How do you know now might be a good time to buy Canadian energy stocks? The Alberta provincial government announced on Feb. 24 that it will be the first Canadian province to balance its budget in 2022 through 2023 after two years of major deficits. When oil goes, Alberta goes.
Oil prices continue to move higher with the Russian invasion of Ukraine. The price of a barrel of Brent crude jumped over $100 on Feb. 24, the first time since 2014. Goldman Sachs believes there is a risk crude oil could rise to $125 a barrel. Some analysts go as high as $150.
Considering a barrel of oil traded below $20 in the early part of Covid-19, energy companies will thrive in the current business environment. Alberta gets 78% of its revenue from resource-based industries such as oil and gas. Many Canadian energy stocks to buy now are based in Calgary, the province’s largest city.
Last year was good for energy stocks on both sides of the border. So far in 2022, S&P 500 energy stocks are up 23.4%. No other sector is up this year.
Life is good for energy companies. Here are 10 Canadian energy stocks to put on your watch list:
- Canadian Natural Resources (NYSE:CNQ)
- Cenovus Energy (NYSE:CVE)
- Enbridge (NYSE:ENB)
- Enerplus (NYSE:ERF)
- Imperial Oil (NYSEAMERICAN:IMO)
- North American Construction Group (NYSE:NOA)
- Pembina Pipeline (NYSE:PBA)
- TC Energy (NYSE:TRP)
- Precision Drilling (NYSE:PDS)
- iShares MSCI Canada ETF (NYSEARCA:EWC)
Canadian Energy Stocks: Canadian Natural Resources (CNQ)
Market Cap: $64.9 billion
Free Cash Flow (TTM): 7.37 billion CAD ($5.81 billion)
Canadian Natural Resources’ history dates back to 1989 and the Shallow gas basin in Alberta. It still contributes to the company’s success 33 years later.
Today, it’s one of the largest independent natural gas producers in Canada. It also is one of the country’s biggest producers of heavy oil and natural gas liquids (NGLs). It also has operations in the North Sea and offshore Africa.
Through the first nine months of 2021, CNQ’s daily production was 1.24 million barrels of oil equivalent (BOE). That resulted in 20.84 billion CAD ($16.4 billion) in revenue and 5.13 billion CAD ($4 billion) in net income.
In 202o, it plans to spend 4.35 billion CAD ($3.4 billion) on its capital program, up 25% from 2021. It projects daily production in 2022 between 1.27 and 1.32 million BOE.
It currently trades at 3x sales.
Cenovus Energy (CVE)
Market Cap: $31.2 billion
Free Cash Flow (TTM): 3.36 billion CAD ($2.65 billion)
Based in Calgary, Cenovus was created in 2009 when its former parent, Encana Corporation, split its oil and natural gas businesses into two independent public companies. Encana itself was formed only seven years earlier when PanCanadian Energy Corp. and the Alberta Energy Company merged.
In January 2021, Cenovus completed its 23.6 billion CAD ($18.6 billion) acquisition of Husky Energy. The all-stock transaction saw Husky shareholders receive 0.78 shares of CVE stock for every share of Husky. They also received 0.0651 of a Cenovus common share purchase warrant for every Husky share. The acquisition made Cenovus Canada’s third-largest oil and gas producer.
In 2021, Cenovus produced almost 792,000 BOE per day, up 68% from 2020. Thanks to higher oil and gas prices in 2021, the company’s financial position improved dramatically. In 2020, it had adjusted funds flow of 117 million CAD ($92.2 million). One year later, it was a whopping 7.25 billion CAD ($5.7 billion).
While its long-term debt increased dramatically in 2021, due to the Husky acquisition, it now has the free cash flow to pay down much of its new debt.
It currently trades at 0.8x sales.
Canadian Energy Stocks: Enbridge (ENB)
Market Cap: $84.8 billion
Free Cash Flow (TTM): 1.16 billion CAD ($910 million)
The National Bank of Canada’s financial analysts recently released the annual list of their favorite Canadian dividend stocks. In 2022, it only makes sense to name 22 Dividend All-Stars. Enbridge was one of them. Its current dividend yield is 6.3%.
