Energy represents a huge part of the Canadian economy, and the steep slide in the price of oil since mid summer hasn’t been pretty for investors in oil stocks. At the same time, oil and gas exploration and production (E&P) stocks have sold off hard, with big implications for the CE Portfolio.

And because liquefied natural gas (LNG) prices are usually set via a formula that links them to a basket of oil products, the long-hoped-for Canadian LNG export projects could be in jeopardy.

What this spells for investors is “opportunity,” and in this issue we’ll cover a variety of ways to play these trends to your advantage.

We discuss the E&P selloff with respect to Aggressive Holdings ARC Resources Ltd., Baytex Energy Corp., Crescent Point Energy Corp., Enerplus Corp., Peyto Exploration & Development Corp. and Vermilion Energy Inc. in this month’s Portfolio Update.

Experience tells us that stocks of well-managed E&Ps with strong production-growth profiles will recover and eventually move higher. For example, we’ve experienced similar situations via our long-term ownership of ARC and Vermilion—the latter a member of the CE Portfolio since the advisory’s first issue in July 2004, the former an August 2004 addition.

Of course, lower prices mean higher risk, including for sustaining dividend yields. Note that, as we detail in this month’s Dividend Watch List feature, dividends for all oil and gas producers should be considered “at risk.” Some are more at risk than others, of course, because of their exposure to volatile commodity prices.

The LNG Question

As for the future of Canadian LNG export projects, recent commodity-price movements are troubling. These exports are part of critical efforts by policymakers and business leaders to diversify the Great White North’s export markets. Not all of the dozen-plus potential projects will come to fruition. Even if just a few get to the production phase, however, the boost to the Canadian economy will be comparable to that of the oil sands.

And the risk to dividends and exports is balanced in the long term to a great extent by rising Asian demand for energy.

The future of Canadian LNG—including ways for investors to profit from the potential infrastructure build-out—is the topic for this month’s In Focus feature.

Whether the decline in oil prices is a positive or negative for the Canadian economy is a complicated question. Should crude slide much below $80 and stay below that level for an extended period of time, we will begin to see meaningful cutbacks in E&P capital spending. And that would have deep ramifications for energy-services firms that work the fields, financials that provide and/or arrange funding, industrials that build infrastructure to support production, and other sectors such as real estate investment trusts that own assets in energy-focused regions.

But the evidence, as we present it in Portfolio Update, suggests we’re close to a bottom at these levels.

And although the International Monetary Fund now ranks China the biggest economy in the world in purchasing-power-parity terms, the fact that the U.S. added 200,000-plus jobs over each of the past nine consecutive months is a strong signal that what remains the most important economy in the world is on solid footing.

The wind, however weak, appears to be at the back of the U.S. economy. Rising employment translates into rising wages, and that means consumption. U.S. consumers also benefit from lower gasoline prices, an eventual, if attenuated, outcome of cheaper crude.

As for Canada, $80 oil may represent a sweet spot. Lower than this for an extended period and we see production destruction. Higher and energy prices hurt consumers.

Around this level, however, the value of the Canadian dollar, a commodity currency that generally tracks crude, makes for attractive non-energy exports.

We see signs of positive feedback in Canada’s trade data for September.

Statistics Canada recorded a trade surplus of $625 million (U.S. dollars) in September, reversing a $408 million deficit in August. The sharp improvement surprised Bay Street economists, who were expecting a $265 million deficit.

Strength was evident across multiple sectors. Exports of autos and auto parts accelerated, rising by 6% as vehicle sales in the U.S. remained robust. Export volumes, a measure that excludes the impact of price fluctuations, were up 10.4%, with gains in aircraft and ships, which registered a second successive increase above 40% in annualized terms, and energy, which rose 14%.

The sharp decline in the price of oil will weigh on Canada’s terms of trade for October and November. But the related depreciation in the Canadian dollar—which is down 6.4% in 2014 and touched a five-year low on November 6—is a positive for non-commodity exporters, as it makes the price of Canadian goods cheaper in other markets.

It’s less positive for commodity exporters, because their products are priced in U.S. dollars. The energy trade surplus will be under pressure from softer prices. But the overall picture for trade is positive. A resurgent U.S. economy and the loonie’s depreciation should help trade drive Canadian growth into 2015.

That would add a second leg to a Canadian growth stool that’s been supported in large part by consumers alone for a couple years running. And strength in non-energy sectors should inevitably drive business spending, a potential third leg.

CE associate editor Ari Charney has more on the emerging depth of Canada’s economy in this month’s Canadian Currents.

First Moves

As always, the place for new money to start is with the monthly Best Buys feature.

Auto parts and systems manufacturer and supplier Magna International is already enjoying the benefits of a strong U.S. market, reflected in solid third-quarter financial and operating results. The company already has a significant presence in Europe, where solid car sales continue despite broader macroeconomic issues. And management is already executing a long-term plan to drive future growth via Asia.

And Magna is on track for another double-digit dividend increase in early 2015. The stock has shot up since mid October after selling off with the broader market. But, trading at less than 12 times earnings, it represents good value all the way up to $110.

Canadian Apartment Properties REIT, which owns multi-unit residential properties concentrated in major markets such as Toronto, Montreal and Vancouver, is well placed to benefit from continuing affordability issues for Canadians shut out from buying single-family homes.

It’s also demonstrated its resilience amid concerns about the impact of rising interest rates on real estate investment trusts and other similarly sensitive sectors. In addition to putting up solid financial and operating results, management has raised the monthly distribution three times since 2012 and will likely do so again in mid 2015.

CAP REIT is within 5% of its pre–“taper tantrum” high on the Toronto Stock Exchange. But it represents solid value up to $25.

Feedback Welcome

We’ve received much positive feedback in the aftermath of the changes we made to CE starting in the October issue. We’ve also received some very constructive criticism.

As always, we welcome your comments, questions and suggestions on these changes and any other issues or concerns related to the service. Please let us know what you think or post any questions you may have to the Stock Talk forum at www.CanadianEdge.com. We’ll be sure to post a reply within 24 hours.

And be sure to join me for the next installment of my monthly online chats with subscribers on Tuesday, November 25, at 2 p.m.

Go to www.InvestingDaily.com/Canadian-Edge/live-web-chats for more information and to sign up to receive an e-mail notification for the event.