KANGAS: Joining me now to take a closer look at the energy
sector is Kurt Wulff of McDep Associates. That`s his own energy research firm
and welcome back to NIGHTLY BUSINESS REPORT Kurt. Good to see you.
KURT WULFF, ENERGY ANALYST, MCDEP ASSOCIATES: Thank you,
Paul. It`s good to be here.
KANGAS: Well, "Barron`s" financial magazine calls
you the energy analyst that oil barons consult when they want to make money in
the sectors. That`s a real compliment.
WULFF: Thank you.
KANGAS: Tell me, that`s an interesting name, McDep
Associates. I know the MC stands for market capitalization. What`s the rest of
it stand for?
WULFF: McDep is my analytical ratio. It stands for market
cap and debt, the de for debt. That`s the numerator of the ratio. The
denominator is P, present value. In the old days, we always looked at oil and
gas stocks in terms of their value of resources and we typically looked at stock
price to net asset value. But then during the early `80s, when there were some
big deals for debt, I felt we had to recognize the debt factor as well. So I
came up with this combination of market cap and debt to present value.
KANGAS: Kurt, you focus on five areas when it comes to the
energy sector. First the mega caps. Name a couple of your favorites in that
WULFF: Paul, I have what I call a B1, my top buy rating on
Chevron Texaco and Royal Dutch. Chevron Texaco because it`s a little cheaper,
has a lower McDep ratio than the others. While
Royal Dutch is priced in line with the others, this is an historic time for that
company, because they’re collapsing the two company structure into a single
company with a single chief executive and a single board of directors.
KANGAS: You also cover the producer refiners and which are
your favorites there?
WULFF: I have my B1, the top buy rating on Conoco Philips
and a B2 which means good stock but don`t own as much because of political risk
on Petro China and Lukoil, the Russian and Chinese company. And also a full buy
rating on Norsk Hydro, a nice compromise, in that it`s a non U.S. company, where
there might be more potential, but it doesn`t have as much political risk as
Russia and China.
KANGAS: How about the large cap independents? What do you
WULFF: Here`s where you can make more money if you`re a big
investor, big institution. These are big stocks.
My B1 ratings are on Burlington Resources, Anadarko and Encana, a
Canadian company. And I also have a B2, meaning hedge risk a little bit on CNOOC,
a Chinese independent.
KANGAS: You think those stocks are potential takeover
KANGAS: OK simple enough. How about the small cap
WULFF: Well, I have Encore Acquisition Company, one of my
favorites run by a very successful manager over the years. Berry
Petroleum which is actually my best stock last year, so you`ll have to be a
little cautious about whether they can continue to do as well. And Cimarex
KANGAS: OK and then what about the oil income trusts?
WULFF: My recommendation there is Canadian Oil Sands Trust.
I have a hold recommendation on San Juan Basin Royalty Trust, one of my long
time favorites and its stock price is a little more attractive again here.
Canadian Oil Sands is all oil.
KANGAS: Yeah, that`s the advantage of these oil income
trusts, good yield.
WULFF: You can`t find yields like that in reliable
securities in very many places.
KANGAS: Kurt, do you own any of the issues or have any
banking relationship with the companies you mentioned?
WULFF: I certainly don`t have a banking relationship.
That`s a requirement of my business, but I do own all the stocks.
KANGAS: You own them, so you believe in them obviously.
WULFF: I eat my own cooking as they say.
KANGAS: There you go. Kurt, I want to thank you very much
for joining us today.
WULFF: Thank you for having me Paul.
KANGAS: My guest, Kurt Wulff of McDep Associates.