Finding new life in energy stocks
As a deep value investor, Irwin Michael can’t help but see a great opportunity in Canadian energy stocks.
Although many are recommending investors get out of Canada and seek higher returns in the U.S. equity market, the president of Toronto-based I.A. Michael Investment Counsel and portfolio manager of ABC Funds is not one of them.
“We’re saying do the opposite,” Michael said. “You try to go where people are not, and investors have, for the most part, been rushing out of Canadian resource stocks.”
He also noted many energy stocks are trading at 50% to 60% discounts to their net asset value.
“For those looking to start a new oil and gas or mining company, you can buy assets cheaper in the marketplace than building them on your own,” Michael said, emphasizing the opportunity in potential M&A.
Dana Merber, who works with Michael, also highlighted the disconnect between share prices and commodity prices, particularly oil.
“Despite strengthening commodity prices, oil and gas stocks really haven’t participated yet,” he said. “We’re finally starting to see oil price differentials narrow, so that’s going to be positive for the Canadian energy sector.”
The ABC Fundamental Value Fund is one of three open-end portfolios managed by Michael and his team, which also includes family members Harlan Michael, Ryan Michael, and Brandon Michael.
The fund typically holds 30 to 35 names, with about a half-a-dozen
We’re finally starting to see oil price differentials narrow
U.S. companies currently, and targets fundamentally cheap stocks trading significantly below replacement cost.
The firm has strict criteria. For example, a stock must be trading at a discount to its tangible book value, have hidden assets or potential for an asset spinoff.
While Michael and his team are buying “dirt cheap” Canadian resource stocks for capital gain, he noted investors can also take advantage of very attractive dividend yields in the 4% to 8% range.
“It’s like having your cake and eating it, too,” he said.