Of the 24 analysts covering its stock, 12 rate it a “buy,” one rates it “overweight” and 11 have it as a “hold.” The median target price is $44.93, slightly above where it’s currently trading.
While Enbridge might seem like a weak selection given its small amount of free cash flow, the company has increased its dividend annually for 27 years. If you’re an income investor, it doesn’t get much better.
In 2021, $14 billion of its projects went into operation with more than $2 billion in new projects approved during the past year. Due to the regulated nature of its midstream assets — approximately 80% of its earnings before interest, taxes, depreciation and amortization (EBITDA) — Enbridge is an excellent stock to own during times of high inflation like we’re currently experiencing.
Enbridge got good news in mid-February when it was given approval by Michigan’s Mackinac Straits Corridor Authority to start gathering bids to build its Line 5 pipeline tunnel. The project will be located under the Straits of Mackinac in Northern Michigan.
ENB trades at 2.3x sales.
Market Cap: $3 billion
Free Cash Flow (Full-year 2021): $410.1 million
On Feb. 2, the Calgary-based independent oil and gas exploration and production company announced it will divest its Canadian assets to focus on its operations in the Williston Basin in North Dakota. Its Canadian assets produce approximately 9,100 barrels of oil equivalent on a daily basis, accounting for just 7% of its total production.
It hopes to conclude the divestment process by the middle of this year. Its Canadian head office will remain in place. It also announced all future financial reporting would be in U.S. dollars.
A few weeks later on Feb. 24, Enerplus reported its Q4 2021 results. Highlights in 2021 include two strategic acquisitions to bolster its operations in the Bakken Formation in North Dakota, total production of 92,221 BOE per day — 26% higher than in 2020 — and a 168% increase in adjusted funds flow of $712.4 million.
Because of the increased cash flow, the company was able to increase its dividend by 37% in 2021 and repurchase $123.2 million of its shares.
ERF trades at 2.3x sales.
Canadian Energy Stocks: Imperial Oil (IMO)
Market Cap: $29.7 billion
Free Cash Flow (TTM): 4.37 billion CAD ($3.4 billion)
Exxon Mobil (NYSE:XOM) owned 69.6% of the company as of Dec. 31, 2021. Imperial Oil’s history in Canada dates back to 1880, when 16 oil refiners based in Southwestern Ontario combined their businesses. To gain expansion capital, the group of refiners sold majority control to Standard Oil in 1898. It’s been held by Exxon Mobil ever since.
In 1947, Imperial Oil discovered oil in Leduc, Alberta and the Western Canadian oil industry was off to the races.
Like most oil and gas companies, 2021 was a complete turnaround for Imperial Oil. In 2021, it had a net income of 2.48 billion CAD ($1.95 billion), 233.5% higher than its 1.86 billion CAD ($1.5 billion) loss a year earlier. Its free cash flow in 2021 was 4.46 billion CAD ($3.5 billion), up from 4 million ($3.2 million) a year earlier.
As a result of the turnaround, the company’s capital exploration expenditures increased by 30.4% to 1.14 billion CAD ($900 million) from 874 million CAD ($688.8 million) in 2020.
Imperial Oil trades at 1.1x sales.
North American Construction Group (NOA)
Market Cap: $426.5 million
Free Cash Flow (TTM): 51.39 million CAD ($40.5 million)
Not only is North American Construction Group the smallest market cap on my list, it’s also not your typical oil and gas business. It provides heavy construction services to mining and oil & gas companies in Alberta’s oil sands region.
The company’s website says the following about its business:
“North American Construction Group’s modern fleet of haul trucks, cable shovels, hydraulic excavators, and related pieces of mining equipment, is the largest in Western Canada and features the biggest hydraulic and cable shovels available. This large and diverse fleet gives NACG the ability to respond quickly to changing client requirements, and to provide equipment that is optimally sized for each project.”
When it says large and diverse, it means it. The company has approximately 900 heavy equipment assets ready to deploy across four states (North Dakota, Texas, Minnesota and Wyoming), three Canadian provinces and two Canadian territories.
