Oil Price Could Hit $100: Top 2 Stocks to Hold

The oil price is surging higher as winter demand meets a supply crunch. Suncor (TSX:SU)(NYSE:SU) stock should be on your radar.

| More on:
energy industry

Image source: Getty Images

China, Europe, and India have recently experienced blackouts and factory closures due to a lack of energy. The British, meanwhile, are lining up at gas stations to stock up as the price of a barrel of Brent Crude oil hits US$80. Nearly every energy commodity, from coal to natural gas, is hitting fresh highs. 

Experts don’t expect the supply crunch to ease in time for peak demand during the winter months ahead. In fact, they expect these pricing issues to spread across the world. In other words, investors need to add energy and oil stocks to their portfolios to brace for a bleak winter. Here are the top two picks for the near term. 

Oil stock #1

Suncor (TSX:SU)(NYSE:SU), Buffett’s favourite Canadian oil stock, is an obvious choice on this list. Suncor stock is up 24% year to date, which is better than the rest of the stock market but not as good as other energy stocks. That means it still has room to run. 

At the moment, Suncor stock is trading at 26.5 times earnings per share and a 14% discount to book value per share. Earnings and book value are expected to accelerate as the world faces an energy crisis in the near term. Suncor stock is already ticking higher — up 11% in the past month alone. 

This robust and undervalued energy stock should certainly be on your radar for winter 2021. 

Oil stock #2

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is living up to expectations as a smart bet for anyone looking to gain exposure in Canada’s energy sector. The stock is outperforming the overall market and is up 20% year to date. 

This stock cemented its position as a safe haven during the most recent crisis. After the COVID-19 turmoil of 2020 that resulted in oil prices plunging to record lows, the company succeeded in sustaining its dividends.

As other companies slashed and withdrew dividend payments, the company avoided reducing and kept its multi-decade growth streak alive. A dividend yield of 4.50% is one of the highest in the industry, thereby affirming the company’s free cash flow base.

Canadian Natural Resources was able to cover its hefty dividend payments thanks to $2.095 billion of free cash flow, which improved as oil prices bounced back. In the first half of 2021, the company’s free cash flow increased to $3.39 billion, leaving it in a solid position to meet shareholder commitments.

Canadian Natural Resources was able to cover its dividend with oil price trading at around $39 per barrel. Consequently, it should be able to generate significant shareholder value with oil prices stabilizing above the $60 a barrel level. Bay Street expects the company’s 2021 revenue to rise by 66%  from 2020 levels.

While the stock is not cheap going by the price-to-earnings of 8, it is a small price to pay for a company generating significant free cash flow and paying a massive 4.5% dividend yield.

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 Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »