can be either high or low when the US Federal Reserve heights or drops interest rates. Since the yellow metal is also affected by the movements of the US dollar, things such as geopolitical tensions or a thriving economy are some of the factors that can influence sentiment.

As Investopedia points out, analysts then use those technical indicators to “measure and profit from short-term price movements often caused by investor attitudes toward a security.”

Not all investors follow the sentiment. In fact, contrarian investors prefer to trade against the current sentiment, selling when others are buying and vice versa.

 

Gold In 2021 - Will It Be Another Wild Ride?

   
What's Next For The Gold market?
Our Exclusive Report Provides You With All The Information Needed To Make An Informed Decision.
 

What is the value of gold technical analysis for investors?

Since technical analysis is a way to glean a better understanding on where gold could be headed in the market, it can be an important component for investors who currently own gold or who want to add it to their portfolio.

For Roque, he says that understanding where gold prices could go is helpful to investors when they can compare where prices have been to where they currently are to get a sense of gold’s “base” as well as the moment it completes its time resting on that base.

As an example, Roque used gold’s August 2019 rally, when the safe haven metal moved above the US$1,400 and US$1,500 per ounce levels.

“When gold got above US$1400, gold had completed, in our parlance, a Brobdingnagian base. So, that’s a word that we use, nobody else uses it. Of course, Brobdingnagian comes from Gulliver’s Travels, right? Gulliver visited the island of Brobdingnag, which is where everybody was huge or everything was huge and of course he visited the island of the Lilliputians where it was the opposite,” he noted. “So, we like to use the word Brobdingnagian, the adjective, to describe the base. So, gold went sideways, albeit in an aggravating fashion for six and a quarter years. By getting above US$1,400, it completed this big base.”

The managing director added that, when gold completed its Brobdingnagian base, gold’s fundamental story was manifested on the move above US$1,400 (or whichever price is being used as a financial instrument in the particular moment of analysis).

All of that is to say that technical analysis aids investors who carefully watch the price of gold for indicators of bullish or bearish markets; if they should buy, hold or sell the yellow metal; or what the perfect time may be to get in or out of the gold market.

This is an updated version of an article first published by the Investing News Network in 2019.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

What's On The Horizon For Precious Metals In 2021?

   
Trends, Forecasts, Expert Interviews and more! All The Answers You Need To Make An Informed Decision.
 

The post Follow the Money: A Guide to Gold Technical Analysis appeared first on Investing News Network.

Economics

US indices close in red as tech, consumer stocks slump

Benchmark US indices closed in red on Tuesday September 28 after broad losses across stock segments and investors weighed weak consumer confidence data…

Share this article:

Benchmark US indices closed in red on Tuesday, September 28, after broad losses across stock segments and investors weighed weak consumer confidence data, raising concerns about an economic slowdown.

The S&P 500 was down 2.04% to 4,352.63. The Dow Jones fell 1.63% to 34,299.99. The NASDAQ Composite fell 2.83% to 14,546.68, and the small-cap Russell 2000 was down 2.25% to 2,229.78.

Consumer confidence fell further in September, following two consecutive months of decline in July and August. The consumer confidence index of the Conference Board, a non-profit organization, declined to 109.3 points from 115.2 in August.

Last week, the Federal Reserve had signaled that it might start withdrawing its asset-buying program in November, along with an interest rate revision by next year.

The assessment raised optimism of a sustained economic revival since it had earlier noted in statements that its decision would depend on the overall economic recovery.

Meanwhile, the 10-year Treasury bond yields rose to a three-month high on Monday, leading to a sharp retreat in mega-cap technology stocks. Yields rose 4.18% to 1.546.

Barring the energy segment, all remaining 10 sectors of the S&P 500 stayed in the negative territory. Technology and consumer discretionary stocks were the biggest losers.

Stocks of IHS Markit Ltd. (INFO) declined 4.79% after reporting quarterly results on Tuesday. Its revenue increased by 10% YoY to US$1.18 billion in Q3, FY21, while its net income came in at US$161.3 million, a decline of 1% from the year-ago quarter.

The FactSet Research Systems Inc. (FDS) stock surged 4.03% after reporting its fourth-quarter and full-year FY 2021 results. The Q4 revenue rose 7.4% YoY to US$411.9 million, while full-year revenue was US$1.59 billion, an increase of 6.5% YoY.

