2021 was an excellent year for oil and gas stocks. Enbridge (TSX:ENB)(NYSE:ENB), one of the biggest names in the industry, benefitted from this momentum. Enbridge stock was up 21% in 2021. Here’s why this stock outperformed most tech and growth stocks last year, and why this trend could continue in 2022.
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Energy crunch
The transition to renewable energy hasn’t been smooth. Governments across the world have been far too aggressive with their cuts to fossil fuels. Meanwhile, they’re not been aggressive enough with renewable energy investments. That’s created a gap between the amount of energy produced and the amount required for a recovering global economy.
This energy crunch has pushed the price of all energy commodities from coal to crude oil, near multi-year highs. Crude oil trades at US$80, or CA$101, at the moment — far higher than the average price since 2014. Natural gas has had a similar run. One million British Thermal Units, or MMBtu, of natural gas currently cost US$3.84, or CA$4.9 — 43% higher than last year.
The rising demand for energy is beneficial to Enbridge. The company transports roughly 25% of the crude oil and 20% of the natural gas produced in North America every year. More demand, higher prices, and a deeper energy crunch are all good for the company’s bottom line.
In 2021, Enbridge saw its revenue swell to $35.3 billion — 14.22% higher than the previous year. That figure was for the 12 months until September 2021. Revenue is likely to be much higher this winter, which means Enbridge’s growth rate could accelerate in the next few quarters.
Renewables
The most surprising fact I learned while digging into Enbridge was that the company has been investing in renewable energy for decades. Since 2002, they’ve deployed roughly $8 billion into solar, wind, and geothermal power plants across North America. At the moment, the company generates enough renewable energy to power 960,000 homes.
In recent years, these investments have intensified. As consumers become more climate-conscious and government regulations tighten, this move seems prudent. For investors, it further reduces Enbridge stock’s risk profile.
Enbridge stock valuation
Enbridge stock has been consistently undervalued. At the moment, it trades at a price-to-earnings ratio of 17.9. That implies an earnings yield of roughly 5.6%. The stock also offers an unbelievably generous dividend yield of 6.76%.
This valuation coupled with the economic outlook for the energy sector makes Enbridge a low-risk, high-yield bet for 2022.
Bottom line
Enbridge stock is up 21% over the past year — driven mostly by fundamentals. Revenue and net income surged, as the world’s energy demand intensified in 2021. This trend is likely to continue for much of 2022.
At the moment, Enbridge stock looks undervalued. This could be a safe bet for long-term investors.
