Richard Band is the editor of Profitable Investing, one of the nation’s premier financial newsletters focusing on value and safety, which covers the waterfront from stocks, bonds, and mutual funds, to insurance, taxes, and college or retirement planning. He has 34 years of experience as a financial advisor and is well known for his bold and insightful market calls, including a prediction in February 2009 that the stock market would soon mount a "powerful liftoff" from about 6600 on the Dow that would carry prices "dramatically higher." Mr. Band is also the author of Contrary Investing: the Insider’s Guide to Buying Low and Selling High. He is also an honors graduate of Yale University.
A global gas giant and a high-yielding Canadian driller are on sale at bargain-basement prices, says Richard Band, editor of Profitable Investing.
Let’s talk energy. The energy markets have been all over the place. Natural gas has sunk to multi-year lows.
Stunning, and oil seems to be in this channel between $94 and $100. Where do you see all of this playing out? And how do you take advantage?
Well, in the long run certainly, natural gas is very attractively priced. If you can buy some of the producers at a very low share price or you’re entering it at a reasonable level, I think you can do well.
Right at the moment, I’m focusing more on oil because I do think gas prices are going to stay low compared to gasoline…probably for 2012. So if you’re looking for some exposure to natural gas, but kind of on the tail end of things, I think you should primarily be focusing on oil producers.
In that area, there are some interesting values, even though the oil price, the crude price, has moved up quite a bit since October and some of the oil shares are not reflecting all of that movement. So I’m thinking of a company for example like Royal Dutch Shell (RDS.B). Shell is a great company, second probably only to Exxon (XOM) in terms of his historical performance as an operator.
But about five or six years ago, they made a terrible mistake. They allowed some people in top management to overestimate their resources, so they were reported at a higher level than they should have been. Once you do that, you get a black eye, and Wall Street does not trust you for years and years and years.
They had to bring in new management which reassessed the reserves and lowered the estimates and so on. So the last four or five years, they’ve been trying to get their reputation back.
And you can buy it at a discount, because…
Because people are still thinking ahh, this guy is…you know, fool me once, you’re not going to fool me again; that type of thing.
They’ve got new management, clean management in there, and some very exciting prospects—especially in the Pacific Ocean, where they’ve got these great liquified natural gas projects that they’re working on. I think over the next four or five years, Royal Dutch is going to come back and be again the rival to Exxon.
But you can get it a much higher dividend yield today than Exxon. Well over 4%; Exxon is in the 2% range. So I would be buying Royal Dutch.
Now which of the classes? There are two classes of Royal Dutch shares.
There’s As and Bs, right?
There’s A and B, that’s right. The A shares are based on the Amsterdam, the Dutch stock, and the B shares are based on the London stock. If you buy the B shares, you have no foreign withholding tax. People hate withholding tax on dividends. The UK, London, does not charge withholding taxes. So buy the B shares, not the A shares.
That’s great advice.
At a 4% dividend, yes.
Then back here in North America, I have one more idea for you. This is more of a high-income concept. This is Enerplus Resources (ERF) up in Canada. Great producer. They used to be a Canadian royalty trust. They’ve converted themselves into a corporation. They drill for their own oil and gas and produce their own oil and gas now. That thing is yielding 9%.
Now whenever you see 9%, you get a little wary. You think, what could go wrong here?
They’re pulling oil with buckets.
That’s what you’re thinking. You know? It’s good to be skeptical, especially when you’re talking about mining and oil and gas. Enerplus has 14 years of proved and probable reserves in the ground for every year’s worth of production. I love that safety model.
Yes, they’d be hurt if oil prices dropped drastically. But if you’ve got 14 years’ worth of oil and gas in the ground, you can survive a temporary downturn in the oil market. So I’m buying Enerplus; 9% monthly dividends, beautiful.
And they also I know when they converted over to a corporation, it was a very smooth transition, which sometimes isn’t the case with those.
Yes, yes, right. A number of those trusts had to cut their dividends, and Enerplus has not done so. So that is to me a blue ribbon for them.