Bill Holland shopping for oil bargains

Low-leverage and no-leverage companies

Bill Holland, the chairman of Canada’s third-largest investment fund company, CI Financial, has been hunting for bargains as the price of oil seesaws the way he hunted for real estate deals in the United States after the subprime mortgage crisis.

“You know what’s cheap, where I think things have got too distressed, is basically low-leverage or no-leverage Canadian oil and gas companies, particularly those outside of the oilsands,” Mr. Holland told the Financial Post when asked about his personal investment philosophy on Wednesday.

A recent personal pick in the midsized market, where he thinks there are bargains to be found, is Parex Resources Inc., a Toronto Stock Exchange-listed oil and gas exploration, development and production company with prospects in South America and the Caribbean.

“It has zero debt and it trades at, like, $6. It probably recently traded as high as $16. But it’s a strong cash flowing business with no debt,” Mr. Holland said of his stock pick that was not related to CI investments.

“That’s the approximate type of company that you want, good cash flowing, non-levered companies,” he added.

There are companies out there whose stock prices are even more depressed, Mr. Holland said, but those with debt that must be paid down regardless of how long the downturn in energy prices lasts make him nervous.

“There’s ones that are cheaper but they have leverage. And I think the leverage to me is more aggressive than I would want to be.”

He said the current environment for energy stocks reminds him of the housing market in the United States after the subprime mortgage crisis.

“What it looks like to me is, I remember in 2009 buying real estate in southern Florida. The prices were unbelievable, but you had to buy them without the aid of leverage because banks wouldn’t lend you money and you couldn’t get yourself in a situation where if you borrowed money and that loan got called you’d have to sell what was already depressed real estate,” Mr. Holland said.

“It was one of those things where if you were patient or if you could be patient, you know, the assets were ridiculously cheap. I look at Canadian oil and gas companies like that today.”

Mr. Holland said investors who are willing to take a long-term perspective — along the lines of “a private equity view” — are buying now, rather than waiting for the fortunes of oil and gas companies to improve.

Large U.S. private equity firms have begun raising funds to invest in the distressed energy sector. Stephen Schwartzman, the chief executive of The Blackstone Group LP, told The New York Times declining oil prices have created one of the best investing opportunities in “many, many” years.

“[They’re] saying energy won’t be very cheap forever, and I want to buy the best companies at highly depressed prices,” Mr. Holland said.

“What I’ve been buying is… those kinds of stocks.”