It isn’t often that one comes across a healthy, overlooked ticker on the TSX, especially not one that shows high growth and decent valuation. Now and then a “new” stock may appear among the many lists of top TSX-listed companies, fully formed and with exactly the right mix of stats for your mid- or long-term portfolio. However, today three such stocks from the outer edges of the energy sector have leapt out of the so-called slush pile, and they’re showing a lot of promise.
These three oil stocks are on fire
Involved with instrumentation and data management systems for drilling rigs, Pason Systems (TSX:PSI) is the first one up, and makes for an interesting tech stock operating in the energy space. It’s also a debt-free dividend payer with a 23% expected ROE in three years, thereby signifying an improving stock that’s a potentially good fit for a TFSA or other long-term investment plan.
Pason Systems stock jumped in December, and has very seldom strayed lower than the $20 mark ever since. With one-year past earnings growth putting it in the black by 149.9% and some three-month inside buying, passive income investors with their eyes on the dividend yield prize of 3.56% might have to look past overvaluation (see a P/E of 27.5 times earnings and P/B of 4.5 times book), as well as a mediocre outlook (as shown by a 6.8% expected annual growth in earnings).
Next we have energy services operator, Enerflex (TSX:EFX), a purveyor of processing and refrigeration systems as well as power generation goods. Its track record may be on the underwhelming end of the spectrum (see one- and five-year past earnings growth rates of 3.5% and 0.8%. respectively), though with a debt level in the safety zone and a 47% discount, it’s a compelling choice.
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From two piping-hot stocks, to one hot piping stock
If you’re looking for an petrochemical energy industry stock that’s not directly involved with oil and gas production, a pipe services ticker like Shawcor (TSX:SCL) might fit the bill. Up 5.62% in the last five days, it’s popular right now, and although it has a negative one- and five-year past earnings growth rates, the company’s below-threshold debt at 26.1% of net worth and market-beating P/B of 1.4 times book make it worth a look.
Compare that market fundamental with Enerflex’s P/E of 16.9 times earnings and P/B of 1.3 times book and a pattern starts to emerge of decent valuation within the satellite players in the energy industry. However, Enerflex’s dividend yield of 2.18% and 10.3% expected annual growth in earnings come up short next to Shawcor’s yield of 2.75% and much higher 72.1% expected annual growth in earnings.
The bottom line
Pason Systems could be a surprise addition to a TFSA, RRSP, or RRIF, bringing passive income and a certain amount of stability to a long-term portfolio. The fact that it can do double lifting in a portfolio as both an energy and tech play is also compelling. Shawcor’s P/E of 59 times earnings might make would-be investors reconsider Enerflex’s lower multiples, though the former stock seems the stronger play for energy-related dividends on the TSX index.
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. Enerflex, Shawcor and Pason are recommendations of Stock Advisor Canada.