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BNN - Thursday, May 23, 2024 - 06:00 p.m. (ET) - Segment #4

Visit INFINITI.ca. ( ) (upbeat music plays) ( ) ( ) ( ) We were born from a deep desire to create positive change, together. One-hundred-fifteen years later, that impact is felt everywhere. It's where we've made innovations accessible to those who need it most. Where we've championed truth and justice... for all. Where we've mapped out futures... we're already living. From here to here and even here. We're not just transforming lives. We're shaping the world. Here's Amy with the Flow Forecast. Like the weather, your flow changes daily and so should your Tampax size. Heavy downpours coming in? Size up. But if it hurts to remove? Size down. And only Tampax has five sizes for your changing flow. Pack your Tampax combo! Closed captioning of this program is brought to you in part by Bell switch to Canada's fastest Internet. >> Keith is calling from Toronto. Go ahead, Keith, please. >> Keith: (On phone) Yeah, hi, Eric. >> Hey, Keith. >> Keith:Thanks for taking my call. It looks like Surge Energy sold some non-core assets, so they hit their phase two debt target; so 50% free cash flow, back to buy-backs and that. So, your views on that. >> Thank you. >> Sure. So, again, we mentioned earlier you've got to decide is a small cap stock-- with a market cap of 700 million there's not a lot of people on the planet that are interested in a company so small, when they can just go buy CNQ presumably. And so, when we look at it, yes, it is very inexpensive. Yes, it's trading at a significant discount to what it should, its asset value. It's generating gobs of free cash flow, et cetera. But I just-- I'm challenged, given the market cap, to see how these guys get on the radar screens. And so, yes, you can drive a re-rating from being significant share buyers. I want that, in addition to being big enough to allow investors to take a decent enough stake and have an interest in the name. So, we think Surge is a classic example of where tshould find someone else to merge with, gain economies of scale, gain larger market cap, gain a larger relevance, and that-- I think that's their sure path to drive a higher multiple from 2.5. 'Cause, you know, it's clear-- clearly what they have been doing recently is not working, so it's time to take another approach. >> Okay. They're too small to really interest big investors. >> Yeah, 700-- 700 million is very, very small for the vast majority of institutional investors. So, 6.9% yield, very defendable. That's probably-- you've got a loyal retail following from that. They're buying back stock with an 18% free cash flow yield, so that's working. But we just-- I want names with meaningful upside, but a high confidence that I can actually achieve that meaningful upside. It's one thing to have an Excel spreadsheet that tells me that that's the potential, but you need reasons to make people care to get the stock go up, in addition to the impact of share buy-backs. >> Okay. John in Sudbury, Ontario, go ahead, please. >> John: (On phone)Hi, good afternoon. I've owned XEG, which is an ETF, for about three years now, and it's done well. Looking forward to the next, say, 12 to 18 months, would you suggest holding on to that or would you suggest peeling some of that back? It's about 30% of my portfolio. So, I like energy, but I'm just kind of thinking maybe I am missing out on some insurance. >> No, I understand. I am not a financial consultant or advisor. I'm not one to tell what you what your allocation should be. But my recommendation would be for XEG, there are alternatives. There are some funds that have materially beaten the XEG on a three, five, 10, and 15-year basis after fees, where, you know, you've got to recognize now. I think the entire planet owns CNQ. CNQ is the largest constituent of the TSX energy index, i.e. the XEG. It's done very, very well as it should. It doesn't have near the up side we think as other mid-cap names. The spread between large caps and small mid caps is the widest in history. And so we think that if you are looking for meaningful up side, there is a greater likelihood of achieving that in the mid caps than the large. And so we don't own CNQ. Currently now, we don't own Suncor. That's well over half of the XEG. We just think there are better opportunities. >> Andrew: Yeah, the latest I have CNQ is about a quarter of that ETF. Suncor is about almost a quarter. And then Cenovus is another 12%. Yeah. So you're very weighted to just three names. Yeah. We're out of time for your calls. We're going to get Eric's top picks after this.

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