Contrarian Investors: 2 Oversold Energy Sector Stocks Consider Right Now

Here’s why Suncor Energy Inc. (TSX:SU)(NYSE:SU) and another Canadian energy giant deserve to be on your radar right now.

| More on:
Group of industrial workers in a refinery - oil processing equipment and machinery

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The latest pullback in the oil market is taking a toll on the share prices of Canada’s energy companies, and investors are wondering if the dip is a good opportunity to buy oil stocks.

Some companies should be avoided, while others might be interesting contrarian picks.

Companies that carry significant debt are at a higher risk when oil prices fall. The reduced margins put pressure on essential cash flow needed to cover the borrowing costs. In addition, companies with weak balance sheets have limited room to boost their borrowing to cover a downturn, and they often do not have access to funds needed to boost drilling to increase production.

The stocks that become attractive when oil falls are the ones with strong cash positions and access to capital. These tend to be the larger companies with diverse production assets or integrated businesses with operations all along the value chain.

Let’s take a look at two stocks that might be interesting buys right now for a contrarian portfolio.

Canadian Natural Resources

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) just announced a $3.8 billion deal to acquire the Canadian assets of Devon Energy. The move is a great example of how strong companies can take advantage of weak market conditions to boost their resource base. The purchase will add to CNRL’s extensive oil sands operations. The company is already Canada’s largest natural gas producer and has facilities producing light oil, heavy oil, offshore oil, and natural gas liquids.

CNRL raised its dividend by 12.5% for 2019 and is buying back stock while reducing debt. The share price is down to $36 compared to $49 last July. Investors who buy today can pick up a 4.2% yield and sit back while they wait for the market to recover.


Suncor (TSX:SU)(NYSE:SU) is Canada’s largest integrated energy company. It is best known for its oil sands operations, but also has offshore oil assets as well as large refineries and a national network of Petro-Canada retail operations. These “downstream” assets provide a nice revenue buffer against falling oil prices, and they can generate good margins on finished products when input casts drop.

Suncor receives WTI or Brent pricing for most of its production thanks to advantageous access to key pipeline capacity that takes product to the United States. The company maintains a strong balance sheet, and like CNRL, is capable of making strategic acquisitions when the oil market hits a rough patch.

Suncor raised its dividend by nearly 17% for 2019 and is buying back a big chunk of shares under the current share-repurchase plan. At the time of writing, the stock trades for $41 per share compared to $55 last summer.

The bottom line

CNRL and Suncor are big players with strong balance sheets and growing dividends. Additional near-term downside could be on the way, but contrarian investors might want to start nibbling on these stocks while they remain out of favour. CNRL likely offers more upside torque on a rebound in prices while Suncor is probably the safer pick.

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 Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

analyze data
Dividend Stocks

2 Safe Dividend Stocks That Could Help You Fight Inflation

A dependable stream of passive income is one way to help offset rising inflation rates. Here are two top dividend…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Stay Invested in a Recession: Increase Positions in 2 Value Stocks

The suggestion of market analysts is to increase positions in two value stocks if you want to stay invested amid…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

3 Dividend Stocks to Buy as Inflation Surges in Canada

If you're worried about how surging inflation may impact your portfolio, here are three of the best dividend stocks to…

Read more »

You Should Know This
Dividend Stocks

High Inflation: The Good and the Bad for Canadians

Consider tucking away some of your long-term savings in quality dividend stocks like Brookfield Infrastructure in this correction.

Read more »

Dividend Stocks

TFSA Investors: Turn $1,000 Into $10,000 in 10 Years

10-fold growth within a decade is rare but not unheard of. You can capture this growth either by predicting a…

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

1 Oversold REIT Stock to Buy for Safe Dividends

If you're looking for stable dividend income from an oversold stock, this office REIT is a perfect option.

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

3 Cheap Canadian REITs to Buy in 2022

Are you looking for passive income? Start treasure digging in cheap Canadian REITs in this market correction!

Read more »

Dividend Stocks

TFSA Passive Income: 3 Undervalued, High-Yield TSX Dividend Stocks to Buy Now

These top TSX dividend stocks with high yields now look attractive to buy for TFSA passive income.

Read more »