Oil prices are on the rebound, and that has investors starting to kick the tires on some of the industry’s beaten-up names.
Crescent Point used to be a dividend star in the Canadian oil patch, but the extended downturn forced management to slash the monthly payout from $0.23 per share to $0.10 and then again to $0.03. The stock hasn’t fared well either, falling from $45 per share in 2014 to the current price of $9.50 per share.
Investors are not pleased with the company’s performance, and Crescent Point currently faces pressure from Sandy Edmonstone’s Cation Capital Inc. to nominate four new people for Crescent Point’s board of directors. WTI oil prices have rebounded 50% off the June 2017 low, but Crescent Point’s share price has not responded in a meaningful way.
The company is well within its lending covenants, but the debt position remains a concern for some investors. Crescent Point finished 2017 with net debt of $4 billion. The current market capitalization is $5 billion.
Fans of the stock point to the company’s progress on boosting production in a tough environment. Crescent Point reported 2017 exit production growth of 10% on a per-share basis and expects the positive momentum to continue through 2018.
Crescent Point has a strong track record of acquiring top-quality assets and boosting the reserve base through exploration. The company is already the top producer in Saskatchewan and recently spent more than $100 million to purchase property in Alberta’s East Shale Duvernay play. Crescent Point is also ramping up production at its Uinta properties in Utah.
Management plans to sell non-core assets to help strengthen the balance sheet, and the existing dividend should be safe as long as oil holds its gains. At the time of writing, investors can pick up a 3.8% yield.
Baytex closed a major acquisition in June 2014 that gave the company a significant position in the Eagle Ford shale play. The deal was expected to boost revenue and cash flow, and management raised the monthly dividend as a result. At the time, Baytex traded for $48 per share.
Unfortunately, oil prices fell off a cliff in the following months, and the company quickly found itself facing cash flow issues. By December of that year, the generous dividend had been slashed, and Baytex’s stock traded for about $15 per share. Things continued to get worse, and the stock bottomed out around $2 in early 2016.
Since then, investors have been on a volatile ride with the stock moving significantly higher or lower on sentiment changes in the oil market. At the time of writing, Baytex trades for $4 per share.
As with Crescent Point, debt remains a concern for Baytex, but contrarian investors also see some strong upside potential. Baytex retained most of its assets through the downturn and has calculated its net asset value to be above $9 per share at oil prices that are much lower than the current level.
Is one attractive?
Both stocks continue to be volatile but offer nice potential gains on a rebound in the oil market. If you can handle the additional risk, Baytex probably offers more upside torque. Otherwise, I would make Crescent Point the first choice. The stock pays you to wait for better days and should still benefit from rising oil prices.
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Fool contributor Andrew Walker has no position in any stock mentioned.