Top Energy Names to Buy on Weakness

Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) is among my top picks in the energy space.

| More on:

After a really positive period in the energy space, we are faced with another day of weakness, as the price of oil falls to close to $55 per barrel and natural gas follows suit, bouncing off of the $3 mark.

This is coming off a bearish International Energy Agency (IEA) report, which showed non-OPEC production was stronger than expected, and demand forecasts were cut.

Not surprisingly, energy shares are taking a licking.

But if your long-term view on oil is positive, then today is a good day to be buying.

Many energy companies have improved their businesses over the downturn; they have come out better, leaner, and as drivers of shareholder value. It was either this, or they would not survive.

As a case in point, we have Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ), which reported third-quarter EPS of $0.19 compared to a loss of $0.32 in the same period last year, Cash flow per share was $1.37 compared to $0.92 in the same quarter last year. And free cash flow is $1.2 billion so far this year — some of which has been used to pay down debt, which is currently standing at 42% of total capitalization.

These strong results can be attributed to a 14% increase in production, higher prices, and better efficiencies.

Going forward, we can reasonably expect future dividend hikes from Canadian Natural Resources, as 2018 is expected to continue to bring in strong production increases. The company currently expects a 17% increase in 2018 production

Canadian Natural Resources is special, because it offers a long-life, low-decline portfolio and oil and gas assets that have given the company a predictable and reliable stream of cash flow with little reserve-replacement risk. This means investors get exposure to the sector’s upside while mitigating the downside risk.

Another high-quality company that is trading down today is Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE), which was already attractively valued before today’s fall.

Production increased 115% in the third quarter, and cash from operating activities increased 91%, as the quarter included the assets purchased from ConocoPhillips for the full three months.

And Cenovus has hired its new CEO and is making progress with its asset-disposition plan and reduction of debt targets, both of which should be catalysts for the stock.

The company has announced $3.7 billion in asset dispositions, which will be used to improve the balance sheet and will go a long way in making investors more comfortable with the stock heading into 2018.

In summary, while there are many ways to play the recovery in oil markets, these names are among the lower-risk names that have good upside and not as much downside as some of the others.

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 Karen Thomas owns shares of Canadian Natural Resources.

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 »