This idea is predicated on three assumptions I have
- There will be no Border Adjustment Tax on Canadian energy imports to the USA.
- The price of oil stays above $40US/barrel
- The US-Cdn exchange rate stays below $1.35Cdn Dollars for each US Dollar (above ~$0.74US Dollars per Canadian Dollar).
If these assumptions remain true, Canadian energy stocks are trading at a significant discount to their US counterparts.
This TD Securities report has Canadian Seniors, Integrated and Intermediate producers all at a discount. The Seniors and Intermediate trading at the largest discount.
The ratio of two different Canadian Energy Stock ETFs to the US S&P Energy Sector ETF also appear to be bottoming after their recent correction. Both the Canadian Energy Stock ETFs bottomed around the beginning of 2016, rallied until October and then began a correction that ended at the bottom Bollinger Band. The RSI, Slow Stochastic and MACD have all bottomed at a higher level than the previous troughs, suggesting this was just a healthy correction.
Remember this is just an idea and not a recommendation and that any ideas here should be run by your financial advisor and you should perform your own due diligence.
If you like ideas like this please sign up to the free quarterly economics newsletter here.