These 2 Warren Buffett Quotes Apply Perfectly to These 2 Top Energy Stocks

Read on to see why I think that energy stocks Canadian Natural Resources and Cenovus Energy pass the Warren Buffett test in more than one way.

| More on:
Oil pumps against sunset

Image source: Getty Images

Warren Buffett has given many investing tidbits of knowledge over the years. And for those of us who have wanted more, he has even written numerous invaluable investing books. Would you like to know which specific stocks Warren Buffett would invest in?

To try to decode this, let’s look at two of what I think are Warren Buffett’s best quotes and best guiding principles. Let’s then attempt to apply them to two top energy stocks that have been beaten down over the last few years.

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”

This guiding principle is a wise and practical one. It ensures that we get bargain prices for our stocks. In other words, buy when others are selling and sell when others are buying. When the general perceptions and expectations go against what we know to be true, we can take advantage of temporary mispricings.

So, never participate in bubble mentality, and look more closely for value when a stock is totally out of favour. Doing so has the potential to capture huge value and gains against the market moves. As Warren Buffett’s quote says, buy when there is fear. There is plenty of fear toward energy stocks.

Energy stock Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is certainly a stock that brings out the fear in most these days. As a result, the stock trades below book value and at a measly three times cash flow. Yes, the oil and gas industry has real issues. Yes, some of those issues are long term in nature. But this top-quality oil and gas company is also unparalleled in its reserve quality, its costs, and its financial strength. While many other oil and gas companies continue to go bankrupt (which reduces production and therefore increases oil and prices), Canadian Natural Resources remains.

Energy stock Cenovus Energy (TSX:CVE)(NYSE:CVE) is also seeing record-low demand for its stock, as investors shun this high-quality company. It trades at a small fraction of its book value, and the popular belief is that it is doomed. But Cenovus is armed with top-quality operations and reserves. It will also remain standing as other competitors go bankrupt.

“The best thing that happens to us is when a great company gets into temporary trouble”

I know what you’re thinking, because I have thought it, too. Isn’t the Canadian energy sector experiencing permanent trouble? Isn’t it experiencing a secular decline?

Well, two things come to mind here. The first is that the oil and gas sector may be in a slow decline, but it will still be needed for many years to come. The second is that the oil and gas sector is also cleaning up its act, literally. This industry is working feverishly at reducing its carbon footprint, because its very survival depends on it.

For its part, Canadian Natural Resources is making long-term plans to cut emissions dramatically over time, and with new technologies, this is possible. Beyond this, Canadian Natural Resources has shown an ability to generate cash flows, even in difficult periods. This should sustain the company until better times come along. This Warren Buffett quote calls for investing in great companies, and Canadian Natural Resources is just that.

As for Cenovus Energy stock, it too can survive the difficulties that plague the oil and gas industry. Before the oil price crash, Cenovus Energy was in a great position. Free cash flow in 2019 was $1.35 billion. The company’s oil sands operations are low cost and top quartile, and it has exposure to refining operations in the U.S.

Foolish bottom line

Warren Buffett has many simple but effective ideas that guide his investing and stock picking. Here, I applied two of them to two top energy stocks that are greatly out of favour. Canadian Natural Resources stock and Cenovus Energy stock are two quality companies that have been caught in the downdraft of the energy sector. We can use Warren Buffett’s principles to gain comfort investing in these top energy stocks today.

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 Karen Thomas owns shares of Canadian Natural Resources and CDN NATURAL RES.

More on Energy Stocks

Money growing in soil , Business success concept.
Energy Stocks

If You Like Cenovus Energy, Then You’ll Love These High-Yield Oil Stocks

While Cenovus Energy is a quality oil stock, its dividend yield doesn't compare to the yields of Suncor or Canadian…

Read more »

Man considering whether to sell or buy
Energy Stocks

So You Own Algonquin Stock: Is It Still a Good Investment? 

Investors who purchased Algonquin stock in 2022 are 40% in the red as the company underwent restructuring. Is it still…

Read more »

Oil pumps against sunset
Energy Stocks

How to Build a Bulletproof Monthly Passive Income Portfolio With $25,000 and WCP Stock

If you want monthly passive income, consider this stock. Here’s how to achieve all that income in the first place.…

Read more »

Clean energy
Energy Stocks

Why Cameco Stock Rose 2.95% on Tuesday

Cameco stock has stalled recently, but things might be turning around again as increased nuclear spending in the U.S. takes…

Read more »

grow dividends
Energy Stocks

If I Were You, I’d Buy These 2 Stocks Before They Skyrocket

Two stocks are poised to skyrocket in the impending comeback and bull run of the energy sector in 2024.

Read more »

oil tank at night
Energy Stocks

Why Northland Power Is a Top Energy Stock That’s Not Getting the Love it Deserves

Many investors may be wondering why Northland Power (TSX:NPI) is down so much, and here are a few reasons to…

Read more »

oil tank at night
Energy Stocks

2 Energy Stocks to Buy Hand Over Fist in March

These two rallying Canadian energy stocks can continue their bullish runs in 2024 and beyond.

Read more »

Solar panels and windmills
Energy Stocks

Dividend Investors: Top Canadian Energy Stocks for March 2024

Investors could consider top energy stocks like Enbridge for reliable dividend income.

Read more »