Beaten-Down Energy Stocks: Where to Invest $1,000 Right Now

A couple of energy stocks look attractive at the current levels and are offering good value.

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While the demand-and-supply imbalance and uncertain economic trajectory continue to weigh on energy stocks, I find a couple of names in this space attractive at the current levels. Both these energy stocks have taken a fair beating and offer good value for investors willing to hold these stocks for a medium- to long-term period.  

So, if you are looking for good value and have $1,000 to invest, consider buying these beaten-down energy shares listed on the TSX

Good value and an incredible dividend yield

While an uncertain outlook remains a drag on energy stocks, Enbridge (TSX:ENB)(NYSE:ENB) offers excellent value to medium- and long-term investors. Its stock has declined about 21% year to date and is trading at a next 12-month EV-to-EBITDA ratio of 11.4, which is well below its historical average forward multiple of 13.3. 

Enbridge continues to pay hefty dividends and currently offers a high dividend yield of over 8.3%. 

Though the lower mainline throughput remains a drag, its other businesses continue to perform well and support its adjusted EBITDA and distributable cash flows. Further, Enbridge expects demand to show a gradual improvement in the coming months, supporting the upside in its stock. 

Enbridge’s business remains highly contracted, which reduces the negative impact of the short-term volatility in commodity prices and volumes. Despite challenges, its adjusted EBITDA showed improvement on a year-over-year basis. Moreover, its DCF (distributable cash flow) also increased. 

Enbridge has returned a boatload of cash to its shareholders in the form of dividends. Last year, it paid about $6 billion in dividends. Meanwhile, its dividends are growing at a CAGR (compound annual growth rate) of 14%, which is incredible. 

With diversified sources of EBITDA, creditworthy counterparties, and contractual arrangements, only a fraction of Enbridge’s cash flows are at risk.  

The expected improvement in demand, a low forward valuation multiple, and a high yield make Enbridge stock highly attractive at the current levels. 

Offering a discount over 62%

With its shares down over 62% on a year-to-date basis, Suncor Energy (TSX:SU)(NYSE:SU) is among the top recovery bets in the energy sector. Investors should note that the demand for crude oil is ticking up in two of the world’s largest oil-consuming nations, including India and China, which is an encouraging sign. Also, increased coordination among OPEC+ nations is positive, as it would help support the oil prices.

While challenges persist in the near term, Suncor’s focus on optimizing its product mix and cost-reduction program is likely to cushion its margins and cash flows. Suncor’s increased production of higher-value synthetic crude oil barrels and an expected 10% year-over-year decline in costs should support its bottom line and liquidity. Further, its long-life assets with a low-decline rate and an integrated business provide a strong competitive advantage.

Even though the demand for crude oil remains uncertain, Suncor stock looks attractive at the current levels. Suncor Energy stock currently trades at a forward EV-to-sales multiple of 1.5, which is well below its historical average of 2.2. Moreover, it currently offers a high yield of 5.4%, despite the 55% reduction in its quarterly dividends. 

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

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