FIRE SALE: Why I’m Buying the Dip in Energy Stocks Today

Oil and gas prices have been hit hard, and I’m looking to buy the dip in energy stocks like Suncor Energy Inc. (TSX:SU)(NYSE:SU).

| More on:
oil and gas pipeline

Image source: Getty Images

Oil and gas prices have fallen sharply due to the emergence of the Omicron COVID-19 variant. Its rise has spooked global markets and led to concerns that oil and gas demand could again be threatened. Today, I want to discuss why energy stocks are worth buying on the dip in this pullback.

Why the oil selloff is an overreaction

Last week, I’d discussed whether investors should bail on energy stocks in the middle of this market correction. I’d suggested that investors snatch up oil and gas stocks in early December.

The price of Western Canadian Select (WCS) has plunged over $10 in the month-over-month period. Meanwhile, WTI crude has also slipped from its 52-week high. Investors should not give up on the oil and gas space. On the contrary, this is an opportune time to buy the dip. A note from Goldman Sachs recently called this selloff overdone and maintained its $85/barrel projection for WTI crude going forward.

Two super energy stocks to snatch up after earnings

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is a Calgary-based company that acquires, explores for, develops, produces, markets, and sells crude oil, natural gas, and natural gas liquids. Shares of this energy stock have climbed 76% in 2021 as of early afternoon trading on December 7. The stock is already on the rebound after its early December dip.

In Q3 2021, Canadian Natural Resources posted monster revenue of $7.71 billion and a $2.2 billion profit. Its daily production jumped from the previous year, while its commodity mix benefited from higher prices across the board. This energy stock possesses a favourable price-to-earnings (P/E) ratio of 11. Moreover, it now offers a quarterly dividend of $0.588 per share. That represents a solid 4.2% yield.

Suncor Energy (TSX:SU)(NYSE:SU) is an energy stock I’d suggested investors continue to scoop up in late November. Its shares have jumped 48% in the year-to-date period. However, the stock has dipped 3.1% month over month.

The company unveiled its third-quarter 2021 earnings on October 27. It delivered funds from operations of $2.64 billion, or $1.79 per common share — up from $1.16 billion, or $0.76 per common share, in Q3 2020. Like its peers, Suncor was powered by higher production and improved commodity prices.

Shares of this energy stock last had an attractive P/E ratio of 19. It doubled its quarterly dividend to $0.42 per share, which represents a strong 5.2% yield.

One more energy stock to consider during this selloff

Crescent Point (TSX:CPG)(NYSE:CPG) is another energy stock to consider buying on the dip in early December. This energy stock has shot up 120% in 2021. Its shares have jumped 17% in the week-over-week period.

In Q3 2021, Crescent Point bolstered its balance sheet and generated $180 million of excess cash flow. It delivered adjusted funds flow of $393 million, or $0.67 per diluted share. This energy stock boasts a very attractive P/E ratio of 1.7. It offers a quarterly dividend of $0.045 per share. That represents a modest 1.8% 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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool recommends CDN NATURAL RES.

More on Energy Stocks

The sun sets behind a high voltage telecom tower.
Energy Stocks

2 Utilities Stocks With Sought-After Stability

Here's why Fortis and Hydro One are two top utilities stocks long-term investors may want to consider right now.

Read more »

Choose a path
Energy Stocks

Algonquin Power Stock: A Smart Investment or a Value Trap?

Does APQ stock have more surprises for investors like last year?

Read more »

Oil pumps against sunset
Energy Stocks

Canadian Energy Stocks: Here’s Your Best Bet in February 2023

Want to bet on energy stocks in 2023? Try this Canadian stock for solid income and growth.

Read more »

a person watches a downward arrow crash through the floor
Energy Stocks

Why ARC Resources Stock Plunged 17% in January 2023

Should you buy ARC Resources stock now?

Read more »

oil tank at night
Energy Stocks

Is CNQ Stock a Buy in February 2023?

Canadian Natural Resources stock has many things going for it, including its strong dividend history, as well as cash flow…

Read more »

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Thursday, February 2

More corporate earnings reports could give further direction to TSX stocks today.

Read more »

oil and gas pipeline
Energy Stocks

Better Buy: Suncor Stock or Enbridge?

Amid the favourable environment, would you be better off investing in ENB or SU energy stock right now?

Read more »

Electric car being charged
Energy Stocks

Your Play to Get in on the 2023 EV Boom

Here's why Magna International may be the best way for Canadian investors to ride the EV boom.

Read more »