Vermilion Energy

01/09/2015 7:00 am EST


Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

The secret to wealth is to buy great companies when everyone else is selling. There are lots of opportunities to do that in the energy sector right now, suggests Gordon Pape, editor of Internet Wealth Builder.

The uncertainty over how low the price of oil will go and how long the low-price environment will last has produced a massive selloff with some names down more than 50% from their 2014 highs.

Vermilion Energy (VET), a Canadian-based company, has retreated 32% from its June 20 high of $72.69 on the NYSE.

I think it is oversold at this level and therefore offers an excellent opportunity for investors who are prepared to deal with the volatility that will pervade the energy sector in the coming months.

Although it is headquartered in Calgary, Alberta, the company has extensive overseas operations in Europe and Australia.

Vermilion is targeting growth in production primarily through the exploitation of light oil and liquids-rich natural gas conventional resource plays in Western Canada, the exploration and development of high impact natural gas opportunities in the Netherlands and Germany, and through drilling and workover programs in France and Australia.

Vermilion pays a monthly dividend of C$0.215 per share, which provides a current yield of approximately 4.5%. 

The company recently announced 2015 guidance, which forecast a 22% reduction in capital expenditure from 2014, due to the low oil price. However, management said it expects to increase production by 15% and indicated the company would make further cuts in Capex rather that reduce the dividend or compromise the strong balance sheet.

There’s short-term downside here if the price of oil drops further, but the mid- to long-term prospects are excellent and the current price of $49.58 looks cheap. The stock is our top idea for speculative investors.

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