Everything is rallying these days. Stocks are close to all-time highs, Bitcoin is at peaks, and even the Canadian housing market continues to heat up. Another one that is stealing the focus in 2021 is the crude oil rally.
West Texas Intermediate (WTI) crude oil is sitting at hefty gains and has crossed psychologically significant levels of US$60 this week. A few TSX stocks stand to benefit amid the rally. Investors sitting on some extra cash can consider betting on these Canadian energy giants for decent long-term gains.
Suncor Energy management clarified its focus points for 2021, which are debt repayments and share buybacks. Both will unlock shareholder value in the long term. Thus, the oil price rally and Suncor Energy’s solid fundamentals could corroborate a solid combination for its shareholders.
Oil demand is already recovering this year, mainly from Asia. The developed economies, too, could see higher energy demand in the latter half of 2021. Integrated energy giant Suncor could remarkably benefit due to its widespread presence in upstream and downstream operations. Notably, its lower cost base and diversified revenue profile should fuel a relatively faster recovery.
Suncor Energy yields close to 4% at the moment. Although it trimmed dividends last year, any additional cuts seem highly unlikely. Its strong balance sheet and disciplined capital management, especially last year, will help it continue with regular shareholder payouts.
Warren Buffett backed-SU stock is still trading almost 40% lower than its pre-pandemic levels. The stock should see handsome upside in the next few quarters, driven by potential earnings growth and rallying crude oil prices.
Canadian Natural Resources
Another TSX stock that I like a tad more than Suncor is Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ). Higher dividend yield, reasonable valuation, and stronger balance sheet make CNQ an attractive investment proposition for long-term investors.
When energy giants went defensive and trimmed dividends amid the pandemic last year, CNQ stood tall and kept on increasing shareholder payouts. It yields 5.5% at the moment and pays reliable dividends.
The low-cost upstream energy company CNQ has a varied product base that includes natural gas, light and heavy crude oil, and natural gas liquids. Oil and gas prices could continue to remain at elevated levels against 2020, driven by improved outlook and returning demand. Thus, we might see reasonable earnings and dividend growth for CNQ in 2021.
CNQ stock has soared more than 15% this month on rallying energy commodities. Notably, the stock is still trading 20% lower against its 52-week high last year. The stock looks like an appealing bet mainly due to its discounted valuation and compelling dividends.
Energy is one of the most despised sectors in broader markets. However, not all energy stocks are terrible. SU and CNQ have strong balance sheets that can weather the crisis, which they exhibited last year. Shareholders should reap sizeable gains over the long term with their handsome dividends and potential earnings recovery.
Before you consider Suncor Energy, you may want to hear this.
Motley Fool Canadian Chief Investment Advisor, Iain Butler, and his Stock Advisor Canada team just revealed what they believe are the 10 best stocks for investors to buy right now... and Suncor Energy wasn't one of them.
The online investing service they've run since 2013, Motley Fool Stock Advisor Canada, has beaten the stock market by over 3X. And right now, they think there are 10 stocks that are better buys.
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 Vineet Kulkarni has no position in any of the stocks mentioned.