Ford Motor Company (F) stock rose 1.31% a day after it announced to spend US$11.4 billion in partnership with Korean battery manufacturer SK Innovation to build new EV plants.

In technology stocks, Apple Inc. (AAPL) declined 2.04%, Accenture plc (ACN) fell 2.76%, and Adobe Inc. (ADBE) declined 3.37%. Microsoft Corp. (MSFT) and NVIDIA Corporation (NVDA) fell 2.61% and 3.38%, respectively.

In the consumer discretionary sector, Nike, Inc. (NKE) fell 1.70%, McDonald's Corporation (MCD) fell 1.79%, and Starbucks Corporation (SBUX) sank 1.3%. Chipotle Mexican Grill, Inc. (CMG) and Ross Stores, Inc. (ROST) ticked down 3.23% and 1.38%, respectively.

In energy stocks, Exxon Mobil Corporation (XOM) increased by 1.67%, ConocoPhillips (COP) rose 2.58%, and EOG Resources, Inc. (EOG) gained 1.03%. Pioneer Natural Resources Company (PXD) and Devon Energy Corp (DVN) advanced 1.62% and 1.31%, respectively.

Also Read: Explore seven healthcare stocks that are under US$50

Also Read: Cloudflare (NET), Adobe (ADBE) stocks retreat in a sea of red

Technology and consumer discretionary stocks were the biggest losers. 

Also Read: Ford (F), Toyota (TM) stocks in focus after positive business update

Futures & Commodities

Gold futures were down 1.06% to US$1,733.45 per ounce. Silver decreased by 1.03% to US$22.460 per ounce, while copper fell 0.98% to US$4.2475.

Brent oil futures decreased by 1.65% to US$77.42 per barrel and WTI crude was down 1.48% to US$74.33.

Bond Market

The 30-year Treasury bond yields was up 4.99% to 2.095, while the 10-year bond yields rose 4.18% to 1.546.

US Dollar Futures Index increased by 0.38% to US$93.740.

Continue Reading

Articles

‘Dangerous’ Jerome & ‘Doomsaying’ Janet Spark Bond, Stock, Bullion, & Bitcoin Battering

‘Dangerous’ Jerome & ‘Doomsaying’ Janet Spark Bond, Stock, Bullion, & Bitcoin Battering

Fed Chair Jerome Powell (accused of being…

Share this article:

'Dangerous' Jerome & 'Doomsaying' Janet Spark Bond, Stock, Bullion, & Bitcoin Battering

Fed Chair Jerome Powell (accused of being a "dangerous man" by Sen/ Warren) seemed to hint today that the shift in inflation is not just 'not transitory' but could be 'structural', prompting many to adjust expectations even more hawkishly for Fed action.

Source: Bloomberg

There is now a greater than 50% probability of rate-hike in September 2022...

Source: Bloomberg

Treasury Secretary Janet Yellen began her testimony today by warning of all the worst parts of the bible occurring if Republicans don't vote to increase the debt limit by October 18th (which Democrats can do all on their own but are loathed to be pinned to) - "likely spur major financial collapse". That sent Debt Ceiling anxiety soaring...

Source: Bloomberg

Is it different this time?

hhmm...

Either way, both of the events above helped spike Treasury yields, especially at the long-end...

Source: Bloomberg

And the surge in yields extended the pain for growth stocks relative to value, but as yields really accelerated higher, equity traders got spooked and puked (dumping at the European open and US open). Stocks bounced off their lows around 1430ET (margin call time) but Jeremy Grantham's appearance on CNBC, calling the market a spectacular bubble coincided with another leg lower in the major indices..

This was the S&P worst day since -2.45% on 2/25

All the major indices tested/broke key technical levels today:

  • S&P broke back below 50DMA, testing 100DMA

  • Nasdaq broke back below 50DMA, testing 100DMA

  • Dow broke back below 50DMA and 100DMA

  • Russell 2000 broke back below 50DMA

The relationship between the Russell 2000 and Nasdaq 100 pair has tested in a serious band of resistance...

Growth stocks were clubbed like a baby seal again and while value stocks suffered, the divergence remains...

Source: Bloomberg

Risk Parity Funds are starting to crack amid the surge in both realized and implied vol for stocks and bonds. We are heading for the worst month for risk parity since March 2020...

