Political
unrest may not prove to be a lose-lose situation after all. Aggravated unrest
in Iraq has left northeast Baghdad depleted however it has also contributed to
a growing confidence in the Canadian natural resource market. The oil and gas
sector is being flooded with deals and stocks are establishing a new 52-week
high after coming out of a four-year drought. Investor interest in energy
recently spiked up with the ongoing development of American unconventional
resource plays. Initially, Canada was lagging behind its southern neighbor due
to insufficient pipeline capacity. However the value gap recently widened to a
point where it was left virtually un-ignorable by investors. What we are seeing
now is a horde of investors pilling into the sector, causing stocks to skyrocket.
Canadian oil and gas producers are outperforming expectations, surpassing their
underlying commodity exposure. Investors seem positive about future market
conditions, predicting that prices for oil and gas will advance higher than the
current trading indicates. Investment confidence is particularly high in
Calgary once again, with high expectations coming in regards to the future of
the industry as well as the future of those providing the finance capital. Take
“West Texas Intermediate Oil,” for example. The price has risen 11% in the past
year. Stocks such as Suncor Energy Inc. & Canadian Natural Resources are up
41% and 56%, respectively. Equity gains have also been greater recently.
Looking at the Canadian juniors, we can see that some stocks have been tripling
or quadrupling over the past year.
Energy
ETFs have broken out again post April. Energy stock prices represented by the
ETFs are much higher now than they were in 2008 (which was the prior peak).
This indicates a strong expectation for profits by investors. ETFs are
technically overbought in both daily as well as weekly time frames. Momentum
indicators are quite high and trading now takes place well above key moving
averages.
The
picture is not completely rosy however. Judging from past cycles, we can expect
that it pays to be humble rather than to boast about opportune times. As we
have seen before, the sector can experience a downturn just as rapidly. That
being said, there is nothing wrong with admiring the impressive gains the
industry has seen recently. A good strategy would be to lock in some of the
investor gains with risk management options that protect from the down side.
With this practice, one can benefit from the sector’s strong momentum while maintaining
safety during times of volatility.
Sources:
Disclaimer: This article was posted with the permission
of a third-party contributor and the opinions contained therein do not
necessarily reflect those of Smallcappower. Smallcappower does not endorse
any investment advice provided by these third-party contributors. Please
consult your investment advisor before making any investment
decisions.
Ubika
Corporation and its divisions Smallcappower, Ubika Communication and Ubika
Research are not registered with any financial or securities
regulatory authority in Ontario or Canada, and do not provide nor claims
to provide investment advice or recommendations to any visitor of this site or
readers of any content on this site. – See more at: http://www.smallcappower.com/posts/small-cap-power-disclosure
