Eric Nuttall, portfolio manager, Sprott Asset Management
FOCUS: Oil & Gas stocks & small-cap Canadian equities
MARKET OUTLOOK:
Oil and energy stocks have likely seen their worst days as most potential negative news is now out and fully digested by the market. The current global over-supply of oil is being rebalanced from stronger than expected demand growth in the U.S., flattening-to-then falling US production growth, and potentially weaker-than-expected production growth in non-North America non-OPEC countries (Weatherford suggesting 1.5 to 2 million Bbl/d drop in 2016 over 2015). The oil market could potentially be undersupplied in 2016 unless oil rallies to allow increases to global capex budgets from their depression-like levels. In short, the worst is likely over and now is the time to be adding exposure to the energy sector.
In non-resource small cap land valuation multiples, especially in the healthcare and technology sectors, continue to expand and in some instances appear fully valued relative to their earnings growth rates. As oil and by extension energy stocks increase in favour in the second half of 2015, money flow could leave these overvalued sectors resulting in pockets of unexpected weakness. Additionally, opportunities exist in some “quasi oil stocks” that were weak in late 2014 and early 2015 on concerns that weak consumer spending in Western AB would impact earnings. (more)Please share this article
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