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How Much Upside Does Birchcliff Energy Ltd. (TSX:BIR) Stock Have?

Birchcliff Energy Ltd. (TSX:BIR) stock has done very well. Since March, the low-cost, natural gas-weighted (about 80% natural gas) oil and gas producer has appreciated more than 70% from a low of $3 per share. With the stock now hovering around $5 and change per share, it is meeting some resistance.

How much upside does Birchcliff stock have?

The super run-up we’ve seen in the stock in the last few months might make investors pause. However, an investment in the stock today can still pay off.

Birchcliff stock has been trading in a cyclical manner. If you look at its price chart over a period of 10 years, you’ll notice the roller-coaster ride. At peaks, it tends to hit highs of more than $13 per share. The most recent peak hit a high of more than $9 per share.

Notably, in the last four peaks over a period of a decade, the stock hit the respective highs during the summer — mostly in June or July. We still have some summer months to go, which could push the stock to the $6-per-share level this year. This would imply near-term upside potential of about 16%.

If you’re looking for a peak that resonates with the stock’s cyclical pattern of the last decade, you may be waiting for a +$9 target for the next two to four years. This would imply long-term upside potential of more than 70%.

So, buyers or holders of Birchcliff stock should be aware of their investment horizon for the stock and adjust their price targets accordingly.

Dividend

Birchcliff stock offers a quarterly dividend per share of $0.025, which implies a dividend yield of just under 2% at the recent quotation of $5.16 as of writing. Although the dividend is small, it’ll still be a welcome addition to the overall returns.

Recent results

Birchcliff’s average production for 2017 was about 68,000 barrels of oil equivalent per day (boepd). Its first-quarter average production was about 76,300 boepd, which was an increase of 24% compared to the same period in 2017.

Management estimates that this year, Birchcliff’s average production will be 76,000-78,000 boepd, which would be a growth of 12-15% over 2017.

In April, Birchcliff entered a long-term (at least 15 years) natural gas-processing agreement at AltaGas Ltd.’s deep-cut sour-gas processing plant in the Gordondale area. This deal will help stabilize Birchcliff’s cash flow generation.

Investor takeaway

Insider purchases are always a positive sign. Insiders bought Birchcliff stock directly or indirectly as recently as early this month at $4.89 per share.

Birchcliff stock tends to have seasonal strength in the summer. Investors looking for a quick trade for this summer could aim to sell at the $6-per-share level. However, this is a riskier method than investors looking for a longer-term investment of two to four years with a target of about $9.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of AltaGas and Birchcliff. AltaGas is a recommendation of Stock Advisor Canada.

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