A GOOD Investment, for a change: Canadian Oil
October 31, 2007
– Comments (12)
So many people complain about top players getting scores due to underperform calls on bad stocks. While I have scored a bit from the rocket cities and the escalas of the world, a good deal of my points have come from what I see as the absolute best investment right now and for the next 20 years at a minimum: Canadian Oil.
Why Canadian oil? The answer is so simple that people try to make things harder than they are. Here are the facts as I see them:
1. There is nothing imminent to replace gas in cars. While solutions will be forthcoming, for at least the next 10 years good old petrol is what you and I will be putting in our vehicles.
2. Demand for oil comes in so many other ways - plastics, military, rocket fuel, infrastructure - how can anyone see demand for oil going down?
3. Supply - Now here we might argue a bit. Some people talk about Peak Oil, and how we are going to have an actual decrease of oil in the near future. Others may talk about abiogenic oil; in either case, I see neeither doom and gloom or significant new huge finds. It's been pretty apparent for the past 2-3 years that the supply of oil has remained about steady, and even if it increases a little bit, there is still way more demand than can be met. What no one can argue, however, is that new finds of easy to get to oil will be few and far between, as oil prospectors have to dig deeper and harder to find oil reserves.
4. Monetary Policy - What has likely driven the price of oil and in fact all commodities in the past 5 years. Reflation and inflationary policies of central bankers all over the world, as well as goverments complicit and in fact encouraging these policies, causes true inflation in the things we need most - water, food, oil. Oil is by far the most scarce, and most used v. all other commodities, and therefore will be most sensitive to inflation. It is clear that Bernanke Fed is following in the footsteps of the Greenspan Fed, which is to have M3 run at about 9-13% per year, which after GDP is taken into account gives you real inflation of about 6-10% per year, and worse 16% if let's say we have a year long recession of -3% growth and 13% monetary inflation. I truly wish this weren't so, because it destroys the value of the US dollar, and encourages speculation and discourages labor and savings, and this goes along with the current tax structure in the US.
This is a short explanation meaning: We are going to have inflation, huge inflation, very likely for the next 17 years of the Bernanke Fed. He has made it abundantly clear that bank solvency is more important than the value of savings of Americans, of the value of benefits of older Americans, of the value of labor of the blue and white collar workers out there. This inflation will show up hardest and biggest in OIL, due to the first 3 points outlined. Some people talk about gold as being the best inflation hedge. While gold will give you a store of value, if you want an investment, oil is the place to be.
I could make a case for gold miners, which I'm also bullish on, but not as much as oil. Gold has use as fiat stores of value, but has very little inherent utility value, especially when compared to the usefulness of oil. For a partial list of some of the things that we use oil for, check the following link: http://www.ranken-energy.com/Products%20from%20Petroleum.htm
So now, the question begs, why Canadian oil? The best way I can explain it is by making the argument for my favorite oil investment: Suncor (SU).
Suncor is currently producing about 280,000 barrels of oil per day, and this number has been rising slowly but steadily this year and over the past few years. They are one of the few oil companies with huge proven oil reserves that has increased their reserves, and will be increasing output in the future. The estimate is for at least 325,000 bpd by 2012. Please note, further, that management for SU is very conservative, and typically they underpromise and overperform, a hallmark of good management.
Now this might be the most important part of all: Suncor's business and operations are locatated in Canada, which have the following advantages:
1. Politically stable.
2. Democratic capitalist country, meaning 0% chance of nationalization.
3. No threat of terrorism
a. no one cares about canada, except of course the US and China who need her oil
b. Haji "the terrorist" al-bin Haji ain't going to go to the canadian outback and freeze his ass off to try to find a pipeline to blow it up, and even if he did, they'd fix it in three seconds and it wouldn't even slow down operations.
4. Close to US (just pour the oil in a pipe and send it to your customers - no tanker ships needed)
5. While canada does have environmental standards, the oil sands fields are so far out there, and in environments that aren't that hospitable, that strip mining and other potentially damaging things aren't as politically distasteful. There is no significant NIMBY factor (not in my back yard).
Let me leave with this: I am not currently buying suncor at 110. At a p/e of 22, it's still a bit high, although not at bubble levels. I would, and WILL, be a buyer if oil drops down to the low 60s. My initial investment in Suncor came back in 1/07 when oil dropped into the 50's. At that time Suncor had dropped into the upper 60s, which was a great buy at the time, and if for some odd reason it gets there again, would be a GREAT opportunity. At this point I see a target price of Suncor of over 200/share, and a great time to buy would be below 80/share. Below 90 might be a good investment.
The only downside factors are as follows: Socialist loving canadian tax-loving politicians taxing the hell out of the profitability of canadian oil (not very likely, but somewhat likely), and demand for oil dropping due to recession (haha, yeah right).
So there ya go folks. Canadian oil. You pretty much can't go wrong with it, try to catch it on a dip and you'll make some good cheese. If you would like to see other canadian oil companies, you can check my player page - I green thumbed all that I could find, such as CNQ and ECA.
Best of luck to all.
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