Dan BastasicArc Resources LtdARX.TOBUYAug 05, 2005

Mid-cap energy stocks have been strong, even with reduced fund flows from pension and ESG funds. WCP and ARX will continue to do well.

Never sell just for tax reasons. Whenever he's done this, it's been a mistake. Instead, ask yourself if your thesis still holds for owning the stock? If yes, hold on. If not, let it go.

Tremendous run over the last years. Might get commodity price softness. If we do, look to buy below $20 for the long term; really likes it mid-high teens. LNG Canada will benefit. Owns a lot of its own infrastructure, which insulates from commodity price swings. Free cashflow yield is in mid-teens, dividend increases, organic growth. Yield is 3.3%.

Operate in natural gas (60-65% of operations), oil and liquids. Well-capitalized, and over time give back 70% of free cash flow to shareholders through dividends and buybacks. Surprised many with their capex plans that will grow barrels per day only modestly, but they consistently have increased production. He's bullish energy. A good core holding.

A behemoth in the Montney region. Good cost control, highly regarded management. Close second to TOU, always one of his Top Picks. Pretty good performance relative to peers. Be patient. $25 would not be difficult, especially as LNG builds out in Canada and prices firm up globally.

Expecting a $26 share price. Long term investors will be rewarded. Growing production very good for investors. Lots of inventory. Excellent management team. Waiting for share price to fall before buying. Natural gas pricing fundamental for company. 

He targets $50, 130% upside, but the valuation is hitting a ceiling. Would sell at $25.20.

ARX is 63% gas and 37% crude oil and liquids. It looks good right now, is cheap, and it has a very solid balance sheet, with debt at barely six months' cash flow. Earnings/cash flow will be lower this year on pricing, but about 10% growth is expected in 2024. The dividend was raised in May and looks secure (payout ratio 15%) at current commodity price levels. 
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Loves it. Perhaps the best-managed company in the Canadian energy space. Very good operators, disciplined capital allocators. Bullish on Canadian oils. Has already done well, but he remains bullish. The story will continue.

Natural gas prices could peak during the winter. Expecting long term value with LNG coming to fruition. Would expect growth going forward. Likes the stock below $20.

He's light on nat gas, owning just TOU. ARX would be his second choice in that space. Nat gas is not a must-own exposure anymore. Might get more bullish when export avenues open up on the West Coast in a couple of years. Good, low-cost producer. Undemanding multiple. Timely to trim. El Nino is a wild card.

Liked company at ~$15-$16, but would sell at $20.
Selling recently with expectation of recession.
Recent natural gas rally not sustainable.

Natural gas prices have been breaking out recently, and ARX has been following suit, alongside reporting strong earnings. Analyst estimates call for a drop in sales and earnings this year, but with earnings growth expected thereafter. Debt levels are low, profit margins are strong, its valuation continues to be cheap (7.1X forward earnings and 1.7X book), and its solid free cash flows are being used towards aggressive share repurchases and some debt repayments. For the first six months of 2023, ARC has returned 107% of free funds flow to shareholders, and it plans to renew its buyback plan for an additional 10% of the public float on September 1, 2023. This is substantial, given over the past 12 months the company has bought back ~10% of its public float. If natural gas prices remain strong, we continue to like this name here.
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