Source: Bloomberg

FAAMG stocks were FUBAR today, breaking down to their lowest in over 2 months...

Source: Bloomberg

"Most Shorted" Stocks were slammed lower today, erasing all of yesterday's squeeze gains...

Source: Bloomberg

Tech stocks were worst today and Energy best (Financials lagged despite higher rates)...

Source: Bloomberg

The moves in Treasury yields were almost entirely driven by higher inflation breakevens, with 10yr breakevens up +3.7bps. That echoed similar moves in Europe, where the German 10yr breakeven (+4.7bps) hit a post-2013 high of 1.653%, and their Italian counterparts (+3.9bps) hit a post-2011 high. The biggest move was in the UK however, where the 10yr breakeven (+13.2bps) reached its highest level since 2008, which comes amidst a continued fuel shortage in the country, alongside another rise in UK natural gas futures, which were up +8.20% yesterday to £190/therm, exceeding the previous closing peak set a week earlier.

Source: Bloomberg

Bear in mind that the current move is a 1.4 sigma shift. If it gets to a 2.0 Sigma move, then shit breaks fast...

Cryptos were clubbed like a baby seal too today with Bitcoin sliding back to the weekend's post-China-ban lows at around $40k...

Source: Bloomberg

The dollar soared higher again today, breaking above the August highs to its highest level since Nov 5th...

Source: Bloomberg

Oil prices (WTI) soared to near the July cycle high, as Biden's call to OPEC appears to have failed...

Source: Bloomberg

NatGas had a wild day, soaring over 10% once again at its peak today, before plunging back into the red and then bouncing back towards the close to end higher...

The dollar's gain was gold's loss today as the barbarous relic extended its slide lower...

Copper's recent outperformance of gold continues to suggest that nominal yields have a long way to go to catch up to reality (10Y ~3.00%!)...

Source: Bloomberg

And finally, none of this is helping Biden's approval rating which, after a small bounce post-Afghanistan, is back at its term lows...

Source: Bloomberg

Tyler Durden Tue, 09/28/2021 - 16:01
Continue Reading

Precious Metals

The Best Canadian Oil & Pipeline Stocks for September 2021

Canadian oil and gas stocks, whether it be Canadian pipeline companies, oil producers or natural gas producers, are faced with economic conditions that…

Share this article:

Canadian oil and gas stocks, whether it be Canadian pipeline companies, oil producers or natural gas producers, are faced with economic conditions that have simply never been seen before.

COVID-19 wreaked havoc on all Canadian energy companies as the demand for oil plummeted, and cash flow was severely impacted.

And as these once popular Canadian stocks fell, dividend yields rose and they became attractive opportunities. Many who knew the industry was beat down loaded up on oil and gas stocks, and are seeing some nice returns. 

So, are Canadian oil stocks and Canadian pipeline stocks still worth it today?

In short, yes they are. There are numerous options when it comes to Canadian energy companies with a strong focus on oil.

Although we are expected to hit peak demand by 2030 according to some experts as the transition to renewable energy companies continues, we will still be producing the commodity for the foreseeable future.

With this, we will need oil companies to produce the commodity and pipelines to ship it.

As such, you'll see a mix of Canadian pipeline stocks, Canadian oil stocks and our winner on this list is actually a Canadian natural gas producer that held up admiringly well in 2020 and continues to do well in 2021.

These oil stocks are still trading at discounts, and are currently facing significantly volatility. If you're new to buying stocks, volatility is simply the overall velocity of the movements in a stocks price.

However, as a short to mid term play, we expect most of these stocks to outperform on a re-opening of the economy, as oil demand due to travel restrictions easing will most certainly launch.

**Bonus** - An alternative option for those looking for broad oil exposure in XEG.TO

Yes, we know this post is supposed to be a list of the best Canadian oil and gas stocks. However, there is no doubting the fact that it may be wise to gain broad exposure to the industry rather than buying individual producers and hoping they're successful.

So how do you get this exposure on a producer level? Well, one of the most popular ways is buying the iShares S&P/TSX Capped Energy Index ETF (TSE:XEG). This is an ETF that tracks some of the largest oil producers in the country, including Suncor Energy, Cenovus, Tourmaline, Canadian Natural Resources and more.

