Eric Nuttall, partner & senior portfolio manager at Ninepoint Partners, shares his outlook on Energy Stocks.
Eric Nuttall, Partner & Senior Portfolio Manager, Ninepoint Partners
Focus: Energy Stocks
Top picks: Whitecap Resources, Expand Energy, Antero Resources
MARKET OUTLOOK:
Natural Gas is in a structural bull market given the significant increase in LNG demand both in Canada and the United States (18 billion cubic feet per day. Currently -> 30+ billion cubic feet per day by 2030) and the increase in the demand for electricity from hyperscalers, which we estimate at ~10 billion cubic feet per day by 2030.
The forward strip for natural gas from 2026 to 2029 averages ~$4/million cubic feet, which we also estimate to be the marginal cost of supply. At $4/million cubic feet many large natural gas producers, predominately in the United States, trade in excess of 10 per cent free cashflow yields while possessing decades worth of stay flat inventory. Natural gas has gone from a “bridge fuel” to THE fuel of today and tomorrow, and we see meaningful upside in natural gas producers over the next several years.
The short-term outlook for oil is uncertain. “Oil on water” has surged due mainly to Russian sanctions but also the increase in physical barrels from OPEC member countries. Over the near-term, we think global onshore inventories will build disallowing any meaningful rally in oil, barring a major geopolitical event (U.S. invading Venezuela, Ukraine striking oil producing facilities vs. refineries/export terminals, etc.). At some point in 2026, we expect the market’s focus to turn to the very bullish dynamic of the twilight of U.S. shale at a time when OPEC will have normalized/exhausted its spare capacity (1.4 million barrels per day currently vs. demand of 106 million barrels per day).
“We remain bullish” on oil over the medium term, and believe that once OPEC barrels are fully absorbed, that the price of oil can easily exceed $70 West Texas Intermediate (WTI), ultimately rallying to all time highs.
TOP PICKS:
Eric Nuttall’s Top Picks: Whitecap Resources, Expand Energy & Antero Resources Eric Nuttall, partner & senior portfolio manager at Ninepoint Partners, shares his top stock picks to watch in the market.
Whitecap Resources (WCP TSX)
Whitecap has 25+ years of premium stay-flat inventory, a market cap ($13.5 billion) large enough to be relevant to shareholders, a dividend yield of 6.6 per cent sustainable down to ~$50, and trades at a material discount to its peers (4.7X Enterprise Value(EV)/Cash Flow (CF) at $60WTI/$4gas).
We believe fair value = 6X 2027 CF = $15.80/$19.30 at $60WTI/$70WTI = 43 per cent to 75 per cent potential upside.
Expand Energy (EXE NASD)
Expand is the largest natural gas producer in North America (~6.3 per cent of U.S. production) and is greatly benefiting from the new bull market in natural gas.
With over 20 years of stay-flat inventory in areas closest to the largest areas of demand growth (AI centres in Texas and LNG on the Gulf Coast) the company receives premium pricing.
We believe the marginal cost of supply is $4 per thousand cubic feet (mcf) and that gas can rally to $5/mcf on a normal/colder than normal Winter = 12 per cent/22 per cent free cashflow yield.
At US$4/mcf we think fair value is 7X CF = $165 target price = 40 per cent potential upside.
Antero Resources (AR NYSE)
Antero is a natural gas producer in the Appalachia Basin with over 20 years of stay-flat inventory, a very strong balance sheet (0.5X debt: cashflow), and is returning 50 per cent of free cashflow back to shareholders via buybacks.
Trading at a 13 per cent free cashflow yield at US$4/mcf and a 22 per cent free cashflow yield at $5/mcf, Antero offers meaningful leverage to our bullish view on gas.
DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDWCP TSXYNYEXE NASDYNYAR NYSENNY
PAST PICKS: SEPTEMBER 13, 2024
Eric Nuttall’s Past Picks: MEG Energy, Tamarack Valley & Freehold Royalties Eric Nuttall, partner & senior portfolio manager at Ninepoint Partners, discusses his past stock picks and how they’re doing in the market today.
Meg Energy (MEG TSX)
Then: $24.29
Now: $30.89
Return: 27%
Total Return: 29%
Tamarack Valley (TVE TSX)
Then: $3.83
Now: $6.99
Return: 82%
Total Return: 87%
Freehold Royalties (FRU TSX)
Then: $13.43
Now: $14.76
Return: 10%
Total Return: 19%
Total Return Average: 45%
DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDMEG TSXNNNTVE TSXNNYFRU TSXYYY
