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Cramer's Pick for Energy Trust Merger Musical Chairs
Stock picking guru Jim Cramer found an energy trust that gives investors "multiple ways to win."
Canadian energy trusts have been shaken up recently as investors digest the sector's prospects sans a tax benefit that helped ensure big dividends. Certainly 2010 should be an interesting year for the stocks, as most of the trusts will likely convert to corporations ahead of a 2011 tax law change. Two of the largest Canadian energy trusts, Penn West (NYSE: PWE - News) and Pengrowth (NYSE: PGH - News) have already outlined their plans for conversion plans in anticipation of the new legislation.
Meanwhile, other trusts have opted to be bought out in lieu of changing structure. In October, we covered Korean National Oil's acquisition of Harvest Energy Trust (NYSE: HTE - News), which sent shares of the latter soaring by more than 30%.
A look at the Canadian Energy Trusts Index's one-month performance comparison shows that the group is largely in negative territory, excluding Harvest, Penn West, and Enterra (NYSE: ENT - News).
CNBC's Jim Cramer has taken a liking to the sector's worst performer over the last month, Baytex Energy Trust (NYSE: BTE - News), which prior to Thursday's opening bell had slipped by -4.5% for the period. Baytex offers investors "multiple ways to win," explained Cramer during his Mad Money program Wednesday evening. The stock could be viewed as a buyout prospect given the wave of M&A activity in the sector, but in the meantime investors are collecting a healthy 5.6% dividend, which if reinvested could compound nicely given stable oil prices.
On the commodity itself, Cramer said, "I don't want you buying crude. I want you buying Baytex." Investors can see how that call plays out by comparing the performance of Baytex to one of the various oil ETFs like the PowerShares DB Oil Fund (NYSE: DBO - News) or the United States Oil Fund (NYSE: USO - News).
Provident Energy Trust (NYSE: PVX - News) and Precision Drilling Trust (NYSE: PDS - News), both valued at under $2 billion, would be an easy buy for any big oil company, as would micro-cap player Enterra, which has a market cap of less than $100 million. Of course the fact that other trusts have been scooped up by suitors by no means guarantees the option for others, so investors should be prepared to endure any structural changes that might occur ahead of the changing tax law.
The Canadian Energy Trusts Index has been a mainstay on tickerspy's top-yielding Index rankings, with components currently paying an average 6.1% dividend. It will certainly be an interesting sector to watch throughout 2010.
Investors can track the Canadian Energy Trusts Index's for performance trends and a suite of other metrics at tickerspy.com.
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