3 Reasons to Buy Canadian Natural Resources in 2014

One reason: cash flow is projected to grow fivefold over the next four years.

| More on:
The Motley Fool

After a disappointing 2013, the New Year is looking optimistic for Canadian Natural Resources (TSX:CNQ). Here’re three tailwinds that could propel the oil and gas producer higher in 2014.

1) Big cash flow generation
Canadian Natural Resource’s decade of massive investment is starting to pay off. Project construction is winding down, production is ramping up, and the profits are starting to roll in. The company’s free cash flow is expected to grow 115% year-over-year to $1 billion in 2014.

This provides several possible ways to reward shareholders.

Dividends are an obvious route. Canadian Natural Resources has increased its payout for 14 years in a row. There’s good reasons to believe the company will continue that tradition with another dividend hike is coming in the first quarter of this year.

Another round of share buybacks are also in the cards. During the first three quarters of 2013, Canadian Natural Resources repurchased 9.256 million common shares at an average price of $31.13 per share. These programs are a great way to reward shareholders without any immediate tax liability.

But Canadian Natural Resources story gets really interesting in the years to come. The company’s cash flow is projected to grow fivefold to $5 billion annually by 2018 once the Horizon oil sands facility is finished. Both dividend hikes and share buybacks will provide plenty of catalysts in the New Year and beyond.

2) Heavy oil prices
Today, Albertan heavy oil trades at a $20 per barrel discount to West Texas Intermediate and other North American benchmarks. Multiply that by every barrel of heavy oil Canadian Natural Resources pulls out of the ground, and you start to understand the scope of the problem. However, there’re several catalysts that could close that spread in the New Year.

First, BP’s Whiting, Illinois refinery is expected to come online this month increasing its heavy oil throughput from 85,000 bpd to 350,000 bpd. That’s a material figure.

Second Enbridge (TSX:ENB, NYSE:ENB), the company responsible for shipping over two thirds of Canada’s crude exports, has been quietly expanding its pipeline system. These initiatives include twinning the Seaway and Spearhead pipelines to move more crude to the U.S. Gulf Coast, eliminating bottlenecks to boost capacity in the Chicago area, and reversing its Line 9 route to begin shipping oil east to Quebec. According to the company’s estimates, these secured projects will boost capacity 50% to three million bpd by 2015.

Finally, we should also get some decisions on several major pipeline projects in the New Year. The Enbridge Northern Gateway pipeline, which has already received conditional approval from regulators, will ship 350,000 bpd of bitumen from Edmonton, Alberta to Kitimat, British Columbia. We can also expect a decision on TransCanada’s infamous Keystone XL pipeline which will ship 830,000 bpd of bitumen to the Gulf coast if approved.

All of the above catalysts could significantly close that discount for Alberta heavy oil. That would be a big boost to Canadian Natural Resources’ top-line.

3) Smart money is moving in
In school it was considered cheating to peak at another student’s work. But there’s nothing wrong with copying the answers from the smartest minds in the world when it comes to investing.

According to recent SEC filings, several smart money investors have been increasing their stakes in Canadian Natural Resources. Last quarter billionaire investors Eric Sprott and Steven Cohen were both accumulating shares in the company. Legendary trader Ray Dalio also owns a large stake in the firm.

Foolish bottom line
Canada’s oil sand producers have pushed to the backburner these past few years. But a variety of catalysts could put a bid underneath shares in 2014. It’s time to put Canadian Natural Resources on your watchlist.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no positions in any of the stocks mentioned in this article. 

More on Investing

Canadian stocks are rising
Dividend Stocks

1 Dividend-Growth Stock You Won’t Want to Miss in the Real Estate Sector

A growth-oriented REIT is a strong buy today after raising its dividend by more than 5% in each of the…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Investing

Retirement Investors: 3 TSX Stocks That Could Rally With the Economy 

Always buy stocks you are bullish on when they trade below their 52-week highs. A recovery rally can enhance your…

Read more »

some canadian stocks rose
Investing

3 Stocks I’ll Load Up on in 2023

Toronto-Dominion Bank (TSX:TD) is one stock I'll load up on in 2023. There are others, too.

Read more »

HIGH VOLTAGE ELECRICITY TOWERS
Dividend Stocks

Better Buy: Emera Stock vs. Hydro One

Higher-risk utility Emera should provide higher returns over the next five years, given the dip and its higher yield.

Read more »

Growing plant shoots on coins
Tech Stocks

3 Growth Stocks That Look Ready to Double in 1 Year

These three growth stocks are "sleeping giants" ready to blast off in 2023 and beyond for investors who pick them…

Read more »

Payday ringed on a calendar
Dividend Stocks

Passive-Income Hat Trick: 3 TSX Stocks to Buy for Monthly Cash

Investors seeking passive income can invest in these Canadian dividend stocks and earn attractive monthly passive income.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Get Passive Income of $435/Month With This TSX Stock

Here’s how dividend investing in Canada could help you get reliable monthly passive income.

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

2 Undervalued Growth Stocks to Buy Right Now

Once a growth stock becomes too heavily discounted or undervalued, investors begin to wonder about its ability to bounce back,…

Read more »