The ETF has $1.4B in assets under management and has fees of 0.61%. You'll have no problem trading shares either, as daily volume often exceeds 1.2 million shares.

You won't get any pipeline exposure out of this ETF, so it is important to keep reading this post, as it does include some!

With that being said, lets move on to the top oil and gas stocks to buy in Canada today.

What are the best Canadian oil and pipeline stocks to buy today?

5. Parkland Fuel (TSE:PKI)

The energy sector is broad, and one segment that investors often forget about is the distribution and marketing of fuels and lubricants. Best to pay attention, as there are some strong companies in this industry.

One such company is Parkland Fuel (TSE:PKI). Parkland is one of the countries largest independent suppliers and marketers of fuel and petroleum products. It also has a leading network of convenience stores.

Parkland has been one of the best growth stocks in the energy sector over the last half decade.

It has grown revenue and earnings by an annual average of 20% and 50% respectively over the past five years.

How was the company achieved such an impressive growth record?

Parkland is a serial acquirer and has been scooping up the competition at a significant pace. Over the past three, it has closed on six transformative acquisitions.

Unfortunately, the pandemic impacted the company’s bottom line. There is less traveling and working from home has impacted the demand for fuel. As a result, revenue dropped by 24% in fiscal 2020.

Not surprisingly, its share price has struggled well into 2021.

However, the impact is expected to be temporary and the worst appears over. Once demand for fuel rises, Parkland will certainly rebound. In fact, it's rebounding as we speak and investor simply aren't taking note.

In fact, it is trading at a steep discount (38%) to analysts estimates which have a unanimous ‘buy’ rating and an average one-year target of $49.87 per share.

In fact, it is trading below even the lowest street target of $43.00 per share.

Simply put, this is a rebound play that doesn't quite have the "reopening" priced into, much like a lot of other reopening stocks.

As investors wait for the rebound, they can also enjoy a safe and reasonable 3.45% yield from this Canadian Dividend Aristocrat which has raised the dividend for seven consecutive years.

10 year performance of Parkland Fuel vs the TSX

TSE:PKI vs TSX

4. Canadian Natural Resources (TSE:CNQ)

CNRL stock

We understand – it is very difficult to invest in oil producers.

There is a notable shift to renewables and the demand for oil cratered during the pandeimc. However, demand is now rebounding and although it may not reach 2019 levels for years, declining production will support prices.

There are similarities between current oil commodity crisis and what transpired with gold in the early 2010s. At that time gold stocks were highly leveraged which led to significant write-downs, dividend cuts and bankruptcies.

Sound familiar? The winners in the years that followed were those with low leverage and low costs.

In the oil industry, there is arguably no better operator than Canadian Natural Resources (TSE:CNQ). The company is one of the lowest cost producers and can maintain positive cash flows despite low oil prices.

On a corporate level, CNQ’s break even part is approximately ~$30/barrel – the lowest among oil sands producers.

What does this mean exactly? It means that the dividend is sustainable at WTI prices above this price point. In fact, the company came out with a dividend raise in early March of 2021, a double digit raise of 10.6%. When numerous junior producers and even one of the largest producers in the country Suncor were cutting dividends, Canadian Natural was boosting it.

The company is now yielding in the low 4% range and unlike some of the majors, has been able to navigate the crisis without a cut. It also has a 20-year dividend growth streak, which makes it one of the best income stocks in the country.

If oil continues to however around US$70/barrel then CNQ is one of the best options in the industry. If oil rises on a surge in demand? In this case, Canadian Natural would benefit significantly.

Simply put, this is a low cost, disciplined operator that is one of the best producers in the industry.

10 year performance of Canadian Natural vs the TSX

TSE:CNQ Vs TSX Index

3. TC Energy (TSX:TRP)

TC Energy Logo

When it come to energy stocks, some of the best in the industry are midstream companies. Why?

They are less susceptible to the price of oil. Although they are vulnerable to lower throughput volumes, and bankruptcies from some of the smaller oil & gas companies, earnings are still underpinned by long-term contracts. One of the industry’s best is TC Energy (TSE:TRP).

In 2020, TC Energy was shaping up to be the best performing pipeline of the year, until it fell drastically in price to close out the year.

I think this was primarily from the cancellation of the Keystone pipeline, which has been all but an albatross for the company for some time now. In my eyes, the cancellation doesn't mean much. The company still has over $27 billion in projects in its pipeline, pun intended.

