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China Eyes Fort McMurray

Now is the Time to Invest in Canadian Oil Sands

Written by Brian Hicks
Posted October 11, 2011

Yesterday I woke up and did the same thing I do every morning: check my BlackBerry.

I immediately opened two messages from my friend Stelios. His messages made me shudder.

And I fully expected to see Dow futures imploding. (More on that in a minute.)

Stelios is a Canadian-born Greek I first met back in 2006. I always listen to what he has to say. He’s a super-savvy investor, trader and entrepreneur.

I once watched him make $450,000 in about 30 minutes when he traded Dow puts on September 17, 2008 — a day when the Dow dropped over 400 points. His pulse didn’t get above resting.

He’s currently in China where he’s a partner in a shipyard that builds yachts. In fact, he designs the yachts himself.

As far as I know, he has no formal education or training in nautical engineering or boat design. Yet last month his yacht took top honors in design.

He is, in short, a renaissance man.

So when I read his emails yesterday, I was happy to be 50% in cash...

Here’s what he sent me:

Email #1

Finally, some mainstream press waking up to China whacko world — with some decent data, too...

More insights from the front line: They pulled my shop's credit line today for no reason... and given us 5 days to pay. Funny thing is, our revenue has tripled and our assets cover loan value by 500%.

Hmmmmmm!

CNBC.com article: "China's Local Debt Pileup Raising Risk of Hard Landing"

When China announced a nearly $600 billion package to ward off the 2008 global financial crisis, city planners across the country happily embarked on a frenzy of infrastructure projects, some of them of arguable need.

Full story: http://www.cnbc.com/id/44839728http://www.cnbc.com/id/44839728

 

Email #2

Dude. A 90% drop in Shenzhen home sales is not a data anomaly.

Might China really have its first domino dropping?

Other fun facts: Went for a walk around my block to a new sister community. It’s about 1 sq. mi. I thought it was cool counting 27 cranes up — until I saw a poster that the complex is going to have the biggest 3D cinema in all of Asia.

The zone where I live doesn’t have 30k population; my town isn’t even 1mil total, many of which are still dragging chickens behind their bikes.

Chinese real estate shows signs of weakening: http://www.marketwatch.com/enf/rss.asp?guid=%7BD15D634D-8DB2-4BD4-8B13-20DAA5149ACA%7Dhttp://www.marketwatch.com/enf/rss.asp?guid=%7BD15D634D-8DB2-4BD4-8B13-20DAA5149ACA%7D

Yet the Dow soared over 300 points yesterday — and comfortably closed above its 50-day moving average. In fact, the Dow has moved up more than 1,000 points (+11%) since last Tuesday.

Oil is bouncing back, too — up $10 from last week.

Have we seen the bottom in the market? I have no idea.

But I think it’s definitely time to deploy cash reserves into beaten-down, dividend-yielding stocks.

What should you buy?

Well, follow the Chinese.

You see, on the same day Stelios was sounding the alarm about China's economy, Chinese oil giant Sinopec announced it was acquiring Daylight Energy, a Canadian oil and gas company.

And check this out: The Chinese are paying a 70% premium to the current per share price to acquire Daylight.

Last month, Asia Times reported Canada has become the latest addition to Beijing’s FDI investment priority list with $15 billion worth of Chinese capital pouring into Alberta.

Since the end of 2009, China National Petroleum Corporation (CNPC), China Petroleum & Chemical Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC) all have made substantial investments in the Canadian energy sector — with a particular focus on the Alberta oil sands development.

The China Investment Corporation, a $300 billion sovereign wealth fund, opened its first overseas office in Canada early this year and chose Canada for its only energy sector equity investment.

chineseenergyinvestmentchart_brian
Canada is, without a doubt, the next energy powerhouse. And it’s a long-term trend.

The Chinese know what I saw with my own eyes two weeks ago when I took a helicopter tour of the booming Canadian oil sands at Fort McMurray.

We flew over the operations of Suncor, Syncrude, Husky, and Imperial.

The amount of wealth being generated in this resource-rich town is mind-boggling. I saw it for myself.

An 18-year old with less than a high school education can come here and start off making over $100,000 per year; in just a few years, he’ll be making over $200,000.

The median home price is $750,000.

Fort McMurray has a negative unemployment rate, meaning thousands of jobs go unfilled.

All of this is occurring at a time when Canadian oil sands stocks are hitting 52-week lows.

Last week, Suncor sank to $22.55 a share. It was its lowest price since the financial crisis of March 2009. At last week’s level, Suncor was trading at a trailing P/E multiple of 9.5... and a forward P/E multiple of roughly 6.

That was a no-brainer investment, a gift.

It’s time to buy. The Chinese are.

Profitably yours,

Brian Hicks
Publisher, Energy and Capital

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