Weak demand amid the pandemic and extensive global crude inventories weighed on the oil prices for the most part of the year and dragged energy stocks lower. However, the economic reopening and positive vaccine data have led to a strong recovery in oil and gas prices and are driving the shares of the energy companies higher.
While TSX-listed energy stocks have witnessed strong buying over the past month, I see immense value in a couple of energy stocks and expect the uptrend to sustain in 2021 on vaccine rollout.
So, if you’ve got $1,000 to invest, consider buying these top energy stocks for outsized returns.
Suncor Energy
Suncor Energy (TSX: SU)(NYSE: SU) stock jumped over 48% in one month, thanks to the strengthening of crude oil prices amid positive vaccine data and recovery in demand in India and China. Despite the strong buying, Suncor Energy stock is still down by 44% year to date and offers good value.
Suncor Energy’s financials improved sequentially during the last reported quarter. Suncor’s funds from operations more than doubled in Q3 compared to Q2. Meanwhile, its operating loss narrowed drastically.
With WTI crude stabilizing around $45, continued operating cost reduction, and improving demand, Suncor Energy could report further sequential improvement, which is likely to support the uptrend in its stock.
Currently, it trades at a forward EV/sales ratio of 1.9, which is lower than its historical average of 2.2 and offers a good entry point to benefit from the recovery in energy demand. Suncor Energy stock offers a dividend yield of 3.7%.
Enbridge
Enbridge (TSX: ENB)(NYSE: ENB) stock rose over 19% in one month, thanks to the improving operating environment. Despite the recent buying in Enbridge stock, it is trading at a forward EV/EBITDA multiple of 11.8, which is well below its historical average of approximately 13.2.
Besides offering good value, Enbridge boosts its investors’ returns through higher dividend payments and currently offers a high yield of 7.6%.
With the gradual pickup in demand, Enbridge’s mainline volumes are expected to improve and drive the recovery in its stock. Meanwhile, continued momentum in its core businesses should further support the uptrend.
Despite the disruption from the coronavirus pandemic, Enbridge’s diversified business, contractual arrangements, and cost-reduction measures continue to drive its distributable cash flow and support is dividend payments. Meanwhile, only a fraction of its cash flows are at risk, thanks to its creditworthy counterparties.
Enbridge’s diversified revenue streams, cost-reduction initiatives, low valuation, and high dividend yield make it an attractive bet at the current levels.
Bottom line
Shares of both Suncor Energy and Enbridge are likely to benefit from the increase in economic activities and improving demand. Meanwhile, the vaccine rollout could accelerate the pace of recovery and support the uptrend in 2021.
Suncor Energy and Enbridge lost a considerable amount of value amid a pandemic-led selloff and are looking attractively priced at the current levels, despite the heavy buying in the recent past. Also, investors are expected to gain from the juicy yields of both these energy stocks.
