This Oil Stock Has Gained 64% Since the Stock Market Crash

Even after delivering solid gains since the 2020 stock market crash Parex Resources Inc. (TSX:PXT) has further to soar, making now the time to buy.

| More on:
Oil pumps against sunset

Image source: Getty Images

The March 2020 stock market crash and sharply weaker oil prices hit energy stocks particularly hard. Oil has rebounded strongly after the North American West Texas Intermediate (WTI) benchmark plunged into negative territory for the first time ever in April 2020.

The international Brent price has climbed to US$41 per barrel — and will rally even higher over the second half of 2020. The oil price collapse and stock market crash saw oil stocks trading at extremely attractive valuations, creating a once-in-a-generation opportunity to acquire drillers trading at deep discounts to their indicative fair value.

One stock which has performed exceptionally since the 2020 stock market crash is Parex Resources (TSX:PXT). The Colombian-based driller has gained a whopping 64% since the stock market bottomed in late March — significantly more than Brent’s 18% gain and the S&P/TSX Composite Index’s 32%. That highlights that even amid the current choppy market weighed down by sharply weaker oil and a poor economic outlook, it’s possible to invest in oil stocks and generate outsized returns.

Even after that rally, there are signs that Parex is still deeply undervalued and poised to rally further as oil climbs higher over the remainder of 2020.

Quality oil assets

Parex owns 2.4 million acres composed of 22 blocks in Colombia’s prolific Llanos and Magdalena Basins. It has been independently determined that Parex’s oil acreage holds proven and probable reserves of 198 million barrels of oil.

Those reserves have been calculated to have an after-tax net asset value of $28.84 using a flat Brent price of US$60 per barrel. That’s a whopping 74% greater than Parex’s current market value, highlighting the considerable capital gains ahead as oil prices rebound.

Parex has a long history of growing its oil reserves and production. Its oil acreage has considerable exploration upside. Once Parex recommences its drilling program, the company’s oil reserves will likely grow, boosting Parex’s net asset value to expand creating further upside for shareholders.

Growing oil production

Parex’s oil production will grow significantly once development drilling recommences. The company is in the process of improving infrastructure at the Capachos field, where it has a 50% working interest. Parex also acquired five oil blocks in Colombia during the second half 2019, bolstering the exploration potential.

Solid fundamentals

What makes Parex stand out amid a capital-intensive industry where many drillers are heavily indebted is its rock-solid balance sheet. It finished the first quarter 2020 with no long-term debt and a modest US$83 million in other long-term liabilities.

Notably, Parex finished the period with US$397 million in cash, giving it considerable financial flexibility in the current harsh operating environment. Such a large amount of cash will allow Parex to fund further acquisitions and drilling as oil prices recover.

Foolish takeaway

It’s easy to see why Parex has performed strongly since the stock market crash. A combination of quality oil assets, robust balance sheet and no long-term debt makes it an extremely attractive play on higher oil.

Now is the ideal time to buy Parex because it is trading at a deep discount to its after-tax net asset value.

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 Matt Smith has no position in any of the stocks mentioned.

More on Energy Stocks

Red siren flashing
Energy Stocks

Buy Alert: 4 Reasons Why TC Energy Stock Is a Must-Own Now

A large-cap energy stock is a strong buy today for four compelling reasons.

Read more »

Oil pipes in an oil field
Energy Stocks

Here’s Why Enbridge Stock Looks Like a Great Buy

Consider looking at Enbridge (TSX:ENB) if you seek high-yielding but safe dividends for your self-directed portfolio.

Read more »

oil and natural gas
Energy Stocks

3 Energy Stocks Already Worth Your While

TSX energy stocks could shine for much longer. Here's why Canadian Natural Resources (TSX:CNQ), Parex Resources (TSX:PXT), and another oil…

Read more »

Utility, wind power
Energy Stocks

Brookfield Renewable Partners Stock: Buy, Sell, or Hold?

BEP stock (TSX:BEP.UN) now trades at half its share price back in 2021. So what should investors do with this…

Read more »

Energy Stocks

2 No-Brainer Energy Stocks to Buy With $5000 Right Now

Cenovus Energy is one of two high quality energy stocks that are undervalued and well-positioned for long-term success.

Read more »

Gas pipelines
Energy Stocks

Here’s Why Enbridge Is a No-Brainer Dividend Stock

Enbridge stock has resilient operations, significant competitive advantages and a safe payout ratio, making it a top dividend stock.

Read more »

Solar panels and windmills
Energy Stocks

Buy 849 Shares of This Super Dividend Stock for $3,100/Year in Passive Income

Looking for a super dividend stock to buy now? Here's a discounted top pick that can provide an ample income…

Read more »

Oil pumps against sunset
Energy Stocks

Suncor Stock: A Millionaire Maker?

With a renewed focus on extracting value from its integrated business, we can expect tremendous value creation from Suncor stock.

Read more »