Hi Lou.
I'm wondering what your take is on Enerplus. It seems to be rebounding after current news of dividend cuts and debt repayments.
Is now a good entry point?Thanks for the wisdom as always!
Kevin
Hey Kevin,
Thanks for the assignment and the kind words. This will be the fifth time that I have evaluated the case for Enerplus Corp. The last time was on May 18 on an assignment from Peter. The shares were trading at $14.08 and Peter wanted to know if the the dividend could be maintained.
Given that the dividend was generating a yield of 15.3 per cent there was a risk it would be cut despite management saying that they had no intention of touching the payout. I mentioned at the time that it's nearly impossible to determine the intention of management as it pertains to dividends.
What I also offered was that the best way to approach ERF was to be patient and see if the stock retested the 1999 lows before acting. A retreat to those levels would have signalled capitulation and washed most, if not all, of the sellers out of the market leaving buyers in control of the market.
Retrospectively, that was the right call. Management cut the dividend from $0.18 a month to $0.09 on June 12, taking the stock to a low of $11.26 on June 26. Since then knowledgeable investors have moved in and enjoyed a better than 30 per cent move off the rock bottom. Another review of the charts will generate evidence that you can use to see if the stock is offering an attractive entry point.
The three-year chart outlines the trail of tears that dominated the agenda since early 2011. The bounce off the rock-hard bottom this June has some interesting patterns worth noting. What you need to spend some time with is the pennant formation that has surfaced in August. A pennant is a continuation pattern that suggests that there is more gas in the tank. If the shares can get through resistance at $16 it can run to $22 without much standing in its way.
We can also observe the buy signals generated by the RSI and the MACD as we came into July.
The six-month chart offers another pattern that suggests that this horse will continue to run. It appears that we are seeing a cup-and-handle pattern forming, which again supports a continuation of the trend. At this point we can say that the bottom is in, buyers are in control and there is sufficient evidence to support a buy.
Make it a profitable day and happy capitalism!
Have your own question for Lou? Send it to lschizas@globeandmail.com.
Lou Schizas