This entry started as a regular post at the Mexico Mike web forum, and was the impetus to start this blog. On the forums, I go under the name "nerudite", which really has nothing to do with stocks or resources.
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Having watched stocks of all kinds since I was 5 years old and got my first share of McDonald's (or was it Disney?), I have always liked story stocks and probably make more of my decisions to buy stocks on their business story and my gut instinct than I do on their business numbers. Don't get me wrong, I also look at the numbers... but to get real value, you often have to pick stocks that everyone else hates.
Being fairly young, I like to look to the next four years or more when picking investments, not just thinking about the short plays in the next few months. Although, I must admit a certain amount of my trading is just speculation, because it's so damn fun. It can give you that little thrill just like going to the racetrack, because let's face it... just about everything that makes a stock go up or down is totally out of your control.
Living in Alberta the past six years, I've come to read a lot of oil and gas news from reading our local newspapers. For those of you in the States, Alberta is the second Province (think big State) from the left in Canada. It's where all the oil comes from that helps you drive your cars. Sorry, but I have to explain it in easy terms, because most of my old friends and co-workers really don't know where the hell I live these days.
Sorry, I digressed. So anyway, I'm up here in Edmonton. And if you live anywhere in Alberta, you've got to know something about the oil and gas business. Even if all you know is that you're getting the crappiest customer service ever at your local restaurant and guys under 20 in the oil patch get paid more than you do as a government worker, you know something about the oil business. But I pay close attention, so I know a little bit more.
From reading the papers and following some of the local companies and their ups and downs, I've really liked the grit of the homegrown Western Canadian companies. It's like the wild west is still in full swing, what with boomtowns and hostile takeovers. In the past few years I've really started to like the stories of some of the oil and gas service stocks, you know... the companies that provide services to Big Oil. But after watching the aftermath of the Halloween massacre for some time, I shied away from the energy trusts like a lot of people. That being said, I recently decided to jump into Precision Drilling Trust. P/E of around 7 when I bought it, with a 9% dividend yield or something like that. I think now it's more like P/E 8.5 with a yield of 7.2%. It changes a lot everyday, and it's an investment so I don't have to worry about it too much. And still, that dividend yield is better than you can get with just about any government bond right now, so there's nothing wrong with that!
PD.UN (PDS in the States) has been taken to the woodshed for the past few years because of its Western Canadian focus, Flaherty's Trust debacle (aka Halloween massacre), astronomical capital costs in Western Canada and low Natural Gas (NG) prices. All of this meant demand for drill rigs dropped, and day rates for those rigs that were used dropped, too. I know that sounds depressing, but the story does get better.
Over the past few years the company has started moving rigs into the US, and it looks like NG prices may be on the rise. So I'm hoping that this stock will be a stable choice with some dividends that will be like free money to use for buying more risky choices. Especially since it's in my RSP (IRA in the States), so I don't have to worry about taxes with my dividends right now. I'm also hoping that NG prices rising will bring back the drill demand and/or buying this stock while Canadian currency is at par will come in handy if the CAD sinks back down against the USD. Although it's not as sexy as a junior oil and gas stock, and probably won't have a really fun 20% up (or down!) day, it's a good balance for my speculative choices, so I have a much better chance of not losing my shirt one of these days.
Speaking of risk, I bought some FO.v (Falcon Oil and Gas) recently when it was nice and low. It's been a heartbreaker to a lot of people that loved its story. Listening to some of the pumpers, and it had a lot of them, FO.v was the Hungarian natural gas hero that would save poor Europe from those mean Russians. Actually, that's a pretty good summary of about two full years of pumping I read in the Stockhouse forums. The bad part of this story is that all that NG is very deep in the ground, and therefore expensive to extract (or even find). With NG prices falling for the past few years, it was hard to justify (or even find) the capital to get the gas out. Falcon Oil and Gas has already got the white flag waving, and I'm hoping if NG prices start climbing back up that some knight will come to the rescue. The ironic part would be if it's evil Russia (such as Gazprom) itself. Guess we'll have to see how this story ends. I only have a small position, because this really is speculation.
To get back to Western Canada, I also follow the Mackenzie pipeline story pretty closely. It's a good court and First Nations drama. If the proponents of the Mackenzie pipeline win, and they get to build this enormous venture, I'll probably buy some Northern Sun Exploration (NSE.v). Getting that enormous NG resource into production would be like a winning lottery ticket if the stars aligned and the Mackenzie and other pipelines feed the tar sands growth with natural gas. But for now, I don't have any NSE.v. I'm always watching though. I'm hoping that someday it comes through, because it's been on my radar so long and I know a lot of nice people that have hitched their wagons to this play.
So those are my NG stories, and I'm sticking to them (well, for now at least).
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