Should Investors Buy Baytex Energy Corp. or Crescent Point Energy Corp.?

Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) and Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) are both popular picks in the patch, but one is a better bet right now.

| More on:
The Motley Fool

Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) and Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) are closely followed by oil sector fans, and investors are wondering if the stocks are finally safe to buy.

Let’s take a look at both companies to see if one deserves a spot in your portfolio right now.

Baytex Energy

Baytex and its shareholders are still in shock.

Last June, pundits hailed the closing of Baytex’s acquisition of Aurora Oil and Gas Limited as a game-changing event, and the company increased its dividend by 9% based on the strength of the additional production. The stock nearly hit the $50 mark and remained at lofty levels right through the summer.

Oil prices then fell off a cliff and investors watched in horror as Baytex slashed the dividend payout by 60% and the stock plunged below $15!

Management has taken prudent measures in recent months to right the ship and Baytex’s stock has found some support. In fact, the shares are up more than 15% in the past two weeks and currently trade near $20.

What’s different?

Baytex significantly cut the capital budget, raised $500 million through a bought-deal equity issue, and renegotiated terms with its lenders. The company still has $2.7 billion in total debt, but the majority of it isn’t due for at least five years, which gives the company some breathing room as it hopes for a rebound in crude prices.

The balance sheet improvements have avoided a cash crunch and the reduced capital budget sets the company up well to weather the storm for a while at current oil prices.

Baytex pays an annualized dividend of $1.20 per share that yields about 6%. For the moment the dividend looks safe, but investors should be prepared for another cut if oil prices continue to slide.

Crescent Point Energy

Crescent Point remains one of the few dividend holdouts in the energy sector. The company continues to pay its monthly dividend of $0.23 per share that currently yields about 9.6% and management has said that the distribution is safe.

Crescent Point has done a great job protecting cash flow through its hedging program. In its Q4 2014 earnings report, Crescent Point said 56% of 2015 oil production is hedged at CAD$89 per barrel (bbl), and 33% of 2016 production is hedged at CAD$84/bbl.

The company has a strong balance sheet. Year-end 2014 long-term debt was just $2.85 billion. The company also has $3.6 billion in credit facilities, of which, 35% are already drawn.

Which should you buy?

Baytex is still carrying a lot of debt, considering it only has a market cap of $3.4 billion. The company’s asset portfolio is very attractive, and Baytex could find itself as a takeout target if oil prices remain below $50 for an extended period of time.

However, betting on a buyout is risky, so you would have to invest in the stock solely on the assumption that oil prices are near a bottom.

Crescent Point has a market cap of about $13 billion and possesses a much stronger balance sheet. As the oil rout lingers, investors should expect to see Crescent Point start to make strategic acquisitions. For the moment, the big dividend looks safe, but oil prices will have to improve by 2016 to ensure that it stays that way.

At this point, any energy stock is a contrarian pick, but Crescent Point is in better financial shape than Baytex and it should be one of the survivors when the market finally recovers.

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 Andrew Walker has no position in any stocks mentioned.

More on Energy Stocks

Energy Stocks

Here’s My Top Stock to Buy Now, and it’s Not Even a Question

Tourmaline is a quality energy stock trading on the TSX. Here's why I remain bullish on TOU stock right now.

Read more »

oil and natural gas
Energy Stocks

2 TSX Energy Stocks That Could Break Through the Roof in December 2022

Did you miss the energy rally? Here are two TSX energy stocks that still offer handsome growth potential.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Nearing Retirement? The 2 Best Energy Dividend Stocks to Buy Now

Exxon Mobil Corp (NYSE: XOM) should be on your list if you're close to retirement.

Read more »

oil tank at night
Energy Stocks

The Best Oil Dividend Stock for a Decade of Passive Income

Enbridge Inc (TSX:ENB) has a high dividend it could keep paying for many years to come.

Read more »

The sun sets behind a high voltage telecom tower.
Energy Stocks

Fortis Stock Is a Buy Regardless of Where the Market Goes

Looking for a stable stock for your portfolio regardless of market circumstances? Here is why Fortis stock is the perfect…

Read more »

Increasing yield
Energy Stocks

1 Oversold Dividend Stock (With a 9.9% Yield) to Buy in December 2022

This dividend stock fell into oversold territory and may soon come out of it, offering a short time to get…

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

3 Renewable Energy Stocks That Are Too Cheap to Ignore

Renewable energy stocks are going to have a crazy decade. Right now, they trade at cheap prices that are far…

Read more »

Volatile market, stock volatility
Energy Stocks

Algonquin Power Stock Plummeted 34% in November – Is it a Buy Today?

After a steep fall on a poor earnings release, value investors are taking a closer look at Algonquin Power &…

Read more »