Furthermore, it is one of the best performing pipelines in the country. The company’s status as one of the premier midstream plays has enabled it to weather the current crisis better than most.

Specifically, how has the current crisis impacted the company?  

“Despite the challenges brought about by COVID-19, our assets have been largely unimpacted” – a strong statement by leadership.

Furthermore, outlook remained unchanged as 95% of EBITDA is underpinned by regulated assets and/or long-term contracts.

Despite thoughts to the contrary, TC Energy is also expected to grow at a decent pace. Through 2023 it expects to spend $37 billion on critical infrastructure across North America.

The company is also one of the premier income stocks on the TSX Index. It pays an attractive yield north of 5.5% which is underpinned by strong cash flows. In fact, the company re-iterated dividend growth guidance of 8-10% annually through 2021.

Post 2021, it expects the dividend to grow at a compound annual growth rate of 6% at the mid-range.

Without a doubt, TC Energy deserves a mention whenever we talk about the top energy stocks in the country.

10 year performance of TC Energy vs the TSX

TSE:TRP Vs TSX Index

2. Enbridge (TSE :ENB)

Enbridge dividend

We could have just as easily swapped Enbridge (TSE:ENB) and TC Energy in our rankings. We want you to keep this in mind, both of these pipelines are interchangeable in our eyes. So don't fret about one ranking higher than the other.

Much like TC Energy, Enbridge is one of the best midstream companies in the country. What gives Enbridge the slight edge? The dividend.

At 25-years, Enbridge has one of the longest dividend growth streaks in the country.

It also currently yields a hefty 6%+, which is above historical averages. Is the dividend safe?

The dividend accounts for only 70% of distributable cash flow which is inline with the company’s target. As such, there is no reason for concern here.

Beyond 2022, Enbridge expects the dividend to be grow inline with DCF which is expected to grow by 5-7% annually. The company has also deleveraged, and current debt loads are within its targeted range of 4.5 to 5.0x EBITDA.

The good news? Enbridge’s leverage ratio is expected to drop below this level in 2021.

As of writing, Enbridge is currently trading at only 16.3 times forward earnings and 1.8 times book value. Both are considerably below the company’s five-year average of 19.44 and 2.33 respectively. It is also trading at a 8% discount to analysts one-year price target of $54.92 per share.

Overall, the company generates considerable cash flow and is expected to grow the business in the high, single digits. Can it achieve this growth?

Considering the company has only missed expectations once in the past three years, Enbridge is also one of the most reliable energy stocks on the Index in terms of execution.

10 year performance of Enbridge vs the TSX

TSE:ENB Vs TSX Index

1. Tourmaline Oil (TSE:TOU)

Tourmaline Oil dividend

Let’s get right to the point – why is Tourmaline (TSE:TOU) among our top picks?

Simply put, it was the best producer to own in 2020. It is the only mid-to-senior tier producer that was in positive territory for 2020. 

The five-year chart is nothing to get excited about. In fact, it has underperformed every one of the stocks on this list over that period. So, why this outperformance in 2020 and 2021?

First, Tourmaline is the largest natural gas producer in the country and is almost a commodity pureplay (~80% of production).

Natural Gas Liquids (NGLs), Condensate and Oil account for the remainder of volumes. Importantly, demand and subsequently the price of oil has been the most impacted energy commodity.

Since oil accounts for only 3% of production at Tourmaline, it wasn't impacted by record low oil prices.

It is however, still faced with low natural gas prices. Fortunately, it has been dealing with low natural gas prices for years and it is one of the industry’s lowest cost producers.

The company expects to generate revenue in excess of $4.29B in 2021, which would mark a 100% increase from 2019 levels.

The company has a disciplined approach in which it has targeted a leverage ratio of 1.0-1.5 times cash flow, with excess free cash flow used to raise dividends and buyback shares.

Furthermore, natural gas fundamentals seem to be improving. In fact, experts believe we should see steadily improving supply/demand dynamics through 2021.

The market dynamics for natural gas appear to be more stable than that of oil, as such Tourmaline is positioned to continue its strong performance relative to energy peers.

10 year performance of Tourmaline vs the TSX

TSE:TOU vs TSX Index
Continue Reading

Trending