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Here’s a Ridiculously Cheap Energy Stock That Has Big Upside

The Canadian oil and gas industry has been negatively affected by numerous factors, including the lack of takeaway capacity, lack of foreign investors, and the nation’s struggle to reduce our global footprint.

Throughout all this, we have seen numerous oil and gas companies and stocks take big hits, as they attempt to adjust to new norms.

If we assume that the Canadian infrastructure issues are temporary, although lasting longer than we would like, we can come to realize that there is a lot of value in many of Canada’s oil and gas stocks.

Although these stocks are caught in a downward spiral, there may be light at the end of the tunnel if you believe that oil and gas will remain essential in our lives for at least the medium term.

Encana (TSX:ECA)(NYSE:ECA) is a good option for investors that wish for a diversified upstream energy company that is less leveraged to natural gas. With only 55% of its production being natural gas, Encana has the benefit of having leverage to natural gas while also benefiting from strong oil prices today.

The stock has enjoyed a resurgence from its 2018 lows (+28%), as the company has a lot of room for cost cutting, and as its top-tier North American resource plays such as the Duvernay, Permian, and Montney position it really well going forward.

In 2018, production increased 15%, cash flow per share increased 60%, and leverage continued to fall.

While the Newfield acquisition brought shareholder dilution and execution risk to the table for Encana, it is expected to be financially accretive to the tune of a 7% addition to cash flow.

The company expects $250 million of synergies from the acquisition, and with its technical expertise and operational track record, this seems highly achievable.

In 2019, we should see a sharp rise in operating cash flow, as the company benefits from rising production (+50%) and declining costs.

Given the company’s five-year plan for maximizing cash flow and increasing margins as well as its enviable asset base, we can expect good times for Encana in the years ahead.

As investor sentiment changes, as natural gas prices begin firming as LNG project completion dates approach, and as Encana continues to cut costs and to look for solutions to combat the difficult oil and gas market, we should see investor confidence in these stocks return.

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Fool contributor Karen Thomas owns shares of ENCANA CORP.

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