Encana, A Natural Gas Play

Superior Plus SPB

Chart courtesy of the Globe and Mail

I was looking a couple of months ago at Superior Plus (SPB.B) because of its high dividend yield of over 11%.  I’m familiar with  the company as they deliver propane to my parent’s home.  But I quickly realized the company had a very high debt load (liabilities to equity of 3.14), and seemed to be diversifying into some obscure areas to expand its business (i.e. drywall).  In addition the dividend is currently very high at 13.5%, as the share price had crashed. To me that signalled a company in trouble, and perhaps even a dividend cut in the near future. So I decided it wouldn’t be such a good investment after all.  That research also led me to realize that SPB was also trading low also because of  rock-bottom Natural Gas prices. To me that signalled an opportunity for a value-play in the Natural Gas sector.

Natural Gas ( 5 year chart )

Chart courtesy of the Globe And Mail

Natural Gas has certainly been trading at it’s 5 year lows, as low as $3.50 during the year, and currently at $4.00. In addition the storage of Natural Gas supply reserves is at its highest. So I’m looking at the possibility that Natural Gas prices will rise with an increase in demand this winter. This would certainly increase the price for Natural Gas and reflect in stock prices of Natural Gas producers. If I’m wrong then I will make sure I’m investing in a solid company with good growth prospects and solid earnings.

Encana 5 year chart

chart courtesy of the Globe and Mail

All of this leads me to Encana (ECA) which is now a focused Natural Gas company. In November 2009, shareholders overwhelmingly voted by 99% to split EnCana into two highly focused energy companies: Cenovus Energy Inc. (CVE), an integrated oil company and EnCana Corporation, a pure play natural gas company. Encana now has about 32.6 billion in assets,  a PE ratio of 12.59, and a current dividend yield of 2.80%. It has a current Liabilities-to-Equity Ratio 0.95

Encana is also trading near its 52 week lows of 28.90, its currently at 29.08 per share. I bought 50 shares on September 15th, but unfortunately missed the x-dividend date by a couple of days. Since I’ll be holding this stock long-term I’m not overly worried, and am contemplating if I should put a stop-loss on the stock at 27.00 to protect my investment. Regardless I think there is good growth potential for Encana, and I’ll have a better idea of where I stand after the winter with my natural gas play.

Disclaimer

This is the part of the website where I tell you I am not a financial advisor (thank goodness) or an investment dealer (LOL). This website does not offer professional or financial advice, only my personal rants and opinions (hope you enjoy them). I’m also supposed to tell you to consult with a “professional” financial advisor before making any investment decisions. Be prudent and cautious. Do your research, and only invest in what you understand !

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