Whitecap Resources Inc T.WCP

Ink Research

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Morning Report: Director buys as Whitecap surges to new highs

With WTI and Brent crude oil moving above US$100 per barrel, it is worth considering the possibility that the oil & gas rally may be nearing a peak. While tops are always difficult to call, at this point, insider signals point to continued price momentum for the Energy sector. Our Energy Sector Indicator remains over 100%, meaning there are slightly more stocks with key insider buying than there are with selling. That is remarkable because the S&P/TSX Capped Energy Index has advanced 89.7% for the 12-months ended March 1st. After such an advance, we would fully expect insider selling to dominate as insiders take profits.

Whitecap Resources (WCP) is one of the stocks in the sector that continues to see insider buying even as it makes new 52-week highs. A director bought on Tuesday, helping to push the total value of insider buying this year to $421,334. There has been no selling. Meanwhile, Whitecap stock is gaining momentum. The stock is up 84.8% for the six months ended March 1st. Continued insider buying signals that, despite the gains, the market may not yet be fully pricing in company prospects. For example, according to INK and Refinitiv data, the stock is trading at a trailing 12-months price-to-cash-flow ratio of 2.7 versus a sector average of 7.1 and market average of 10.1.

Judging by the relatively depressed valuations of energy stocks, investors seem unconvinced that the Energy bull market has legs. Our signals suggest otherwise. While there could be oil & gas stock pullbacks in the weeks and months ahead, healthy levels of insider buying give us some conviction that the 6 to 12-month momentum remains to the upside.