Buy These 2 Top Energy Stocks As the Tide Turns for Canadian Oil and Gas

Trading at less than half of their book value, Trican Well Services Ltd. (TSX:TSX and Precision Drilling Corp. (TSX:PD) (NYSE:PDS) are two energy stocks that have massive upside when the industry recovers.

| More on:
Oil pumps against sunset

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 Canadian oil and gas sector has been all the talk in the last few years, and while it has usually been talk about problems and setbacks, it looks like the tide is now turning. We can see this shift if we look at recent developments, which taken together, point to a sector on the verge of surging higher.

First, we’ve a multitude of project approvals in the last year or so. The most recent approval was the Trans Mountain approval, which was a necessary condition for the revival of the energy sector. We also had the approval of LNG Canada’s $40 billion liquefied natural gas project last year. But also, and just as important, it certainly feels like the tide is turning, as sentiment toward the oil and gas sector seems to be shifting.

Also key here is that pipeline companies and the industry in general have built and continue to build long-term relationships with First Nations communities, with a focus on good old compromise and respect. Hence, many First Nations groups are onboard and vying for ownership of these massive projects.

In this new world, with increased takeaway capacity, we can expect increased drilling in the medium to longer term. This, coupled with strong oil prices (currently trading at $57.41 at writing), has me looking for oil and gas stocks with the most leverage, and consequently, the most upside.

Trading at deep cyclical low levels, here are two energy stocks with big upside. They are in the energy services segment of the energy world, and are notoriously volatile. But if we catch them on the way up, there’s tons of money to be made. If we buy these stocks, we are buying them for the significant earnings recovery potential when the industry recovers.

Trading at a mere $1.24 at the time of writing, Trican Well Services Ltd. (TSX:TCW) stock has clearly taken a real beating. And while revenue is still declining, the company has managed to remain free cash flow positive in the last two years as it struggles to survive this deep and painful downturn.

But Trican remains the largest Canadian pressure pumping company that continues to focus on returns and capital discipline. To illustrate this, we can see that Trican has stepped up its share repurchases and has repurchased approximately 16% of shares outstanding from October 2017 to the present time.

Precision Drilling Corp. (TSX:PD)(NYSE:PDS) is another leader in the Canadian energy services industry, with a long history of operational excellence, and a diversified business that includes operations in the U.S. and various international areas. Precision has been upgrading its rigs for some time now, and is now also stepping up its efforts to add technology to its offerings by deploying land drilling software, algorithms, and automation technology.

When the tide turns, Precision will therefore be well-positioned with its superior fleet of rigs and its long-standing relationships in the oil and gas industry. The company is also free cash flow positive and continues to use this cash flow to work down its debt and strengthen its balance sheet.

Keep in mind that these energy services stocks are not for everyone, and they should not compose a big percentage of your portfolio. But these stocks are trading at dirt cheap, historically low valuations with the potential to add some real torque to your portfolio.

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 Karen Thomas owns shares of PRECISION DRILLING CORPORATION.

More on Energy Stocks

data analyze research
Energy Stocks

TSX Stock Picks With Huge Potential

If you want a TSX stock that's bound for even more strong growth, these three are top picks by analysts.

Read more »

oil and natural gas
Energy Stocks

Can Cenovus Stock Outperform in H2 2022?

Is now the time for investors in Cenovus (TSX:CVE)(NYSE:CVE) stock to buy more, or wait out this volatility right now?

Read more »

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

NexGen Energy: The Top Uranium Stock Set to Double in 2022

NexGen (TSX:NXE)(NYSE:NXE) stock is one of the top uranium stocks to consider right now with the potential to double in…

Read more »

energy industry
Energy Stocks

Why Suncor Energy (TSX:SU) Stock Has Declined 20% in June

Will Suncor Energy stock climb back up to $50 again?

Read more »

Dice engraved with the words buy and sell
Dividend Stocks

Is it Time to Sell Oil Stocks?

The energy sector pullback has rattled Canadian investors because of its impact on the broader economy, but it might be…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

Oil Stocks in Canada: Are They Still Good Buys?

Oil stocks experienced a rout last week, but the underlying supply-demand imbalance makes them strong buys, nonetheless.

Read more »

Money growing in soil , Business success concept.
Energy Stocks

3 Growth Stocks up +30% in 2022

These three growth stocks are up over 30% in 2022 alone but have come down in the last few weeks…

Read more »

Oil pumps against sunset
Energy Stocks

2 Energy Stocks That Jumped Over 60% This Year

Consider investing in these two energy stocks amid the recent pullback after putting up stellar gains earlier this year.

Read more »