Husky Energy Inc. Could Double in 2017

Husky Energy Inc. (TSX:HSE) could soar in the new year as it’s on the verge of reinstating its dividend.

The Motley Fool

Husky Energy Inc. (TSX:HSE) is one of Canada’s largest oil producers in Canada. The company has over $33.1 billion worth of assets and the capacity to produce over 350,000 barrels of oil per day. The stock took a huge hit during the rout in oil prices; it tanked by a whopping 60% from its high. The dividend was cut entirely as income investors fled out of the stock in herds.

Husky CEO Asim Ghosh is retiring this month, and Rob Peabody will be taking his place as the company begins a fresh year. Rob Peabody has the experience to step into this role; he’s been the COO for over 10 years.

With oil prices in the $50 range, Husky may finally start recording better than expected profits next year as it reinstates its dividend. I believe oil prices are headed to the $60 range in 2017, and it’s very likely that Husky will start paying a dividend yield at about the 3% range.

A big reason why the stock hasn’t rallied with the price of oil is because the company pays no dividend right now. There are a lot of oil companies out there that pay attractive yield north of the 3% range, so why would anyone pick up shares of Husky–a stock that’s been crushed and doesn’t reward patient investors with a dividend?

Once Husky brings its dividend back, we may see income investors jump back into the company, and the result will be a sharp increase back to higher levels. If you buy the stock now, then you can enjoy both the reinstated dividend as well as any capital gains resulting from the news of this reinstated dividend.

The stock is also dirt cheap right now with a mere one price-to-earnings multiple, which is a lot lower than its five-year historical average multiple of 1.4. The stock is trading at a whopping 30% discount right now, and owning shares at such a discounted price implies a huge margin of safety.

Going into 2017, we can expect the global oil glut to shrink to more sustainable levels as demand for crude is still relatively strong. I believe crude is on the slow and steady road to recovery, and firms like Goldman Sachs have stated that crude oil prices may rise above $60 with a support level at about $55.

If you’re a contrarian investor who is bullish on oil, then Husky may be your ticket to huge gains in the new year. There’s no dividend right now, but when it comes back, the stock will be a lot higher than it is right now.

 

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 Joey Frenette has no position in any stocks mentioned.

More on Investing

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Investing

3 TSX Stocks I’d Buy This Week

Are you struggling to find stocks to add to your portfolio this week? Here are my three top picks!

Read more »

Target. Stand out from the crowd
Dividend Stocks

3 Oversold Stocks to Buy for Passive Income

These three oversold stocks aren't just great right now for high passive income, but provide exposure to high-growth industries.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Investing

3 Stocks to Hold in Your TFSA for Easy Tax-Free Income

Telco stocks like BCE Inc (TSX:BCE) offer high dividend income -- especially when held in a TFSA!

Read more »

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

Why Shawcor (TSX:SCL) Stock Jumped 9% in September

Shawcor Ltd. (TSX:SCL) stock has rallied off big gains after announcing that big changes may be ahead over the next…

Read more »

Mature financial advisor showing report to young couple for their investment
Bank Stocks

Retire Young: How to Turn a TFSA or RRSP Into $1 Million

Here’s how you can turn your TSFA or RRSP into $1 million or more to plan your early retirement.

Read more »

A person holds a small glass jar of marijuana.
Cannabis Stocks

Cannabis Stocks Jump: What Investors Need to Know

Cannabis stocks have started to recover in recent weeks, showing there might be signs that now is the time to…

Read more »

money cash dividends
Dividend Stocks

TFSA Passive Income: Invest $30,000 to Earn $500,000 + $7,800 in Tax-Free Dividends

Make the power of compounding work for you and turn a $30,000 investment into $500,000 in the next 20 years.

Read more »

Online shopping
Tech Stocks

Why Shopify Stock and Other Tech Stocks Jumped on Tuesday

Shopify (TSX:SHOP) stock and others started climbing on Oct. 4, but will the rise continue or fall back?

Read more »