Ovintiv Stock Tanks: Time to Buy?

Ovintiv just gave back some of its big gains. Is the drop in the stock price overdone?

thinking

Image source: Getty Images

Ovintiv (TSX:OVV)(NYSE:OVV) fell more than 13% leading up to the release of its Q1 2022 results amid a plunge in the oil sector. The pullback has investors wondering if Ovintiv stock is now a buy.

Ovintiv overview

Ovintiv is a relatively new name in the oil and gas industry, but the company has been around for a long time. It was previously called Encana. Management made the name change in early 2020 right before the pandemic crash. Ovintiv is now a U.S. company based in Denver, whereas Encana was Canadian and based out of Calgary.

Investors who had the courage to buy the stock at $3.50 a little over two years ago have enjoyed amazing returns. Ovintiv shares recently hit $73.50 on the TSX before the latest dip. At the time of writing, Ovintiv trades near $62.

The board raised the dividend by 43% when the company reported the Q4 2021 results and just announced another 25% increase. The new quarterly distribution of US$0.25 per share provides an annualized yield of about 2%. That’s not a large payout at today’s share price, but anyone who purchased the stock in the early stages of the oil rebound is getting an excellent yield.

Ovintiv earnings

The rally in WTI oil prices to above US$100 per barrel in the first part of 2022 sets Ovintiv up to meet its net debt target of US$3 billion earlier than expected this year and should result in another flood of cash being handed out to shareholders through higher dividends and share buybacks.

In the first three months of 2022, Ovintiv produced 500,000 barrels of oil equivalent per day (boe/d) above the midpoint of its guidance. Despite the strong market price and output, the company reported a net loss of US$241 million for Q1 2022 due to a US$1.458 billion net loss on risk management.

Ovintiv generated full-year 2021 net earnings of US$1.4 billion.

Oil market

Oil prices remain volatile, but WTI is still above US$100 per barrel at the time of writing. The rebound in global demand is expected to continue for some time, as economic activity ramps up again in countries that took the heaviest hits from the pandemic. OPEC members and other producers are struggling to boost production due to steep cuts to capital programs over the past two years. It will take time for new investments to deliver meaningful new supply to the market. Producers in Canada and the United States are taking advantage of the cash windfall to pay down debt and return capital to shareholders in an effort to boost stock prices before committing capital beyond what is needed to maintain current production.

Fuel consumption is expected to rise in the back half of 2022, as airlines ramp up capacity to meet travel demand and commuters continue to head back to offices.

Overall, oil prices are expected to remain elevated through at least next year, if not longer.

Ovintiv also has significant natural gas production. Natural gas prices in Canada and the United States have surged on tight supplies and growing demand for liquified natural gas (LNG) that is exported to international buyers.

The wild card in the energy markets remains the extent and duration of sanctions on Russian oil and natural gas. The country is a significant energy producer.

Is Ovintiv stock now a buy?

The easy money has already been made, but the recent pullback could be an opportunity to buy Ovintiv stock before the next surge. The rally in oil and gas stocks likely still has legs, and Ovintiv has gone from being a market dog to a star. Volatility should be expected, but investors who remain bullish on oil and gas prices might want to add some Ovintiv to their portfolios on the latest weakness.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Andrew Walker has no position in any stock 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 »