Energy stocks have really been taking it on the chin these days as oil prices plummeted. But Canadian energy stocks have been hit especially hard.
Like U.S. benchmark West Texas Intermediate (WTI), Canada’s standard Western Canadian Select (WCS) has also plunged in price as the various supply/demand imbalances have taken hold. The problem is that WCS — thanks to transportation bottlenecks and issues — often trades at discounts to WTI. So while WTI has been making new six-year lows, WCS has fallen even further — all the way down to about $15 per barrel.
Needless to say, Canadian energy stocks have fallen pretty darn hard over the past year or so on that drop. Additional pressure comes from the continued drop in the Canadian dollar and potential economic issues with regards to China — one of Canada’s largest consumers.
But that also makes some of Canada’s best energy stocks pretty cheap, as well. For investors looking to snag some long-term values, these beaten-down energy stocks are on clearance. The long-term picture is still pretty rosy for Canada’s fertile energy sector.
Here are three dirt-cheap energy stocks to buy today.
Cheap Energy Stocks: Suncor Energy (SU)
When it comes to Canadian energy stocks, Suncor Energy (SU) is one of the biggest.
Back in the 1960s, Suncor pioneered commercial development of Canada’s oil sands — one of the largest petroleum resource basins in the world. Since then, the company has grown to become a globally integrated energy company with a balanced portfolio across various energy-producing regions. But you wouldn’t know it by how the stock has reacted. People still think Suncor is 100% dedicated to oil sands.
Over the past 52-weeks, as oil has fallen, SU stock has plunged 33%.
That drop is totally unjustified. To start with, SU owns four refineries, which are able to feast on its own cheap production. Those refineries and its marketing/downstream divisions have huge margins. In fact, the margins are so huge that Suncor is practically minting money. So far this year, SU has managed to produce $700 million in free cash flow even after capex spending. Meanwhile, Suncor has cut costs at its oil sands operations, boosted production at its other “standard” oil/natural gas fields and reduced capex spending.
All those benefits have resulted in a dividend increase and a reinstatement of share buyback program. That’s right –when most energy forms are slashing dividends and canceling share buybacks, SU actually raised its payout.
Trading at a forward P/E of 16 and carrying a 3.28% dividend yield, SU is one of best energy stocks to buy today.
Cheap Energy Stocks: Canadian Natural Resources (CNQ)
Owning a diverse portfolio of assets and reserves — covering oil, bitumen, natural gas and natural gas liquids (NGLs) — Canadian Natural Resources (CNQ) is a great cheap energy stock for investors to buy.
Like many of its Canadian brethren, CNQ has plunged about 30% since WCS and natural gas prices have cratered. However, unlike many energy stocks, CNQ will be a survivor.
Its operations are humming right along. CNQ managed to deliver record natural gas production last quarter and saw increases to its oil production, despite a series of forest fires that actually shut down operations for a while. Meanwhile, operating costs have fallen across the board. CNQ saw crude oil production costs drop by 13%, while oil sands production sank by 20%. Moreover, CNQ has removed an additional $2.3 billion from its capex budget.
All of this should help on the earnings front, where Canadian Natural Resources has already been performing decently.
CNQ reported a loss of $405 million. But that loss was 100% due to a recent tax grab by the government in Alberta. Backing that out, CNQ was actually profitable.
Trading at forward P/E of 20 and sporting 3.12% dividend yield, CNQ could be one of the best Canadian energy stocks to buy today.
Cheap Energy Stocks: Encana Corporation (ECA)
Perhaps one of the best cheap energy stocks to buy is a turnaround play. Once-proud Encana (ECA) has fallen on hard times over the last few years and the recent oil rout isn’t making things any better.
To start with, Encana spun off its heavy oil operations as Cenovus (CVE) so ECA could focus 100% on natural gas … just as prices were peaking. Strike two came as ECA began shifting its focus towards adding liquids back into its mix — both crude oil and NGLs. Unfortunately, ECA made the shift right when oil started to peak.
Today, ECA trades in the single digits. At it its peak, it was $94 per share. And now it’s time for investors to consider piling back into ECA stock.
Encana continues the transformation of building itself back into one of Canada’s premier energy concerns, and that means being more balanced with its production. As part of that move, ECA sold its natural-gas-rich assets in the Haynesville shale.
Aside from bringing in $850 million, the sale will help improve ECA’s margins. The Haynesville was seen as an albatross around the neck of ECA’s other lower-cost areas of production: the Eagle Ford, Permian, Montney, and Duvernay shales. By improving its overall margin-per-barrel, ECA will be able to generate solid cash flows during weak price environments (like today’s) and potentially increase cash flows further when prices resume.
All these factors add up to make ECA one of the best cheap energy stock to buy today.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.