Baytex Energy Corp. Soars 6%: Time to Buy?

Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) has big upside potential, but risks remain.

| More on:
The Motley Fool

Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) jumped 6% September 20, as WTI oil topped the US$50 per barrel mark for the first time in nearly four months.

Let’s take a look at the current situation to see if this is the right time to add Baytex to your portfolio.

Relief at last?

Long-term investors in this stock are hoping the oil rout has finally come to an end.

Baytex traded for $43 per share three years ago and paid an annualized dividend of $2.88. Followers of the stock are fully aware of how painful the ride down has been, and for those unfortunate investors who’ve held on through the downturn, the latest pop might not provide much comfort.

Why?

After the big surge on Tuesday, the share price closed at a whopping $3.53. As for the dividend, it disappeared some time ago.

Not everyone is yelling at the monitor when the ticker goes past the bottom of the screen. Contrarian types who had the courage to step in early last year when the stock was close to $2 are actually feeling pretty good right now, so it all depends on your entry point.

Big potential

Fans of Baytex say the upside opportunity is significant from the current level. If oil prices are headed higher over the coming months and into next year, the bulls are probably correct.

Baytex has taken a beating, but management has done a good job of preparing the business to benefit in a recovery. Operating costs are down, production is rising, and the company had the opportunity to renegotiate terms with lenders before things really got bad in 2016.

The debt load remains high, which is the big reason the stock is so volatile, but Baytex hasn’t been forced to liquidate assets to stay alive, and that’s where the contrarian investors see an opportunity.

Baytex has calculated its net asset value to be about $9 per share after a 10% discount. If you think the company’s numbers are reasonable, the stock looks like a steal right now, even after the recent pop.

Risks

Baytex reported long-term debt of $1.8 billion at the end of Q2 2017. That’s a lot for a company with a market capitalization of $830 million.

As such, any pullback in oil prices could hit the company hard, as we have seen on a number of occasions over the past year.

Should you buy?

It all depends on where you think the oil market is headed, and at this point, it’s a tough call.

Oil bulls might want to consider taking a small position in Baytex ahead of a potential rotation of funds back into oil producers.

Investors who think the latest move in oil is simply another head fake before a return to US$45 should probably stay on the sidelines.

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 stock mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »