BCV - Recent Trading Activity - May 2020May 15, 2020
SELL: Suncor Energy Inc. (TSX: SU)
We have exited our position in Suncor Energy Inc., a large Canadian integrated oil producer.
Energy stocks have experienced one of the most significant downturns in recent memory. First, the novel coronavirus spread across the world, shutting down the global economy and causing demand for oil to drop by almost 30 million barrels per day. This was followed by a disagreement between Russia and Saudi Arabia over oil production cuts, which resulted in Saudi Arabia producing more oil, not less. The combined effect and excess supply resulted in oil prices plummeting, hitting a bottom of nearly negative $37/barrel in April 2020 and creating significant losses for oil producers. Although Suncor is a well-managed business with a good balance sheet and long-life, low-declining assets, we believe there is a heightened risk that the company will be forced to cut its dividend in the near term. As prudent managers of capital, we believe it is appropriate to reduce our exposure and redeploy it into a security that has a more secure income stream for our clients and their investment portfolios.
UPDATE – after drafting this trade bulletin, Suncor Energy Inc. announced on May 5, 2020 that they will be cutting their dividend. This trade was completed prior to the dividend cut announcement.
BUY: Canadian Natural Resources Ltd. (TSX: CNQ) & Waste Connections Inc. (TSX: WCN)
We recently added to our position in Canadian Natural Resources Ltd. and added Waste Connections Inc. to our Canadian Balanced and Canadian Equity models.
Canadian Natural Resources is Canada's largest producer of oil and natural gas and offers investors exposure to long-life and low declining oil producing assets. Canadian Natural Resources’ diversified asset portfolios represents one of the strongest of all independent energy producers in the world, which allows it to produce shareholder value through different oil and gas business cycles. We feel that the stress in the oil and gas market will provide Canadian Natural Resources with an opportunity to outperform over the medium to long-term as weaker companies are forced from the market.
Waste Connections is the third largest solid waste company in North America. The company removes solid waste and provides recycling services for residential, commercial, and industrial consumers across the United States and Canada. Waste Connections operates under a differentiated strategy, focusing on exclusive and secondary markets which are less competitive, therefore operating 90% of its business as a monopoly. Waste Connections is the premier player in the waste collection industry for its superior management team, people-focused culture, and successful operating strategy; all lending to industry leading earnings and free cash flow generation. The company introduced its dividend in 2010, which has increased by double-digits, on an annual basis, ever since. We anticipate this growth to continue. Waste Connections provides our investment models with industry and geographic diversification along with business resiliency and recession-resistance. Waste Connections is a company BCV can comfortably hold in its models and client investment portfolios for years to come.