Top 4 Canadian Energy Stock Picks From a Portfolio Strategist

Suncor Inc. (TSX:SU)(NYSE:SU) and three other Canadian energy stocks get the nod from a top investment strategist. Find out which ones to add to your portfolio.

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Ian de Verteuil is the head portfolio strategist for ‎CIBC World Markets, and he has some advice for you.

Last week, the Globe and Mail ran a story covering de Verteuil’s upgrading of Canadian energy stocks to overweight — an investment term also known as “buy” in other trading lexicons — while downgrading financials to market weight.

Highlighting the chasm between oil prices and energy stocks, de Verteuil also went on to factor the rising interest rate into a caveat to buy stable producers rather than vulnerable pipelines. This certainly makes sense, especially if you are looking at long-term stability.

Which stocks does he fancy?

De Verteuil’s big three energy stock recommendations are Suncor Inc. (TSX:SU)(NYSE:SU), Canadian Natural Resources Ltd. (TSX:CNQ)(NYSE:CNQ), and Vermilion Energy Inc. (TSX:VET)(NYSE:VET). He also added Encana Corp. (TSX:ECA)(NYSE:ECA) as a fourth top energy stock.

Let’s go through each of them and see how they compare.

Let’s take Suncor as our benchmark and see how the other stocks compare to it. Suncor pays a dividend of 2.74% which is set to rise to 5.51% next year. If this rise materializes, then Suncor does indeed seem like a stock worth having. Back this up with an expected annual growth in earnings of 16.5%, and you have a solid energy stock for your portfolio.

Let’s move on. As a stock, Canadian Natural Resources is not dissimilar from Suncor, though with a little more growth potential and slightly better value: Canadian Natural Resources has a better P/E ratio at 19.4 times compared to Suncor’s 22.3 times. Their PEGs are fairly similar, with Canadian Natural Resources at 1.3 times and Suncor at 1.4 times, as are their P/Bs, with Canadian Natural Resources at 1.7 times to Suncor’s 1.9 times. Canadian Natural Resources pays out 3.05% with little change projected for next year.

With growth of earnings forecast at 14.5% annually, Canadian Natural Resources is a moderate growth stock to consider holding for the long term.

So far, so good. Let’s keep crunching numbers

Vermilion pays out 6.05%, so it’s the best dividend payer out of this four-horse race. With a high yield and a growth stock to boot, this is the one stock on this list you might wonder why you don’t own already. It’s looking at a 37.6% expected annual growth in earnings, making this one to buy and hold. If you’re interested in a high-yield growth stock, check under the hood for yourself and see what Vermilion’s fundamentals look like.

It’s easy to see why de Verteuil added Encana to his pick of energy stocks. It’s an established dividend payer with a decent track record and moderate growth forecast. It was looking good last month too, when we critiqued top stocks to get while they’re good value for money. Its fundamentals look reasonable, though it’s not much of a dividend payer at 0.47%. With growth of earnings set to hit 19.8% annually, you do have a decent growth stock here, however.

The bottom line

Some commentators have been recommending energy stocks for a while, but not necessarily at the expense of financials. The takeaway here is that energy is a recession-proof utility rising from market weight to become a decently valued sector. This is good timing, given the current market turbulence, so add a few stocks to your basket if you’re light on energy. And while you’re at it, maybe consider complementing it with a discounted green energy stock option, just to stay nicely diversified.

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 Victoria Hetherington has no position in any of the stocks mentioned.

More on Dividend Stocks

Woman has an idea
Dividend Stocks

2 Low-Risk Growth Stocks Paying Great Dividends

These top TSX dividend stocks give investors exposure to interesting growth opportunities.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

These two simple TSX stocks have everything a long-term investor looking to dollar cost average into a position wants right…

Read more »

A golden egg in a nest
Dividend Stocks

Millennials: No Excuses! Start Saving for Retirement Right Now.

Millennials, we need to stop complaining and start bragging. We're great savers, so it's time to start investing in TSX…

Read more »

Value for money
Dividend Stocks

3 UNDERVALUED TSX Stocks to Buy in August

Here are some attractively valued TSX stocks for the long term.

Read more »

A young man throwing and catching his daughter above his head
Dividend Stocks

Parents: Double Your CCB Payments This Month!

Parents can use those CCB payments to their benefit and double them this year month after month -- no waiting,…

Read more »

stock market
Dividend Stocks

I’m Buying These 3 Resilient Stocks During a Bear Market

TD Bank stock is among the three stocks I'm buying to protect my portfolio from a bear market and to…

Read more »

edit Safety First illustration
Dividend Stocks

4 of the Safest Dividend Stocks on Earth Right Now

These dividend stocks offer up strong dividends, a cheap share price, and safety from growing, safe sectors of the market.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Change Your Future: What to Hold in a TFSA in 2022

Holding dividend growth stocks in a TFSA long-term can change the financial futures of worried Canadians.

Read more »