New to Energy Investing? Try These 3 Wonderful Oil Stocks

Vermilion Energy Inc. (TSX:VET)(NYSE:VET) heads up a trio of stocks for a first-time energy portfolio owner.

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Master investor Warren Buffett once said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” While this may be so, nothing beats buying a wonderful company at a wonderful price. Below are three such stocks in the oil and gas space that just might fit the bill.

Vermilion Energy (TSX:VET)(NYSE:VET)

With an expansive management style that will see new Croatian oil exploration kicking off in the coming months, Vermilion Energy is an oil-weighted stock that tends to be fairly tethered to oil prices. It’s had a good year in terms of earnings, with a boost of 547.7%, and continues to outshine its peers in terms of asset usage. Indeed, its 6% ROA outperformed the industry average of 4.8% over the past year.

But is it wonderfully valued? While its P/E of 16.2 times earnings and P/B of 1.8 times book aren’t bad, they’re not indicative of undervaluation, though a 38% discount against its future cash flow value would suggest that Vermilion Energy is good value for money at the very least. What makes it a wonderful stock, though, is that beefy dividend yield of 8.8%.

Parex Resources (TSX:PXT)

Though its year-on-year returns were negative by 5.8%, Parex Resources still managed to outperform the Canadian oil and gas industry, which returned -12.4% over the same 12 months. A small victory, perhaps, but a significant one in so competitive a space.

In terms of its beta, Parex Resources is just as volatile as Vermilion Energy compared to the industry; it has a better track record, though, with two strong growth metrics: a past-year earnings growth of 121.7% and a five-year average earnings growth of 63.4%

In terms of quality, Parex Resources’s past-year ROE of 33% is superbly high for the TSX index, and matched with a flawless balance sheet, it makes for a lower-risk play in the energy space than many of its competitors. A low P/E of 6.2 times earnings and discounted of more than 50% round out its “wonderful” data.

Suncor Energy (TSX:SU)(NYSE:SU)

This “obvious” stock is good value for money at the moment and has a lot to recommend it in terms of passive income. But is it still one of the best energy stocks to buy and hold long term?

Paying a dividend yield of 3.89%, and with around a fortnight until it trades ex-dividend, Suncor Energy would be a strong buy for a new portfolio and provides some backbone to a pre-existing portfolio light on Canadian oil and gas assets.

In terms of profitability, Suncor Energy’s 5.8% expected annual growth in earnings is low, but at least positive, while its five-year average past earnings growth of 16.9% matches the industry exactly, making Suncor Energy what one might call a defining stock in terms of its sector’s overall recent performance.

The bottom line

While Vermilion Energy is one of the better heavily oil-exposed stocks on the TSX index, Suncor Energy remains a heavy slugger in this space and a fairly defensive buy. All told, this trio of stocks is more than suitable for a first-time energy portfolio owner, combining growth, dividends, quality, and attractive valuation.

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.

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