Investors looking for sectors with near-term growth potential have seemingly shifted focus in recent months. Beaten-up sectors such as energy have begun to pique the interest of many investors. Indeed, one top energy stock that may be of interest to such investors is Parex Resources (TSX:PXT).
A global recovery in oil prices has been a rising tide that’s lifted all boats in this sector. That said, Parex is one of the more intriguing Canadian energy stocks. That’s because this company’s production is located outside the Canadian oil sands. Accordingly, this is a play on Brent Crude, rather than Western Canadian Select (or WTI, for that matter). Investors looking for a global energy player on the TSX have a great choice in this energy stock today.
Here’s why I think Parex could be due for another massive rally.
Strong business model boosting this energy stock
Since November of last year, shares of Parex went from around $13 per share to nearly $25 per share over the course of a few months. Indeed, this stock more than doubled off its 52-week low at one point this year, on surging oil prices. However, today, investors can pick up shares of this energy stock for around $18 per share.
In my view, Parex’s current stock price is a steal. Yes, commodity prices are down, as are the valuations of most energy stocks. However, there are reasons to like Parex stock at these levels.
Indeed, this Colombia-based oil producer’s output has increased dramatically in recent years. Since 2014, Parex has more than doubled its production capacity. Additionally, by producing light crude, Parex receives Brent pricing, a huge premium to Canadian oil producers trading heavy tar sands oil. Investors seem to have gravitated toward more stable global oil plays. Parex fits this description well.
Accordingly, earnings for Parex have exploded in recent years. Since the company’s IPO nearly 10 years ago, shares of Parex have approximately tripled. This is a stock that has proven to be one of the best energy stocks on the TSX over this time frame. Indeed, since the last commodities rally, most Canadian energy stocks are at or below their 2011-2014 levels. Parex is an exception for a reason.
The fact that Parex started a quarterly dividend of $0.125 this past month signals just how strong the company’s cash flows are. This is a company investors looking for Canadian-listed energy stocks to consider today.
Parex’s exposure to Brent crude is the key differentiating factor for this Canadian-listed energy stock. Indeed, this is a core driver of the company’s outperformance over the past decade. And I think this will continue to drive outsized returns over the long run.
Parex’s balance sheet is strong, as evidenced by its recently imposed dividend. The company has also stated it has the capacity to potentially introduce buybacks. Analysts have noted that based on the cash on the company’s balance sheet, Parex could theoretically buy back 10% of the outstanding shares of the company today. This is an oil producer with zero debt, and tonnes of growth potential. Enough said.
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 Chris MacDonald has no position in any stocks mentioned in this article.