It trades at 0.97x sales.
Canadian Energy Stocks: Pembina Pipeline (PBA)
Market Cap: $18.7 billion
If you’re a dividend investor, you’ve got to love what Pembina’s investor relations landing page says about the company. It’s paid out 10.5 billion CAD ($8.2 billion) in dividends since its inception in 1997.
You also should like the fact it exists to serve all its stakeholders, including the communities in which it works.
As its name suggests, it’s a pipeline company, with 18,000 kilometers (11,185 miles) of pipelines across North America. But it also operates other energy infrastructure, including natural gas gathering and processing assets. Additionally, it buys and sells natural gas, propane and other products.
Thanks to its marketing of natural gas and other offerings, the company’s revenue in 2021 grew by 45% to 8.6 billion CAD ($6.8 billion). Its adjusted EBITDA for the year was 3.43 billion CAD ($2.7 billion), 4.6% higher than a year earlier. It expects adjusted EBITDA in 2022 to be around the same as 2021.
Pembina trades at 3x sales.
TC Energy (TRP)
Market Cap: $52.5 billion
Free Cash Flow (TTM): 970 million CAD ($764.4 million)
The big news recently for the Canadian pipeline company was the mid-February attack by 20 people brandishing axes on their Coastal GasLink pipeline project under construction in British Columbia. Millions of dollars of damage were done to equipment and lodging at the company site. Fortunately, no one was hurt.
The good news for shareholders is the company continues to deliver solid results. In mid-February, it reported full-year financials that included a 3% increase in revenue to 13.4 billion CAD ($10.6 billion). It also saw a 1.7% increase in earnings per share to 4.27 CAD ($3.36).
CEO Francois Poirier said the following about 2021:
“Today we are advancing $24 billion of commercially secured projects including approximately $6.5 billion that are expected to enter service in 2022. These projects will expand and extend our asset footprint across North America and are expected to generate attractive returns for our shareholders in the years ahead.”
If you’re looking for a stable Canadian energy stock, TRP is it.
TC Energy trades at 4.9x sales.
Canadian Energy Stocks: Precision Drilling (PDS)
Market Cap: $753.4 million
I would say Precision is the least attractive of the 10 names on this list. However, I wanted to include a drilling services company in the mix. It can’t just be all about producers of black gold.
The company reported full-year results on Feb. 10. Business was okay — revenues were 5.5% higher on a 55.2% increase in capital spending. But it continues to lose money on a GAAP basis.
Its operating loss was 81.04 million CAD ($63.8 million), 97.7% higher than in 2020. However, on a non-GAAP basis, its adjusted EBITDA was 192.8 million CAD, 26.8% less than in 2020.
So why should you waste even a second on Precision? As it noted in its Q4 2021 press release, it now has 52 drilling rigs in the U.S. that are active, 58% higher than this time last year. Rigs in place mean money in the bank. The industry is getting back on its feet. When it does, Precision will be there to benefit.
Also, if you look at its fourth-quarter results, you’ll see that every item — whether its revenue, adjusted EBITDA or funds from operations — is night-and-day better than its full-year results.
Precision Drilling trades at 0.9x sales.
iShares MSCI Canada ETF (EWC)
Total Net Assets: $4.2 billion
I decided to include iShares’ Canadian exchange-traded fund (ETF) because it’s important to avoid home-country bias. If you primarily invest in U.S. stocks, ETFs are a great way to diversify your holdings outside America.
EWC’s energy holdings account for 16.2% of the ETF’s $4.2 billion in total net assets, making it the second-highest weighted sector behind only financials at 38.7%. There are 11 energy stocks in the 94 holdings, seven of which are mentioned previously.
As for the financials, you’re getting all six of Canada’s big banks along with the country’s best insurance companies, holding companies and even private equity firms. It’s a solid group that can stand up just fine in comparison to its American competitors.
Fees aren’t cheap at 0.50%, but not many country ETFs are. It’s the going rate to avoid home-country bias. Since its inception in March 1996, it’s averaged an annual total return of 8.4% through Jan. 31.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.