As the IMF revises its economic forecast to reflect a weakening global outlook, Canadian investors may start looking towards more defensive investments. Though a deep downturn is not expected, a variety of factors — from trade disputes to Brexit, protectionism, and volatile markets — is weighing on the global outlook.
Scouring a portfolio for stocks to trim while pondering more stable positions may lead investors to rethink their energy investments. While banking and other core defensive industries are likely to see increasing activity on the stock markets, energy — and particularly oil-weighted stocks — may offer a mix of value and growth as investors mull their stability.
Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ)
A one-year past earnings growth of 46.6% bested the industry average of 15.6%, though overall a negative five-year average of -5.6% doesn’t look too good, with negative earnings of -1.7% expected over the next one to three years.
This stock’s debt level of 59.1% of net worth is a little high, though it’s certainly not the highest on the TSX index. Meanwhile, the valuation is attractive, with a P/E of 11.9 and P/B of 1.3. A dividend yield of 3.67% makes Canadian Natural Resources a good, fairly low-risk pick for a TFSA or RRSP.
Suncor Energy (TSX:SU)(NYSE:SU)
The real juggernaut of the Canadian energy stocks, Suncor Energy is a good buy overall at the moment. A one-year past earnings growth of 37.4% beats both the industry average as well as its own five-year average of 4.6%.
It’s a healthy ticker, too, with an acceptable level of debt at 36.4% of net worth. The valuation looks good as well, with a TSX index-friendly P/E of 14 and so-so P/B of 1.5. A dividend yield of 3.39% rounds out the reasons to buy and hold.
A negative outlook puts Suncor Energy in the sin bin today, however, with -5.1% in expected earnings over the next one to three years; it remains to be seen how the industry fares as a whole over that period, though.
Enbridge (TSX:ENB)(NYSE:ENB)
Negative earnings over the past 12 months of -39.2% would be the number one reason not to recommend Enbridge to a pal right now — though the average for the last five years has been a positive 31.2%. A high level of debt (up at 88% of net worth) would be a runner-up reason to hold back on the praise for this ubiquitous stock, especially if low risk is the preferred investment style.
A high P/E of 49.4 shows that valuation could be better, while a P/B of 1.6 is neither too bad or particularly good. However, combine a trailing dividend yield of 6.16% with a 22.5% expected annual growth in earnings, and you have one of the best Canadian energy stocks for passive income with growth.
The bottom line
TFSA investors looking for growth in their Canadian energy stocks should stick to the big players at the moment: it has to be Enbridge, with its positive outlook over the next couple of years. Paired with a decent dividend yield, it’s looking like a top stock to buy and hold for years to come.
