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  • Roger S. Conrad

Canada’s Comeback

By Roger S. Conrad on Apr. 29, 2016

Nine months ago, we surveyed the International Coverage Universe, explained our cautious outlook for the group and set dream buy prices for our favorite Canadian and Australian energy stocks. Although our International Portfolio has taken its fair share of lumps, the approach generally served us well.

At the time, plummeting oil and gas prices forced many upstream operators to slash their dividends. Investors also exited the sector en masse, driving up energy companies’ costs of capital.

We also highlighted several green shoots:

  • Extraordinarily low valuations that had priced in a lot of pain and set a low bar of expectations;
  • Aggressive de-risking of balance sheets and operations; and
  • The relative resilience of midstream and utility businesses amid the carnage.

That being said, we also warned that depressed energy prices would necessitate additional dividend cuts and that further weakness in the Australian and Canadian dollars would likely weigh on stock prices.

This challenging environment underpinned our negative outlook for the majority of the names in our International Coverage Universe. We also encouraged readers to set limit orders at dream prices for the Buy-rated stocks featured in the International Portfolio’s conservative sleeve.

To take advantage of the selloff, we added Inter Pipeline (TSX: IPL, OTC: IPPLF) to the International Portfolio’s conservative holdings.

Two additions joined Inter Pipeline a few weeks later:

  • Innergex Renewable Energy (TSX: INE, OTC: INGXF), an undervalued play that operates renewable-energy capacity under long-term contracts; and
  • TransUrban Group (ASX: TCL, OTC: TRAUF), a bet that lower fuel prices would drive traffic on its toll roads.

At the same time, we sought to reduce risk in the International Portfolio’s aggressive sleeve by adding ProShares UltraShort Australian Dollar (NYSE: CROC) as a currency hedge and exiting several riskier names for a loss.

How We Fared

By and large, these moves have paid off. The four aggressive holdings that we sold from the International Portfolio all cut their dividends at least once.

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    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor