This week’s drone strikes that shut down Saudi Arabia’s oil production sent many Canadian oil stocks upwards.
The energy sector seems to be picking up more steam and investors are returning to the prospects of the industry. Analysts have been enthusiastic about energy recently, citing consistent cash-flow and decent yield.
Energy sector stocks also benefit from having a lot of institutional investors, giving their share prices more stability. We’ve seen the energy sector lag behind these past couple of years, but the prices look to be recovering, especially with geopolitical uncertainty.
The North American energy sector looks poised to take off in the near future.
Suncor Energy Inc (SU-T)
Although Suncor is relatively expensive to its peers, they offer good cash flow and decent yield. The yield is over 4% and they have one of the best integrated operations and assets in Canada.
Attractively valued, trading at around 12% free cashflow yield at $60 oil. Would go up to 17% at $70 oil. Big underperformance relative to CNQ. Good upside, even up to 50%. More than that at $70 oil. Sold to buy small cap oil companies. Preference for other names.
Canadian Natural Rsrcs (CNQ-T)
The stock is close to book value right now. In the low $30s, analysts look keen on buying it. The company is also buying back stocks aggressively with its large free cash flow.
(A Top Pick Mar 04/20, Up 21%) He'll own this for a long time and will still buy it in the low-30s. They increased their dividend last year and for the last 30 years or so. Super management enduring in a tough environment. Managers focus on free cash flow.
Gran Tierra Energy Inc. (GTE-T)
The balance sheet is in good shape, and it is trading at half book value right now. They are also increasing production. Their core assets are in South America, and they are now looking at Mexico.
Small oil and gas producer operating in Colombia. His preferred play is Parex Resources. GTE is more aggressive and not as financially strong. Parex has no debt, in fact has cash. GTE production fell off a cliff last year. Higher beta. More leveraged to an oil recovery, if you think oil's going to $70-75, which…
Baytex Energy Corp (BTE-T)
A Calgary based oil and natural gas company that received Top Pick by John Zechner. They have been paying down debt and about 60% of production gets a premium price. There are no dividends, but the company is expected to use their free cash flow to buy back lots of shares.
(A Top Pick Feb 12/20, Down 33%) A higher-beta oil play. They have excess debt that they'll pay down this year with free cash flow. They have a good free cash flow yield. He targets $1.40-1.50 based on $60 oil. At $60, this is a free cash flow machine. The business model changes drastically from…
Husky Energy (HSE-T)
One of Canada’s largest integrated energy companies. They were trailing along at their 52-week low recently. They are expected to grow in China with more thermal projects over time. The stock is cheap and it should recover along with the whole sector.
HSE-T + CVE-T: Stay after the merger? He does not own either one. He understands the merger makes sense. There are a lot of cost savings that can be found. He prefers CNQ-T, PXT-T and one of his Top Picks today. He prefers these to HSE-T. If the sector bounces back you could get an…
Tourmaline Oil Corp (TOU-T)
The company is transitioning from dry natural gas into more liquids. A very well run company who is expected to trade at 2 times cash flow in a couple of years, when commodity prices rise.
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The sector rally has paused though TOU is still up 39% this year. The stock remains attractive on most metrics and good growth is expected this year. Next year should see slower growth. Cash flow is good and dividend was raised a couple weeks ago. Unlock…
Cardinal Energy Ltd (CJ-T)
A mainly oil producing company. They have been using their cash flow to pay down debt and financials look good. They cut dividends as prices came down when it was dragged down along with the rest of the sector.
Had a convertible note that was converted to stocks so bought it. 7% stake in the company. 2.3x cashflow at $60 oil. Trading at 34% free cashflow yield. Not the most exciting asset, but generates a lot of free cash. They could reinstate their dividend. (Analysts’ price target is $2.65)
Crescent Point Energy Corp (CPG-T)
An oil and gas company out of Calgary. They recently sold some assets in Utah and southeast Saskatchewan. They had quite a rally this month, though it’s now run into some resistance.
Has pulled back. An opportunity to buy into it. Bought an asset from Shell. The Duvernay play gives them new wind. A higher cost play but worth it at $60 oil. Paid an attractive price for the acquisition. Trade at 3.3x cashflow, and could trade up to 5x cashflow. 80-90% upside. Sold it in the…
Diamondback Energy (FANG-Q)
A company with a focus in the US Permian. As oil prices go back up, analysts expect this company to move first. They have a great inventory of over 7000 well locations.
An excellent operator with low costs. Problem is, this rallies only when the FAANGs dive and vice versa.
CNOOC Limited (CEO-N)
China’s largest producer of offshore crude oil and natural gas. It is dual listed in the Hong Kong and the New York Stock Exchange. Rising oil prices will help advance this oil stock, although there is still some concern over the US-China trade war.
Oil price advances is going to help the advances of oil stocks. Chinese economy is likely to grow at an 8/8.5% for the next decade on a compound basis. Good opportunities.
WPX Energy Inc. (WPX-N)
A petroleum and natural gas company. It is well run with assets in the Permian and the Bakker. The share price has not moved according to their fundamentals so there could be more upside when investors come back to the energy sector.
The best valuation opportunities are in Canada, he thinks. He would sell WPX for the tax loss and buy Parsley instead, who has better exposure to Canada.
Pioneer Natural Resources (PXD-N)
An American petroleum, natural gas and LNG exploration and production company. The company has very little debt with the lowest finding costs in the Permian Basin.
It's his favourite oil company. Very conservative. They always put on a conference call clinic. He doesn't like oil stocks but likes this. They report Wednesday.
EOG Resources Inc (EOG-N)
A Fortune 500 company that specializes in petroleum and natural gas exploration. It does have higher volatility because of the oil exposure, though it is quite well diversified with a lot of offshore assets. An international oil play.
The unique thing is their cost profile -- it is very low compared to peers. The trouble for CVE is getting their production out of Canada. That is why he favours pipelines over producers. There is too much commodity price risk, so he would not be a buyer. You might want to consider EOG instead…
Noble Energy Inc. (NBL-N)
A petroleum and natural gas exploration and production company. They have been rising steadily over the past months. More of the service side of the business.
This all depends on what oil prices are going to do. $50 oil kind of keeps them going, but the costs are much higher than they are getting at the end of the day.
Enterprise Products Partners L P (EPD-N)
A leading integrated provider of Natural Gas Liquids. They offer isomérisation services to produce mixed NGL products as well as their component products.
The best of the pipelines, but he stopped recommending these stocks because they have disappointed investors. EPD does deliver and it pays a 7% yield, too.
Matador Resources (MTDR-N)
An American oil and natural gas company that engages in exploration, development and acquisition of resources. It focuses on shale plays and other unconventional resource plays.
(A Top Pick April 2/14. Down 18.73%.) His job it is to watch for change and as he sees change, be able to reposition portfolios as required. Last summer, the US$ started to blast off, which happened at the same time that energy prices started to roll over. He got stopped out of virtually all…
Southwestern Energy (SWN-N)
An exploration and production company in the natural gas and petroleum sector. It has the benefit of giving you exposure to both shale and conventional gas. It is a potential take-over candidate, according to some analysts.
Very bullish outlook on gas and this will give you great exposure to gas. Well run and a tremendous track record in production growth and reserve growth. Both shale gas and conventional gas exposure. Potential take-out candidate.
Apache Corp (APA-N)
An independant energy company that specializes in natural gas, crude oil and natural gas liquids. It’s operations are focused in the Guld of Mexico, Permian Basin, Gulf Coast among other locations. It also has operations outside of North America.
Devon Energy Corp (DVN-N)
An independant natural gas, NGL and petroleum exploration company. They specialize in onshore exploration in North America. It has a particular exposure to the Canadian oil sand properties.
(A Top Pick Jan 19/21, Up 29.3%)Stockchase Research Editor: Michael O'Reilly Our PAST TOP PICK with DVN has achieved its $26 objective. We now recommend covering 50% of the position to remain disciplined. We also recommend trailing up the stop to $20 (near the original recommended entry) to all but ensure a minimum investment return…
SM Energy Company (SM-N)
An American petroleum and natural gas exploration company out of Denver. An analyst said that SM Energy Company is part of the oil stocks whose prices have outrun the fundamentals with major gains.
Energy company - oil and gas producer. He is looking for companies that are good quality, selling off and with volume picking up as it turns, which this is. He is already making money on it. Stop is $47.
Continental Resources (CLR-N)
An exploration and production company for petroleum and natural gas. They specialize in crude-oil concentrated, independent oil and natural gas. Their operations are in the Rocky Mountain, Mid-Continent and Gulf Coast regions in the US.
This was the poster child for the US growth machine. But now they are in one of the worst places. Cut cap X program and will likely have to cut it again. Prefers Canadian oil stocks. Thinks there will still be revisions to CLR-N’s cash flow.
Cabot Oil & Gas (COG-N)
A low cost operator in petroleum, natural gas and NGL. The stock price has been under pressure from the shortage of pipelines in the region.
(Top Pick March 10/14, Down 14.12%) They are a lower cost operator. He sold this a couple of months after recommending it. Their challenge has been that their industry has been wildly successful in getting production growth and now there is a severe shortage of pipelines in the region so the price they sell for…
Oasis Petroleum Inc. (OAS-N)
The company has gone through transition and has changed the way they operate. They did a massively diluted share offering in late 2017 and they are still proving their competency.
A name in transition. Used to be viewed as a leveraged way to play oil because they had financial leverage and were in the US Bakken play, which is still exceptional economics in a lot of their acreage. In the fall, they did a massively diluted share offering to purchase acreage in the Permian, paying…
Chesapeake Energy Corp. (CHK-N)
Highly leveraged though it is a good company. It has some great assets, and analysts are waiting for a sustained bull market in energy. It is range bound.
Probably a name he would hold or avoid, simply because it is so highly levered. A good company. It has some good assets. If you see a sustained bull market in energy, this could be fairly attractive. However he doesn’t think we are going to have a bull market in energy right now, so this…
Denbury Resources (DNR-N)
A company who is primarily oil driven. They are exploring and developing assets in the Gulf Coast region.
Anadarko Petroleum Corp (APC-N)
It has performed relatively better than Canadian oil stocks. They have good properties and good reserve life. Their price is reasonable and the question is how you think the commodity prices will go.
Tremendously high profile in the US and has held up relatively better than our Canadian oil stocks. Good properties and good reserve life. Good price. Really a question of what you think is going to happen on commodity prices.