09 January 2018 0 Comments Posted By : Jonathan Ratner

Top energy and mining picks to consider amid strong global growth

If you’re looking for an easy way to measure the health of the global economy, look no further than the fact that 75 per cent of OECD countries posted accelerating GDP growth in the third quarter. At the same time, no OECD country is experiencing a recession.

That’s the second consecutive quarter this feat has been achieved, and the absence of a recession is something that hasn’t occurred since 2007, which happened to mark a peak in the last economic cycle.

But does that mean the good times will come to an end in 2018?

Martin Roberge, a strategist at Canaccord Genuity, noted that we’re clearly not at the early stage of synchronization among global economies, since central banks in developed markets have started to tighten monetary policy.

He examined asset class performance when breadth in global GDP growth exceeds 60 per cent for OECD countries, and found that stocks usually outperform bonds, and commodities usually typically outperform stocks.

“Importantly, while high-octane global growth usually rewards resource-sensitive stocks and global exposure, this environment can be challenging for portfolio managers when it comes to beating benchmarks,” Roberge said. “This is because only a handful of cyclical stocks tend to drive indices higher under such a scenario.”

As a result, the strategist suggested that investors might want to consider keeping their sector weightings close to that of equity benchmarks, and instead focus their efforts on stock picking.

In the energy sector, some of Canaccord’s top picks for 2018 are CES Energy Solutions Corp. and Gran Tierra Energy Inc.

CES, which provides chemicals used in oil and gas wells, has a strong presence in the Permian Basin. As a result, Canaccord estimates that the company will generate more than 60 per cent of its 2018 cash flow in the U.S. That should help offset structural headwinds affecting its Canadian business, and weaker prices north of the border.

Gran Tierra, an oil-producer with many of its assets in Colombia, appears to be back on track after a difficult early part of 2017.

Since the company’s consensus-beating third quarter result, production hit a record 35,000 barrels per day, which implies more than 50 per cent growth since a new management team took over in 2015.

“Stronger commodity prices could give it more room to grow, through development and exploration,” Canaccord said.

As for Suncor Energy Inc., the firm estimates the company will generate the highest organic production growth profile among its integrated peers, Canaccord also forecasts that Suncor can generate compounded annual cash flow growth of approximately 12 per cent over the next five years.

The firm’s other top energy picks for 2018 are InPlay Oil Corp., Suncor Energy Inc., TORC Oil & Gas Ltd., and Vermilion Energy Inc.

In the metals and mining sector, Canaccord favours B2Gold Corp., Kinross Gold Corp., Osisko Mining Inc., Premier Gold Mines Ltd. and Turquoise Hill Resources Ltd.

B2Gold outperformed the S&P/TSX Global Gold Index by a wide margin in 2017, and Canaccord expects that momentum to continue in 2018.

“Among the producers, we believe B2Gold represents one of the best combinations of growth, operational momentum, gold price leverage and exploration upside, which should all combine to drive significant outperformance over the next 12-18 months,” the analysts said.

Premier Gold was a top performer in 2017 among gold producers, posting a 41 per cent return, but most of that came in the third quarter, after better-than-expected earnings and strong performances at two key mines.

While the company’s gold production is expected to dip in 2018, Canaccord noted that the anticipated rebound in 2019 through 2021 may be an important catalyst for investors willing to look beyond the downturn.


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