As oil prices continue to languish, energy stocks — and especially natural gas stocks — have avoided losing steam in the same way that financial stocks have been of late. While this is likely to change in the future, it bodes well for anyone looking to get in on Canadian oil stocks before volatility returns to the market.
With oil prices beginning to rise, and the price differential between Canadian oil and global oil starting to get squeezed, let’s look at three attractively valued domestic energy stocks heavily weighted by oil.
Suncor is priced right on the nose according to its future cash flow value, though technically at a 1% discount. Its market fundamentals are not too bad today, with its P/E of 20 times earnings beating the industry, though not the market. Meanwhile, a PEG ratio of 1.5 times growth could be better but, again, isn’t too bad. Suncor’s share price relative to assets is currently hovering around 1.9 times book, which is a shade higher than the industry average but really not too bad for a Canadian oil P/B ratio.
Looking for a growth stock in the oil business? You may want to look elsewhere for significant headway, though Suncor is at least expecting a positive outlook with 13.6% expected annual growth in earnings. There’s not too much risk here in terms of debt, with Suncor’s total debt level of 38% of net worth coming in just below the technically unsatisfactory cutoff of 40%.
Suncor’s current dividend yield is 2.68%. That’s not the in the highest tier of TSX dividend stocks, though for a refined oil stock of this calibre and defensiveness, it’s definitely not bad. Suncor is the kind of stock that deserves to be slotted into a defensive portfolio and left there.
Overvalued by a couple of dollars per share compared to its future cash flow value, Vermilion still can’t be scrutinized on its P/E and PEG ratios, but it does have one very significant market fundamental that we can turn to. That’s its P/B, which, at 2.4 times book, tells us that Vermilion is not the absolute best stock in terms of asset valuation, though in fairness it’s not much higher than either the industry or the market.
Vermilion is still your go-to if you are a growth investor looking to hold a high-quality oil stock for its upside and get paid while you do so, with a 63.4% expected annual growth on the cards. On the flip side, you have a high-quality dividend payer that will grow for you, with a meaty dividend yield of 6.6% on offer.
Parex Resources (TSX:PXT)
This high-quality oil-weighted beauty is discounted by 46% compared to its future cash flow value, making Parex the number one value stock on the Canadian energy scene today. With market fundamentals to drool over, it’s a top pick if you’re looking to pad out your oil portfolio. In fact, those multiples are looking even tastier than earlier in the summer, with a P/E ratio of 6.2 times earnings, a PEG of 0.4 times growth, and P/B ratio of twice book.
While Parex’s expected annual growth in earnings was getting towards 30% earlier in the year, it’s now looking at 15.6%, bringing it more in line with Suncor in terms of outlook. The share price fell off a cliff early August, but this could be just the kind of opportunity value investors may be looking for ahead of surging crude prices.
The bottom line
While Parex usually looks like a great stock, the continuing devaluation is eroding any upward momentum, plus its outlook in earnings has dropped. It’s still a high-quality stock, though, and worth picking up. Vermilion is looking like the best of the bunch for retirement and TFSA investors, while Suncor is a decent dividend stock that is both solidly defensive and realistically valued today.
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.