Nuttall versus Blair

A challenge match over the next year where no one but me can lose anything

I watched energy guru Eric Nuttall on BNN today, with an excellent episode of Market Call. Eric’s “top picks” were Baytex (BTE), Crescent Point (CPG) and Precision Drilling (PD). He saw the potential for PD to more than double, for CPG to reach $19.28 a share for a gain of 68% and saw good potential for gains in Baytex but didn’t state a figure. The BNN host reported analyst target prices of $13.46 for Crescent Point, $6.31 for Baytex and $123.39 for Precision Drilling. You have to admire Nuttall for his bold calls that see gains far greater than the consensus of Bay street analysts.

Eric reviewed his Past Picks from February 24, 2023 which comprised Tamarack Valley at $4.33 a share; Athabasca at $2.91 a share; and, Cenovus at $24.78 a share. Today Tamarck is $3.98 a share, Cenovus $23.63; and, Athabasca is $5.09 a share. These three names returned a respectable 31% year over year in aggregate according to the BNN summary page. I get a somewhat different return by simply adding the prices of each name today versus the sum of those prices last February and I get a 2023 total of $32.02 and for today in 2024 I get $32.07 which, when you add in dividends, is a low single digit return. The BNN report must assume an equal dollar investment in each name but I doubt that is a reflection of their actual weights in Nine Point.

For this episode of Market Call, Nuttall’s top picks were premised (he said) on an assumption of $80 oil, $4.00 natural gas and a $12.50 differential for WCS, if I heard him correctly. I presume the oil price and WCS prices are in U.S. dollars while the gas price is in Canadian funds, and will use a flat exchange rate of $0.75 U.S. per Canadian dollar.

Using those parameters, I have run my Black-Scholes valuation models for several Canadian energy names including Nuttall’s “Top Picks” and will go out on a limb and suggest that the names that will enjoy the highest returns are those that have the highest intrinsic values calculated with the Black-Scholes model.

I get pretty attractive returns for both Baytex and Crescent Point, valuing these two names at $8.40 and $19.50 respectively, not that far from Nuttall’s valuations I suspect. And I see no reason why Precision Drilling should not trade for as much as $180 a share if the company doesn’t make another treasury dip giving management a pile of unearned compensation which, in my opinion, they did last year.

But Eric ignores natural gas names and smaller capitalization oil names. I don’t.

At $80 oil and $4.00 gas with a $12.50 differential, I value Bonterra (BNE) at $45 a share versus $6.49 today; Birchcliff Energy (BIR) at $18.00 a share versus $5.32 today; and, Saturn Oil & Gas (SOIL) at $12.00 a share versus $2.53 today.

So, I am willing to bet a donation of $1,000 to Eric’s favorite charity if Eric’s “Top Picks” for today outperform (including dividends) Bonterra, Birchcliff and Saturn using a simple $100,000 invested in each name at the prices at today’s close of business which are:

Baytex $5.30
Crescent Point $11.32
Precision Drilling $96.01

Bonterra $6.49
Birchcliff $5.32
Saturn $2.53

Contests are always fun and pitting a professional like Eric Nuttall against an amateur like myself gives Eric a bit of an edge. In the unlikely event that Eric loses, I made no demands on him for anything. I wish him continued success with the two funds he manages. And I assure readers that my investments in each of the names I have suggested as alternatives to Eric Nuttall’s “Top Picks” exceed $100,000.