Eric Nuttall's Top Picks: November 5, 2021
BNN Bloomberg
Top picks from Eric Nuttall, partner and senior portfolio manager, Ninepoint Partner
Eric Nuttall, partner and senior portfolio manager, Ninepoint Partners FOCUS: Energy stocks
MARKET OUTLOOK:
With global oil demand back to pre-COVID levels despite still-weak jet fuel demand, and the end of U.S. shale hyper-growth due to the necessity of shale companies to prioritize return of capital, we look for global oil inventories to continue to fall - putting significant upwards pressure on the oil price in 2022 (likely US$100 by year-end 2022).
While still volatile and at short-term risk from either a SPR release or advanced negotiations with Iran, we strongly feel that oil is in a multi-year bull market that will eventually lead to all time high oil prices.
Despite the strong performance YTD, energy stocks are cheaper today than they were on January 1st of this year. Much of this year’s gains have been healing the damage inflicted on share prices in 2020. With oil rallying from US$52 to US$80, trading multiples have collapsed and energy stocks are discounting roughly US$57-US$60/bbl today.
At the current oil price, energy stocks are trading at an average multiple of 2.5x enterprise to cashflow and a 33 per cent free cash flow yield. Given rapid deleveraging, the energy sector is now beginning to return egregious amounts of capital back to shareholders and with many exceeding 10 per cent in 2022, generalists are now being forced to come back to a sector long loathed and abandoned. Despite a great 2021, we think energy stocks could double again in 2022.
