Top Picks

[dan_s]

I was just interviewed on a Vancouver radio station and they ask me for a few of my Top Picks. The interview was recorded and will be played this weekend. I'm interviewed on the show at the beginning of each month and they do have a nice size audiance.
Here are the ones that I mentioned with a few reasons why. Keep in mind that it is a Canadian station, so two of my picks are based in Canada.
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From our Small-Cap Growth Portfolio, I like InPlay Oil (IPO.TO and IPOOF).

InPlay Oil is a Canadian Junior with operations in Southern Alberta. I have been following InPlay’s management team for almost twelve years. After selling Vero Energy in 2012 they formed InPlay and took it public in 2016.
In 2020 they survived the Pandemic by quickly shutting down their drilling program. In 2021 & early 2022 they took advantage of a depressed market for oil & gas assets and they closed several strategic acquisitions, including the Prairie Storm Acquisition that closed in Nov, 2022 pushing the Company’s production over 9,000 Boepd, almost triple what the Company’s production was Pre-Pandemic in 2019. Today, InPlay is on pace to exit 2023 with ~10,500 Boepd.
 InPlay is now my Top Pick in our Small-Cap Growth Portfolio.
 It trades as IPO.TSX and as IPOOF on the OTCQX
 Yesterday the stock closed at $2.52Cdn ($1.83US for IPOOF).
 They pay dividends monthly of $0.015/share or $0.18/year
 At the current share price, the annualized dividend yield is 7.1%.
 InPlay has a Super Strong balance sheet and generates more than enough free cash flow to double the dividend if they wish. The current dividend is sustainable even if oil prices drop to $55US/barrel.
InPlay has over a decade of low-risk / high-return development drilling locations in their two core areas. The horizontal wells they are completing this year will reach payout in 6 to 8 months after being completed to sales if the WTI oil price averages $80US/bbl.
They also have significant upside in the East Basin Duvernay Shale play.
My updated valuation is $8.35Cdn, which compares to First Call's price target of $5.06Cdn.
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Viper Energy Partners LP (NASDAQ: VNOM) is one of the Minerals / Royalties companies in our High Yield Income Portfolio. It is a partnership that has elected to be taxed as a C-Corp.
It was created by and is a subsidiary of Diamondback Energy, Inc. (NASDAQ: FANG), which is one of the large-cap upstream companies in our Sweet 16 Growth Portfolio with a market cap of ~$27 billion.
Both companies are “pure plays” on the Permian Basin.
Diamondback’s aggressive drilling program drives double digit annual production growth for Viper.
Viper’s current production is ~38,500 Boepd (~56% crude oil). At this point they are virtually unhedged. It pays base + variable quarterly dividends that should generate annualized yield of 6% to 9%. Their dividends are heavily weighted to oil revenues and they pay out about 60% of their operating cash flow.
An investment in Viper is like a direct investment in oil that pays a nice dividend.
VNOM closed yesterday at $27 and my valuation of $37 compares to TipRanks’ PT of $37.63
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Crescent Point Energy Corp. (CPG) is a Canadian mid-cap that was added to our Sweet 16 Growth Portfolio on 1-1-2023. The share price was up more than 16% YTD as of last Friday (9/29). This week’s pullback to $10.25 is a great entry point for a stock that I currently value at $16.25Cdn.
 The Company’s production was flat year-over-year in 2022, but adjusted operating cash flow increased by $788Cdn million thanks to higher oil & gas prices to $2.2Cdn Billion ($4.02 per share).
 Despite this year’s well shut-ins due to the Canadian wildfires and lower commodity prices, operating cash flow is still expected to exceed $2.2Cdn Billion for the year 2023 and increase to $4.16Cdn per share; thanks in part to their aggressive stock buyback program.
 The Company’s first and second quarter 2023 results came in better than my forecast and they successfully closed the previously announced Spartan Montney Acquisition on May 10th that added production of 38,000 Boepd (55% oil and NGLs).
 I like the timing on this one because
o Most of their shut-ins were only offline for a few weeks. The Company has not reported any serious damage to wells or surface facilities.
o They are going to report a significant increase in production and operating cash flow from Q2 to Q3 primarily because of the Spartan Montney Acquisition that closed on May 10th. Production should be up ~17,500 Boepd from Q2 to Q3 (~173,000 Boepd)
o They are going to generate ~$1 billion of free cash flow this year.
 CPG is trading today at less than 2.5 X operating cash flow per share. That is super cheap for a profitable company of this size with lots of running room. My current valuation of $16.25 is based on just 4X annualized operating CFPS.
The Company’s Return of Capital program is attractive to investors seeking “Growth + Income”. CPG’s quarterly dividends paid in Q2 2023 were $0.135/share; a base dividend of $0.10 and a “Special Dividend” of $0.035. Based on my forecast, the special dividends should increase quarter-after-quarter through at least 2024.

[Ray_M]

Thank you Dan. By any chance, do you know if the radio station broadcasts over the internet?

[mitchl]

Chart from Nutall:
https://twitter.com/ericnuttall/status/1709662179211776056

IMG_3339.jpeg (93.78 KiB) Viewed 1274 times

CPG towards the higher end of FCF ‘24 per his estimations