Painted Pony Petroleum Ltd. (TSX:PPY) is a junior company with the fourth-largest natural gas reserves among publicly traded energy companies on the TSX. The company has been in a house of pain over the past few months and has continued to spiral downwards.
The stock is now off 47% from its 52-week high, and many analysts are downgrading the stock and lowering price targets by substantial amounts. Despite all the negative momentum the stock has seen lately, I still think it is a terrific long-term value play for investors who are bullish on natural gas.
There’s no question that Ottawa’s proposed carbon tax will hurt Painted Pony as well as any other Canadian energy producer. It looks like the carbon tax may go through, even if it means it will affect Canada’s competitiveness in the energy sector.
It’s not just natural gas that’s feeling the pain. Canadian oil producers are being viewed as unattractive by foreign investors, and that’s a huge reason why we’ve seen foreign companies dump their assets in the Albertan oil patch. Even legendary investor Warren Buffett sold his shares of Suncor Energy Inc. Should you even consider owning any Canadian energy companies if the Oracle of Omaha is looking elsewhere?
Canadian energy companies aren’t looking pretty these days, but I believe the downside will present a huge opportunity for long-term investors to jump in. I think Canadian energy assets will inevitably become attractive again, but this won’t happen overnight.
Painted Pony is truly firing on all cylinders when it comes to production growth. The company plans to increase production by 70% to 408 million cubic feet per day, and it’s expected that the company will become cash flow positive by the conclusion of 2019.
There’s a lot of growth to be had for this junior producer, so it could pay off to buy shares while they’re cheap and hang on to them for the next few years while the company reaps the rewards of its growth initiatives. Natural gas is ridiculously low, and Canadian energy stocks are viewed as unattractive right now. The stock has taken a huge hit because of these reasons, and if you’re a contrarian investor looking to ride a rebound, then Painted Pony is a great play with a decent margin of safety at current levels.
