Eric Nuttall’s Top Picks: June 3, 2022

Eric Nuttall, partner and senior portfolio manager, Ninepoint Partners

FOCUS: Energy stocks


The world has plunged into an energy crisis, created by the energy ignorance of policymakers and too many years of insufficient investment in new productive capacity. The result? A multi-year bull market that will last at least five to six years, resulting in an oil price high enough to both kill discretionary demand growth while allowing companies to pivot and start investing again in long-lead projects.

While fears of a recession cause some to be worried, we estimate that global GDP would have to reach roughly zero, something that has only happened three times in recent history (2020, 2009, 1982), for the oil market to just reach a state of balance. With Russian production to likely fall more meaningfully in the 2H’22 and OPEC to soon reach spare capacity exhaustion, we think oil will have a solid fundamental floor of around US$100 WTI and to test over US$150 WTI in the coming quarters.

At US$100 WTI, Canadian energy stocks are trading at 3.0x enterprise value to cash flow and a 24 per cent free cash flow yield. With nearly all companies committing to maintain low-to-no growth and instead return the majority of free cash flow back to investors, we have entered a golden era for egregiously high levels of dividends and share buybacks, which in my opinion will result in a re-rating in trading multiples back closer to historical averages of 6x-8x.

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Eric Nuttall’s Top Picks

Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, discusses his top picks: Meg Energy, Enerplus, and Tamarack Valley.


MEG Energy, a single asset pure-play oils and producer, this week began to buy back stock with 25 per cent of free cash flow going to shareholder returns and has committed to returning 100 per cent once they hit their final leverage target which we think will happen mid-2023. With the company trading at a 26 per cent free cash flow yield at US$100 WTI, the company could privatize in only four years with free cash flow, meaning given 35 years of reserves that investors are getting 31 years of free cash flow equivalent to a 26 per cent dividend yield for free. We think fair value is 6x EV/CF = $42 = 85 per cent upside ascribing no value for their massive tax losses. We do not think MEG will exist within a year’s time.


Enerplus remains profoundly mispriced, trading at 1.8x EV/CF and a 35 per cent free cash flow yield. They are actively buying back 10 per cent of their stock, and will rebuy back NCIB and buy back another 10 per cent, while also being able to meaningfully increase their dividend and soon contemplate a significant issuer bid. They recently said that 75 per cent of free cash flow in 2023 could be returned to shareholders in 2023 and with an asset package divestiture soon to come to a close and leverage metrics to be reached, we look for the company to meaningfully increase shareholder returns. We use a 5x EV/CF multiple target = $40 target = 158 per cent upside potential.


With exposure to some of the most profitable play in North America, TVE trades at a highly attractive 2.4x EV/CF and 27 per cent free cash flow company. With leverage metrics to soon be hit, the company has pledged to return at least 50 per cent of free cash flow back to investors with 75 per cent by mid-2023 once their final leverage metric is reached. We think a fairer multiple is 5x = $11.20 target price = 110 per cent potential upside.

PAST PICKS: May 28, 2021

Eric Nuttall’s Past Picks

Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, discusses his past picks: Whitecap Resources, Baytex Energy, and Cenovus Energy.

Whitecap Resources (WCP TSX)

  • Then: $5.73
  • Now: $11.64
  • Return: 103%
  • Total Return: 108%

Baytex Energy (BTE TSX)

  • Then: $1.84
  • Now: $7.13
  • Return: 287%
  • Total return: 287%

Cenovus Energy (CVE TSX)

  • Then: $9.83
  • Now: $30.08
  • Return: 206%
  • Total Return: 207%

Total Return Average: 200%


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