In the past year, Enbridge’s stock has declined by more than 22%. Even in the past six months, when oil prices have been steadily increasing, the share price has not been able to find any momentum and has still dropped more than 15%. Despite the recent pessimism in the market as a whole, there are several reasons why it might be a great idea to buy Enbridge today.
The stock is a good value buy
At a price-to-book ratio of just 1.3, investors don’t have to pay much of a premium for the oil and gas stock. The share price has also recently hit a 52-week low, and in the past year the stock has generally seen good support, even above $48, which suggests there could be a lot of upside from the current price.
Strong financial performance
In the company’s most recent quarter, sales of $9.2 billion were up 9% from a year ago, and profits of $847 million were also a big improvement from the $30 million loss the company posted in 2016. Enbridge has been able to stay in the black for four consecutive periods, and with earnings coming up in February, another strong quarter could give the stock the boost it needs to finally get out of this hole.
We’ve seen this before
It was about a year ago that Enbridge last dipped to these depths. Towards the end of February, the stock began its recovery; it would go on to rise as high as $59. Certainly there is no guarantee that history will repeat, but investors should be reminded that industry conditions are much stronger this year with oil prices recently hitting US$70 and supply cuts being extended until the end of 2018.
The share price is reaching oversold status
The Relative Strength Index (RSI) measures excessive buying and selling of a stock, and when it falls below 30, that indicates a stock has been oversold and signals that it could be due for a reversal. Enbridge has rarely dipped into oversold territory in the past year, and right now it is at an RSI level of 32.
Recent drop looks to be tied to the markets rather than Enbridge
The TSX as a whole has been down lately, and that has likely pushed Enbridge’s stock even lower. This is typically a good sign, since it means that it is not company-specific news that is hurting the share price, which makes a recovery more likely to happen.
Don’t forget the dividend
Enbridge has a reputation for growing its payouts and it recently hiked its dividend by 10%. The recent decline in price has also shot its dividend yield up to over 6%.
Enbridge is a great investment to add to your portfolio for the long term. Not only will you accumulate significant dividend income, but at the current price, there is a lot of potential for capital appreciation. As the oil and gas industry continues to pick up, so too will Enbridge’s stock price.
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Fool contributor David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.