Contrarian Investors: This Oversold Stock Could Gain 100% in 2020

Enerplus stock has lost 30% in the last year. But its focus on increasing shareholder wealth coupled with increasing production makes it an attractive bet for investors.

| More on:
Profit dial turned up to maximum

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

What does a company do when its government has made it clear that it is not a fan of the sector in which the company operates? The company has a few options.

It can go private, it can operate without any innovation and follow a sad-sack approach where it eventually dies or it can come out all guns blazing and hunt for opportunities outside its home country. To paraphrase Dylan Thomas, it rages against the dying of the light.

If you find a company that’s raging, a contrarian move would be to place a bet on it on the off chance that the company’s rage pays off. That’s why we are recommending a buy on Enerplus Corporation (TSX:ERF)(NYSE:ERF). The company has seen it all. It’s gone from a high of over $32 in 2011 to a low of $3.42 in 2016 and is now trading at $8.61 at writing.

Focus on the United States market

Enerplus started off as an oil and gas royalty trust company in 1986 before switching gears to become an independent North American exploration and production company. However, the last half-decade has choked the oil sector in Canada as the government’s policies have come into effect.

The company has gotten around Canadian regulations by focusing on acquiring assets in the United States such as the Bakken resource in North Dakota and Montana, and Marcellus shale oil in Pennsylvania.

These plays have not only helped Enerplus survive, but have also helped it grow. The company’s third-quarter results for 2019 (September 30, 2019) had its cash flow from operating activities coming in at $159.8 million.

Third-quarter net income was $65.2 million. High-return production in North Dakota grew by 18% quarter over quarter. Third-quarter total production grew at 6% over the last quarter.

While the company is focusing on its U.S. assets, it is also giving value back to the shareholders. Enerplus maintains its focus on costs, and returned over $70 million to shareholders through share repurchases and dividends. Year to date, the company has returned approximately $200 million to shareholders.

Enerplus’ fourth-quarter capital activity will be approximately 30% lower compared to the third quarter and primarily focused on drilling in preparation for 2020. This will result in modestly lower production in the fourth quarter and is also expected to result in significant fourth-quarter free cash flow.

All of these movements by Enerplus are being discounted by the Canadian stock market. There is immense value in the stock and it’s only a matter of time before it’s unlocked.

Management has said that if oil prices remain over $50, they will focus on shareholder distribution, which means shareholders can expect the dividend yield to go up from the 1.42% it currently is at.

Apart from this, there is a chance for considerable capital appreciation. Analysts tracking the stock have given it a target price of $14.33. That’s an upside of over 70%. If the stock hits its highest price target estimate of $18, you’re looking at a mind-boggling 114% gain.

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 Aditya Raghunath has no position in any of the stocks mentioned.

More on Energy Stocks

energy oil gas
Dividend Stocks

2 High-Yield Energy Stocks to Buy as Recession Approaches

Energy stocks such as TC Energy and Canadian Natural Resources allow investors to generate income even in recessionary times.

Read more »

Dividend Stocks

Passive Income Generator: 1 Dividend Stock Yielding 6.16%

A high-yield energy stock that pays monthly dividends is a reliable passive income generator for investors.

Read more »

oil and natural gas
Energy Stocks

Why Suncor Energy (TSX:SU) Fell 8% Last Week

Suncor Energy stock fell 8% last week. Is it still a good buy?

Read more »

Oil pumps against sunset
Energy Stocks

1 Canadian Oil Stock (With Hot Monthly Dividends) to Buy Now and Hold Forever

This top Canadian oil and gas stock could be a great source of reliable monthly passive income.

Read more »

Payday ringed on a calendar
Energy Stocks

3 Incredibly Cheap Canadian Stocks to Buy for Monthly Dividends

Companies such as Savaria and Pembina Pipeline pay monthly dividends, making the stocks attractive to income-seeking investors.

Read more »

canadian energy oil
Energy Stocks

Why Oil Prices Crashed 9.5% Last Week

Oil stocks like Suncor Energy (TSX:SU)(NYSE:SU) crashed 6% last week. Are they good buys on the dip?

Read more »

Going against the grain
Energy Stocks

RRSP Investors: 1 Top Contrarian Stock to Buy Now

Here's why this top Canadian energy stock with a high dividend yield looks undervalued and good to buy now for…

Read more »

Business man on stock market financial trade indicator background.
Energy Stocks

Market Volatility: 2 Value Stocks to Buy Right Now

The market volatility does not look like it will let up any time soon, but these two stocks are too…

Read more »