2 Top Oil Stocks With Huge Upside Potential

Suncor Energy Inc. (TSX:SU)(NYSE:SU) is one of two top oil stocks that could produce hefty returns for investors. Here is why.

| More on:

Canada’s oil economy at this point is such that it’s hard to pick winners and losers. In order to control the massive supply glut, the nation’s largest oil-producing province, Alberta, announced production cuts in December.

But this plan to address a glut of oil that had far exceeded pipeline capacity and contributed to a significant discount on the price of Albertan oil has not been backed by all producers. Large integrated energy companies such as Suncor Energy (TSX:SU)(NYSE:SU) have opposed the plan, while Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) and Cenovus Energy supported the move.

In this uncertain environment, investors are wondering which stocks offer the best value to hold in their long-term portfolios or if they should completely exit this trade until the situation becomes clear.

In my opinion, sticking with the larger integrated oil producers is the best way to go when it comes to investing in Canadian top oil stocks. I don’t recommend completely shutting this trade, as oil and energy make up about one-third of the total market capitalization of the S&P/TSX Composite Index.

In this space, I like Suncor Energy and CNQ. Since the beginning of this year, both stocks have rebounded nicely after going through a rough patch late in the last year. Both stocks are up more than 10%, and I see further gains as oil’s outlook improves.

Calgary-based Suncor is an integrated energy company with a portfolio of high-quality assets, including oil sands extraction, refining, and marketing the energy products to industrial, commercial, and retail customers.

Suncor operates one of the lowest-declining and most-enduring upstream asset bases globally. That makes it possible for the company to produce steady and stable recurring cash flow, even under modest commodity price assumptions.

As per analysts’ consensus price estimate for the next 12 months, Suncor has 28% upside potential from its current price of $42 a share.

CNQ pursued a smart acquisition strategy during the last oil downturn. By taking advantage of lower oil prices and its strong balance sheet, CNQ acquired oil sands assets from Royal Dutch Shell. That deal gave CNQ increased scale and sustainability from long-life assets.

While some producers withheld their expansion plans amid Canada’s pipeline shortages, CNQ is going full steam ahead with its expansion. In August, the company said it was increasing its capital spending plans for the remainder of 2018 by $170 million, bringing its total for the year to $4.6 billion. The stock may rise 48% in the next 12 months, according to consensus estimates.

Bottom line

Suncor and CNQ are solid income stocks that long-term investors should consider when their prices are trading at attractive levels. After the past 12-month weakness, I find CNQ more attractive than Suncor. But you can equally divide your investment allocation to benefit from their strength.

Fool contributor Haris Anwar has no position in the companies mentioned.

More on Dividend Stocks

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

A Reliable TFSA Dividend Stock Yielding 4.1% With Consistent Payouts

If you want to build a dependable income stream in your TFSA, this stock could be worth a closer look…

Read more »

Partially complete jigsaw puzzle with scattered missing pieces
Dividend Stocks

A 0.46% Monthly Yield That Belongs in Every TFSA

Understand the role of TFSA in dividend investing. CT REIT offers 0.46% yield as a safe option for income growth.

Read more »

hand stacks coins
Dividend Stocks

3 Stocks Worth Buying Today and Holding in Your Portfolio for the Very Long Term

These top TSX stocks pay good dividends that should continue to grow.

Read more »

diversification and asset allocation are crucial investing concepts
Dividend Stocks

How to Build a Meaningful Passive Income Portfolio Starting With Just $25,000

You can start building passive income with $25,000 invested in index funds like the iShares S&P/TSX Capped Composite Index Fund…

Read more »

construction workers talk on the job site
Dividend Stocks

The Safer Dividend Stocks I’d Consider If I Had $20,000 to Put to Work

Hydro One (TSX:H) stock and another dividend darling for low-beta growth.

Read more »

Couple working on laptops at home and fist bumping
Dividend Stocks

Canadian Stocks That Billionaire Investors Have Been Loading Up On

Add these three TSX stocks to your portfolio to align with the investment decisions of some of the billionaires who…

Read more »

space ship model takes off
Dividend Stocks

2 Canadian Stocks That Could Be Poised to Surge in 2026

Two Canadian stocks, both crisis-ready investments, appear fundamentally strong and ready to surge in 2026.

Read more »

Printing canadian dollar bills on a print machine
Dividend Stocks

How to Use Just $10,000 to Turn Your TFSA into a Money-Making Machine

Put $10,000 in your TFSA and let TELUS and Enghouse do the heavy lifting. These two dividend stocks can quietly…

Read more »