When prices do recover Encana is in the perfect position to take advantage. Encana is involved mainly in 'unconventional' plays. These 'unconvential' plays are potentially massive fields that are hard to tap unless you have plenty of cash; something Encana has a lot of. This also gives Encana some of the best margins in the industry. In a competitive market, with low prices and huge supplies you want to have your money with the cheapest producer with the best balance sheet: Encana definitely fits the bill in both those areas.
As always I like to go through some great fundamental points on why to own the company before we look at some technical hints to find the best entry point.
FUNDAMENTALS:
STOCK BUY-BACK PROGRAM
Encana announced a buy-back program for 5% of the outstanding shares. That is a billion dollar buy-back program that would result in the cancellation of up to 37 million shares. I appreciate the foresight here as Encana has some of the best and cost effective properties so what better place to investment free cash flow than Encana itself.
FINANCIALS
For fiscal 2009 Encana boasted a 2 billion dollar free cash flow. This is while natural gas prices were at all time lows. However, it is fair to note that they had an excellent hedging program to sell natural gas prices at a much higher price. One could expect their revenue and earnings to take a hit in the short if the natural gas prices stay depressed, however, the market has already more than priced this in. It has a strong balance sheet and the best margins in the industry, meaning there is no better way of playing this sector. They boast a Price/cash flow ratio for the trailing twelve months of 3.8 when the industry average is 10.3.
TECHNICALS
Although the movement of this stock over the last little while has been boring I think we have a solid consolidation pattern making for quite a juicy entry. Of course I would like to see Encana break through resistance at $ 29 US before declaring a clear break to the top
