Has Pengrowth Energy Become the Perfect Stock?

• Report this Comment On October 19, 2011, at 7:38 PM, OnTheContrary wrote:

  This article is just a mindless formalism - a fiddling with meaningless numbers and categories that take no account of the rationale of the company or it's role and opportunities in the real world. It is not worth of Motley Fool.

  With PGH growth is besides the point. The only thing that this company needs to do is to be able to continue paying the dividend, and to plow enough capital back into the business to replace the wasting assets. There is no need whatever to grow them. Nor is it relevant that the dividend was cut. That was a one-time response to the Draconian Canadian law that ended the special tax treatment of royalty trusts and forced them to convert to regular corporations. The new entity called PGH is thus financially in no way comparable to the old entity and it therefore doesn't have a five year history to qualify for this evaluative category.

  And the load of debt carried by PGH, while worth taking into consideration, is not comparable to that of other companies incapable of generating the free cash flow PGH does. Ditto for the return on equity category, and the P/E category. The structure of a company designed to pay out most of its profits makes it incomparable to that of the rest of the Wall Street universe.

  Speaking of which, given that we are now slipping into recession, if we're not already there, just what stock do you suppose would make an ideal stock, when the market is probably due to sell off at least another couple of thousand points? PGH has already had it's selloff and discounted a recession in oil and gas prices.

  What is relevant to the value of PGH is the NG price, since about half the assets of the company are in NG properties. And the NG price, as we all know, is scraping the bottom of the barrel - not in the world in general, just in the US. NG in the US is a victim of politics. The biggest factor here is that Obama personally just doesn't like NG - or maybe he doesn't like T. Boone Pickens, who is the fuel's best known promotrer. Instead, Obama was big on "clean coal" in the early stages of his Presidential campaign, until his Democratic handlers told him to shut up about it lest he antagonize the party's green voters.

  We desperately need NG as a bridge fuel. Old coal plants are being shut down and no nukes are being built, and any that are will take 5 years to come onstream. That's in the power generation business. Meanwhile, with just a little nudge from the government (modest subsidies to create infrastructure and make vehicle conversion) virtually all of long haul trucking in the US could be converted to NG, probably within a couple of years, reducing our need for imported oil by 30%. This would also enable us to get entirely out of the Mideast where we are letting our blood and treasure run out into the sand. I think its a pretty sure bet that once Obama is turned out of office, politicians of both parties are going to be open to the promotion of NG use in this country.

  And even if that inevitability is delayed, farther downstream NG pipelines are going to allow continental NG to be conveniently and economically exported to reap the much higher international prices. Pipeline construction in this country has also been delayed to appease the Democratic party's green voters, but that's on the threshold of changing too.

  Thus, while there is some small question about PGH's ability to sustain its current dividend level over the next couple of recession years, a question that applies to each and every listed stock, there is a potential huge payoff as NG prices begin to return to historic norms vis a vis oil. And even if PGH feels that it needs to drop the dividend by a penny or two, I can't think of a more perfect stock, or financial investment, to weather the coming recession in.

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