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Buy Baytex on a Dip

Wednesday, 26 Sep 2007 | 8:48 PM ET

About a year ago, a change in Canadian tax laws hit that country’s energy trusts right where it matters: in the stock price. The oilers up north complained that they would be too attractive for foreign companies to ignore, and that’s just what happened. Of course, Cramer found a way for investors to profit from it.

Canadian Oils
Like almost everything oil related, the Canadian Energy Trusts have made many people small fortunes, and going forward, Mad Money host JIm Cramer sees the most money in Baytex.

The Abu Dhabi National Energy Co. recently purchased Canada’s PrimeWest Energy Trust at a hefty 33% premium. That puts the spotlight on the other trusts as likely targets, and it wakes up the market to the fact that the trusts are just too cheap right now. Cramer said that recognition alone should send these stocks higher.

But which of the remaining trusts will go the highest? Cramer created a formula based on production to figure it out. He said enterprise value was the most important factor in determining upside, so he took the cost of acquiring a company at its current quote and divided by barrels of oil equivalent produced per day. That valued the PrimeWest deal at $89,781 per barrel per day.

Cramer’s analysis found five trusts that are much cheaper than PrimeWest, but Baytex offered the most upside. Assuming that BTE gets taken out at a 15% discount to the enterprise value per barrel per day that PrimeWest got, then BTE has roughly 47% upside from the current quote.

“The next time oil dips below $80 a barrel, that’s when you buy the stock,” Cramer said.

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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