Oil Price War: Why NFI Group (TSX:NFI) Stock Fell

Buy Canadian renewable energy stocks like NFI Group Inc (TSX:NFI) instead of oil assets while they are selling for a discount on the Toronto Stock Exchange.

Demand for oil has gone off a cliff due to the global COVID-19 crisis. As a result, gas prices have hit historically low levels. The price war between Saudi Arabia and Russia has undoubtedly worsened the problem.

As oil prices sink, very few investors will spend their money to maintain North American oil operations. According to an article published by Aljazeera, North American oil companies need to fix oil prices at $40 per barrel (at a minimum) to meet operational costs: “‘Shale companies need prices at least in the low $40s per barrel to cover direct costs,’ said Ian Nieboer, a managing director at consultant Enverus. If U.S. prices remain at a low-$30-a-barrel range, ‘it starts to look more lethal,’ he said.”

The price war, which failed to end at the beginning of April, is acting to reduce supply, even as Russia and Saudi Arabia drag their feet. North American producers are now forced to decommission oil wells to cut costs and avoid losses. Many are also postponing new investments.

What do low gas prices mean for alternative energy?

The change in the price of oil will only affect alternative energy in the short term. Nevertheless, stocks like the NFI Group (TSX: NFI), also known as New Flyer, will outperform oil stocks in the long run. Alternative energy is the future; the benefits of this technology extend further than just monetary savings.

Alternative energy will reduce carbon emissions and protect the environment for generations. Health-conscious millennials especially view renewable technology as a priority — hence, that’s why millennials prefer stocks like Tesla over Exxon Mobile. 

Whether you are nearing retirement or just starting to save for your golden years, NFI Group stock is your best bet at enjoying that time. Before the COVID-19 crisis and oil price war began, New Flyer stock was quickly picking up speed relative to the S&P/TSX Composite Index. Today, the stock price is nearly 44% lower from where it began at the start of the year.

NFI Chart

Given the firm’s limited competition in the electric bus space, I would definitely recommend this stock to all Canadian investors. When the crisis is over, I would not be surprised if New Flyer regained the same steam that it exhibited at the beginning of the year.

Why did the stock value fall during the COVID-19 crisis?

New Flyer stock lost value during the COVID-19 crisis for two reasons.

For one, relative valuations changed. The price of New Flyer stock had to drop in sympathy with other publicly traded companies. When the price of one asset changes, substitute assets must change along with it, even if other factors mute the effect.

Secondly, historically low gas prices have dampened the appeal of alternative energy technology in the short term. Thus, investors now view New Flyer as a risky asset.

As explained above, low gas prices will only temporarily reduce investment in alternative energy technology. Investors will soon find the relatively higher prices of electric vehicles as a solid source of profit.

Moreover, if renewable technology is going to succeed, it will inevitably have to compete with low gas prices. As renewable technology takes off, demand for oil will fall, which will drive down prices for the commodity.

In a sense, North American oil has no future. The future favours electric vehicles, like the electric buses manufactured by New Flyer.

Fool contributor Debra Ray has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool recommends NFI Group.

More on Dividend Stocks

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

You’ve Maxed Your TFSA – Now What?

Maxed your TFSA? These three Canadian growth stocks can help investors keep building wealth while they plan their next investing…

Read more »

workers walk through an office building
Dividend Stocks

Is This 12.2%-Yielding Stock too Good to Be True?

Allied Properties REIT’s 12.2% yield looks tempting, but investors should weigh weakening cash flow against its improving leasing and debt-reduction…

Read more »

shoppers in an indoor mall
Dividend Stocks

A Top-Tier 6.8% Dividend Stock That Pays Cash Every Month

This Canadian monthly dividend stock is a great combination of a 6.8% annualized yield, monthly cash distributions, and a highly…

Read more »

Warning sign with the text "Trade war" in front of container ship
Dividend Stocks

Forget the Noise: Why Cascades Packaging Could Outlast the Trade War

Cascades stock has rallied 73% over the last year, and improving profitability, lower debt, and tariff-mitigation efforts could help keep…

Read more »

a sign flashes global stock data
Dividend Stocks

The Best Ways to Invest in the TSX Near All-Time Highs

Learn how to invest in the TSX near all-time highs with a broad-market ETF, a lower-volatility option, and a proven…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

How to Convert $40,000 Into a TFSA Income Machine

Want to earn $1,770 of extra dividend income? Here's how to structure a TFSA portfolio for a mix of income,…

Read more »

dividend stocks are a good way to earn passive income
Dividend Stocks

2 Stocks to Build a Strong Canadian Income Portfolio

These two Canadian dividend stocks offer investors two different ways to build dependable passive income while still keeping long-term growth…

Read more »

dumpsters sit outside for waste collection and trash removal
Dividend Stocks

Tariffs Are Hitting Canadian Manufacturers: I’d Buy This Essential-Service Stock Instead

Tariff uncertainty is pressuring Canadian manufacturers, making essential-service businesses an attractive source of portfolio diversification.

Read more »