TSX energy stocks have gotten a bad rap over the past half-decade. Ever since the oil price collapse of 2014, the Canadian energy sector has been reeling, with falling stock prices and mountains of negative press.
While some stocks have managed to recover, others are showing no signs of life, and it’s still not clear whether the tar sands will ever return to their former glory.
On the surface, the two stocks couldn’t appear more different. One, a utility with a side business in LNG marketing, has been riding high and beating the market this year.
The other, an oil explorer, continues to get beaten down month after month. However, between the two companies, you get a pretty good cross section of the Canadian energy landscape.
If you’re not sure which type of energy stock is right for you, the comparison between AltaGas and Baytex Energy can help you make up your mind.
AltaGas is basically a utility stock with a natural gas processing, storage and marketing business attached to it. The fact that it does business in two disparate areas gives it a measure of operational diversification.
The company has recently struggled with a highly leveraged balance sheet, resulting in it having to slash its dividend and sell off assets. Most recently, it sold of $940 million worth of distributed generation assets.
AltaGas has been on a wild ride in the markets this year, rising 44% year to date. Despite this fact, it still has a dividend yield of 4.5%
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Baytex Energy is a stock that has been badly beaten down in recent years. After peaking at $58.55 in 2014, it fell as low as $1.88 this year. There are two basic reasons for Baytex’s collapse: falling oil prices and debt.
In 2014, oil prices tanked, and Baytex, as a company that depends on strong oil to be profitable, got hit hard. It was left with piles of debt that it wasn’t able to service, and is still struggling with years later.
At the end of Q1, Baytex had $2.2 billion in net debt, which is an enormous sum for a company with a market cap of around $1 billion. The company has made some strides toward paying off its debt, but with $90 million paid off in the first quarter, it’s going to be slow going.
On the bright side, Baytex’s operations are seeing some encouraging results. In its Q1 report, Baytex announced $950 million in funds from operations (FFO), which is a solid number for such a small company and $350 million more than had been expected.
If Baytex can continue to beat expectations like this, it may well stage a recovery. However, this is still a highly debt-addled company whose operational success depends on strong oil–which is far from a given. Between it and AltaGas, the latter is probably the better bet.
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 Button has no position in any of the stocks mentioned. AltaGas is a recommendation of Stock Advisor Canada.