There seems to be no respite for energy investors. Many oil- and gas-related stocks have shown little or no signs of recovery in recent times. Despite a production cut agreement, energy commodities have been weak mainly due to coronavirus outbreak this year. In the near future, the outlook doesn’t look too encouraging. However, the weakness has brought some specific opportunities for medium- to high-risk investors.
Enerflex (TSX:EFX) is a supplier of natural gas compression and oil processing equipment. It provides turnkey facilities that are used to process and move natural gas from the wellhead to the pipeline. It has operations spread across 15 countries.
Enerflex stock, with a market cap of $890 million, has lost more than 40% in the last 12 months. However, the company has been doing fairly great on the financial front. Though Enerflex’s profits slightly declined in Q4 2019 year over year, the company reported robust earnings growth for the full year.
Enerflex does not have direct exposure to oil and gas prices. However, weakness among energy producers could be detrimental to the company.
Enerflex’s decade-long dividend payment history makes it an attractive bet. It last year paid an annual dividend of $0.46 per share, which brings its yield at 4.5%. It should be noted that dividend growth plays an important role in driving investors’ total returns over a longer period. Thus, it is important to consider dividend growth along with the stock’s yield. Enerflex increased its dividends by a handsome 7.5% compounded annually in the last five years.
Another striking point is Enerflex’s current valuation. The recent fall has made the stock look notably cheap. It is currently trading at a price-to-earnings valuation of six times its trailing 12-month earnings. While broader markets are trading close to record highs, stocks with such low multiples are really rare.
Tourmaline Oil (TSX:TOU) is an energy exploration, production, and infrastructure company that operates in the Western Canadian Sedimentary Basin. It reported a huge surge in Q2 2019 earnings and a big slump in Q3 2019. The company will report its Q4 earnings next week. Its capital efficiency is expected to improve, which could positively impact profitability in 2020.
Tourmaline Oil stock has been notably weak recently and has fallen more than 20% so far this year. The company generates a relatively lower contribution from its midstream operations compared to natural gas production, which makes it a comparatively risky bet.
Tourmaline Oil stock is currently trading at a dividend yield of 3.8%, close to that of the broader markets. It has a relatively shorter dividend payment history but has a big potential for dividend growth for the future. Energy price stability could play a big role in improving Tourmaline Energy’s financials and investors’ returns.
The stock looks appealing from the valuation perspective as well. It is trading at nine times its historical earnings. Its historical valuation average comes around 15 times earnings. Thus, the stock is trading at a large discount compared to its historical average.
It should be noted that energy markets could continue to trade weak in the foreseeable future. However, these two stocks look attractive based on their insanely cheap valuations and juicy dividend yields. Also, they could be relatively less risky compared to companies with high energy price exposure. While these picks would be more suitable for high-risk investors, a turnaround in energy prices could deliver handsome returns.
Motley Fool Canada's market-beating team has just released a new FREE report that gives our three recommendations for the Next Gen Revolution.
Click on the link below for our stock recommendations that we believe could battle Netflix for entertainment dominance.
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.
The Motley Fool recommends ENERFLEX LTD. Fool contributor Vineet Kulkarni does not have any positions in the stocks mentioned.