(By Rich Bieglmeier) Before we get to our replies, remember our opinions and analysis is on an informational basis only. We aren't brokers, lawyers, accountants… make sure you get advice from a professional before you invest any money. If you want iStock's take on any stock you are considering or have in your portfolio, email me at Rich at wallsttools dot com.
Reader Doug asks us, "The stock I am interested in is ERF, Enerplus. It is a Canadian oil+gas producer, seems to have a very beaten down chart to me. Pays a handsome dividend which I believe is safe. Any thoughts would be appreciated!"
Doug, you'll be happy to know that Enerplus Corporation (ERF) does look as if it has put a short-term bottom in its chart. Two consecutive plus days helped created a bullish MACD crossover on Enerplus' chart.
Some downside relief was overdue on relative strength basis as shares were way oversold. However, upside could be limited to its declining 50-day moving average. The stock has been turned back at the benchmark trend-line 100% of the time in the last five months.
As for the dividend, the current payout of 18 cents Canadian has been in place for 39 straights months. Since it's paid in Canadian dollars, a rising greenback hurts your yield and a falling US dollar would boost your fortunes. However, ERF's current payout ratio is twice the five-year average. Either earnings have to rise, or there is a risk that the dividend could be cut. The payout would have to be halved to 9 cents to get to the five-year average, which would still leave a respectable 6.2% yield.
Overall, based on its valuations, technical outlook, and projected earnings growth, iStock believes the stock's price performance could be limited. Therefore, we see Enerplus Corporation (ERF) as more of an income play than a total return play. Although, buying near a low with a 12.4% dividend makes ERF's current level more attractive. We would definitely refrain from buying if the stock approached $21-$21.50.
"Would you be buying Chevron Corporation (CVX) and what is your outlook for the next 6 months"
Honestly, that's a tough one. The Major Integrated Oil & Gas company's fate will be tied to health of the global economy, possibly QE3, and geo-political worries.
News from Europe and Asia isn't too encouraging. China's economy is slowing down, although some analysts are cutting in front of one another calling a bottom. But, with the U.K. double dipping, Germany's manufacturing contracting; the PIIGS struggling with debt and austerity… it's hard to imagine that China has landed softly and safely as the E.U. is their biggest trading partner.
Additionally, U.S. economic data have been on a run of underwhelming results, which have been masked by headline upside earnings surprises; although, the first quarter earnings growth rate is likely to come in somewhere in the neighborhood of a blah 4%.
The wildcards are Ben Bernanke and his digital money press, the European Central Bank (ECB), along with a potential Iran/Israel conflict.
If the U.S. economy continues to falter, the Fed will step in with more monetary stimulus, which will build on the flames of inflation. The ECB is pressuring Germany to give up on austerity and to print i.e. inflate the EU out of the hole.