After 32 years in the investment business, Michael Waring has carved out a niche as one of Canada’s go-to portfolio managers for specialized investing.
The Galileo Global Equity Advisors Inc. Chief Executive Officer has earned that reputation by focusing on small and mid-cap stocks, mostly in the Canadian energy sector that offer good growth prospects.
Toronto-based Galileo currently has $275 million in assets under management in two separate funds -- The Galileo High Income Plus Fund and the Galileo Growth and Income Fund – as well as a corporate pension account.
Waring currently owns 35% of the Galileo, with U.S. Global Investors Inc. of San Antonio, Texas holding the other 65%.
In an interview with Stockhouse, Waring said experience tends to pay off in the small and mid-cap area because of his familiarity with the companies he is investing in as well as the management teams. He also believes that Galileo’s current size works to the fund’s advantage. “Small allows you to be nimble because you can [easily] move in and out of a sector,” he said.
Here are some of the companies on Galileo’s radar screen.
Raise Production Inc. (
TSX: V.RPC,
Stock Forum), a company that is developing technology to move oil out of horizontal wells, by placing pumps around the bend of the well, potentially creating higher returns for the driller.“If this works, it could be a game changer for Raise Production and a game changer for the industry in general,’’ said Waring.
However, last week, the company said it had experienced component failures due to quality issues with a third party supplier. This caused the stock to drop to $2.08 on August 18, 2014 from $2.65 on August 14, 2014, leaving a market cap of $186.6 million, based on 85.6 million shares outstanding. The 52-week range is $3.50 and 60 cents. “We are very excited about this,’’ said Waring.
“But I caution that it is early and there is a lot of field testing that needs to be done.’’ Waring said the component failure and subsequent stock price drop demonstrates the benefits of hedging risk by taking a portfolio approach to investing in small cap companies like Raise.
PRD Energy Inc. (
TSX: V.PRD,
Stock Forum) has exploration and production licenses covering 2.4 million acres in Germany. However, Waring said he has been frustrated that the company has been unable to advance its drilling program. They have some execution issues and they need to step it up,’’ he said.
The stock traded this week at 82 cents, leaving a market cap of $98.7 million, based on 120.4 million shares outstanding. The 52-week range is $1.56 and 55 cents. “If we can get some execution on this, or a joint venture partner comes in, then we think that the stock could move up materially,’’ Waring said.
Paramount Resources Ltd. (
TSX: T.POU,
Stock Forum) is a liquids-rich natural gas play in western Canada, which Galileo believes will emerge as one of the top two or three plays in North America in terms of economics.
Trading at $54.80, Paramount has a market cap of $5.7 billion, based on 104.6 million shares outstanding. The 52-week range is $64.63 and $31.87.
“The Riddell family [led by Manitoba-born geologist Clay Riddell] owns 54% of this company,’’ Waring said. “When you invest in this, you are investing alongside billionaires.’’
Warning is also watching privately owned
Seven Generations Energy Ltd., a company which he thinks will go public this year in a bid to finance a drilling program that is costing roughly $80 million per month. The New York base Ziff family trust and the Canada Pension Plan are among the investors in this company.
Seven Generations is engaged in the delineation and development of its Kakwa River Project, a multi-zone gas project in the Alberta Deep Basin approximately 100 kilometres south of Grand Prairie, Alberta.
Whitecap Resources Inc. (
TSX: T.WCP,
Stock Forum) is a standout among dividend-paying oil and gas companies right now, Waring said. He believes that President and CEO Grant Fagerheim has done a great job of adjoining assets to existing properties and exploiting them. “He has a low cost of capital, which allows him to go out and acquire other assets,’’ he said.
Trading at $16.47 this week, Whitecap has a market cap of $4 billion, based on 245.6 million shares outstanding. The 52-week range is $16.97 and $11.
Big Picture outlook
Waring is been bullish on the outlook for oil going back to the fall of 2004. It’s a view that is based on demand for oil in the Asian economy and the theory that most of the cheap oil has already been found.
“Personally, I think oil is locked in a range of US$94 to $112,’’ he said. “At something around $105, I’m very happy as an investor and I know the oil and gas companies that we look at are certainly earning very attractive returns at the projects they are involved in.”
Natural gas, he said, is a little bit more problematic because it is tied to what the weather patterns are going to be. “We see gas being in a range of US$3.75 1Mcf to $4.25 going forward, maybe going as high as $4.50 if we get a cold winter.’’