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Montreal-born Tobias Levkovich is the current chief U.S. equity strategist for Citi. In early 2015, I featured a report by Mr. Levkovich that showed that it was relatively simple to estimate profit growth in the energy sector. The strategy predicted a sharp drop in earnings growth and that's exactly what occurred.

Reapplying Citi's analysis in the current environment provides a far more optimistic outlook for Canadian energy stocks.

The predictive method is astonishingly simple – year-over-year profit growth for the energy sector will be roughly equal to the year-over-year change in the West Texas intermediate crude price 12 months earlier.

The chart below highlights the historical success of Mr. Levkovich's technique in indicating future earnings. The grey line shows the year-over-year decline or appreciation in the oil price. The orange line shows annual change in 12-month trailing earnings for the S&P/TSX energy sector – lagged for one year. (For example, the first data point for profit growth listed at May 31, 2002, is actually the year-over-year growth for earnings on May 31, 2003).

The lines track closely – notably from December, 2004, to March, 2014, – indicating that changes in crude prices effectively forecasted sector profit growth.

The last data point for year-over-year earnings is a bit startling – the 115.9-per-cent increase in index profits barely fits on the chart. The increase is plotted at Sept. 30, 2015, but because the series is lagged one year to show the trend, it's actually year-over-year profit growth as of the end of September, 2016.

The big percentage change is an anomaly caused by the small profit-per-share numbers for the S&P/TSX energy index. The average trailing 12-month earnings per share for the index since 2002 is $130.67. The most recent total was $9.93 per share, more than double the $4.60 earned in the 12 months ended September, 2015. Small dollar amount changes are causing huge swings in percentage growth.

These data points are likely to continue in this volatile fashion but, since the annual change in crude prices bottomed in July, 2015, and has been improving since then, the trend in profit growth for domestic energy stocks should continue to trend higher.

Scott Barlow, Globe Investor's in-house market strategist, writes exclusively for our subscribers at Inside the Market online.