Market jitters have returned to the TSX on Tuesday following five consecutive days of gains. Canada’s primary stock market could erase its gains as oil prices fall below US$100 per barrel. Industry experts fears a slowdown in global growth. The economic outlook darkened because of weak economic data in China.
The Chinese central bank cut its medium-term lending rate to boost growth. Retail sales and industrial production in July were significantly lower than the forecasts of economists. Goldman Sachs analysts said domestic demand is still weak due to sporadic COVID outbreaks, production cuts in high-energy consuming industries, and problems in the property sector.
Meanwhile, Moody’s Analytics paints a gloomier picture for the energy industry. The rating agency expects global oil prices to fall by almost US$70 per barrel by year-end 2024. Are the current events a sign to move away from energy stocks before a severe correction happens?
An energy stock to keep
I don’t think investor interest in Vermilion Energy (TSX:VET)(NYSE:VET) will wane because of the not-so-good news. The business model of this $5.3 billion international energy producer is all about free cash flow (FCF) generation and returning capital to investors, if economically warranted.
In Q2 2022, sales increased 110.9% to $858.8 million versus Q2 2021. While net earnings dropped 19.6% to $362.6 million, FCF increased 262.3% year over year to $339.8 million. Notably, fund flows from operations jumped 161.9% to $452.9 million versus the same quarter last year.
Another hold not sell
Craig Bryksa, Crescent Point’s President and CEO, said, “Our second quarter results highlight our excess cash flow generation, continued operational execution and commitment to returning capital.”
Slowing oil demand
Oil demand is slowing and some market analysts predict a free fall soon. However, energy stocks like Vermilion and Crescent are profitable options if the prices rebound and oil markets remain tight.