ARC Energy: A "Screaming Buy"

10/14/2005 12:00 am EST


Eric Roseman

Editor, The Commodity Trend Alert

"If you've missed the boat on the incredible bull market in Canadian income energy trusts since 2002, here's your chance now," says Eric Roseman, editor of Commodity Trend Alert. "It now time to go shopping for value in the energy complex."

"This is exactly the moment, following a major sell-off, when you accumulate cheaper, quality companies. The bull market in oil has many more years left. I'd say we're in the fifth inning of this mega-rally for everything energy-related. In fact, I'm growing even more bullish on the sector now that so many analysts, financial newspapers, and advisors are growing increasingly cautious if not outright bearish.

"The oil bears point to new production coming online and massive spending by the oil majors to replace their production combined with government-led initiatives to find cheaper sources of energy. It's true that oil companies are now spending more on finding new sources of production; but let's be very clear: It will take years to find new production, years to build new refineries and even longer to find high-grade crude.

"Based in Calgary, Alberta, ARC Energy Trust (CA:AET.UN Toronto) is arguably the best-managed Canadian energy trust. ARC is one of Canada's largest conventional oil and gas royalty trusts with an enterprise value of about C$4.8 billion dollars. ARC currently produces about 56,000 barrel of oil per day in five core areas across western Canada. It remains one of the most profitable energy trusts in Canada.

"Earlier in September, ARC Energy hit an all-time high of C$24.32. The steep correction last week in Toronto took the trust down 14%. My eyes lit up when I saw the trust dive because I've been watching her like a hawk- hoping for a correction in the primary trend. The stock is now a screaming buy. The units pay a very fat C$2.04 trailing 12-month distribution per share (9.1% effective yield) and sell at 15.7 times trailing earnings. Compare that to the average energy trust in Toronto, which sells at 18.1 times earnings and pays a current 8% dividend yield.

"ARC Energy continues to raise its payout over the last five years and pays a monthly distribution in Canadian dollars- a bull market currency in the post-2002 period now viewed by the market as an oil currency. When you buy this trust, you're getting a triple play on a rising share price, rising distributions every month, and a strong Canadian dollar. If you're a non-Canadian resident investor living in the United States, you will get a tax credit for any dividend withholding. The Canadian government will not withhold monthly distributions. Buy up to C$24. Don't chase the price, but please start your purchases right away."

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