A commodity super cycle is a period when demand outpaces supply, leading to higher prices for products such as oil, natural gas, and metals, among others. This super cycle occurs due to constrained supply chains, geopolitical tensions, and trade wars.
Due to the super cycle, commodity stocks have delivered outsized returns to investors in the last year. While the threat of an upcoming recession and declaration in inflation rates has driven stocks lower in recent months, it makes sense to take a closer look at these companies right now.
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Agnico-Eagle Mines
Valued at a market cap of $24.5 billion, Agnico Eagle Mines (TSX: AEM)(NYSE: AEM) is a gold mining company with operations in Canada, Mexico, and Finland. It also has exploration and development projects in the U.S.
Agnico Eagle pays investors an annual dividend of $2.05 per share, indicating a forward yield of 3.75%, which is quite tasty.
Right now, its share prices are down almost 40% from 52-week highs due to falling prices of the yellow metal. However, in the second quarter (Q2) of 2022, Agnico Eagle Mines beat analyst earnings estimates by $0.16 per share, as it managed to reduce production costs in an inflationary environment.
Valued at 15 times forward earnings, Agnico Eagle is trading at a discount of 90% compared to consensus price target estimates.
Enbridge
Enbridge (TSX: ENB)(NYSE: ENB) is a Canadian midstream giant that is also a Dividend Aristocrat. It currently offers investors a forward yield of over 6%, making ENB stock attractive to income-seeking investors.
In Q2, Enbridge generated 58% of its EBITDA (earnings before interest, tax, depreciation, and amortization) from oil pipelines, 26% from natural gas pipelines, 12% from a natural gas utility, and 4% from renewable energy.
Enbridge is among the lowest-risk commodity stocks, as 98% of its pipeline’s cash flows are backed by long-term contracts. Further, 95% of Enbridge customers have investment-grade credit ratings, and 80% of the company’s EBITDA is indexed to inflation, making it relatively immune to oil prices.
Enbridge has a solid backlog of secured capital projects that include natural gas distribution as well as pipeline expansions and offshore clean energy projects, allowing it to grow annual cash flows by at least 5% through 2024. So, there is a good chance for Enbridge to keep increasing its dividends each year in the medium term.
Canadian Natural Resources
Another energy company that makes the list is Canadian Natural Resources (TSX: CNQ)(NYSE: CNQ). One of Canada’s leading oil and gas companies, Canadian Natural Resources, has an extensive presence in Alberta’s oil sands.
The company pays investors annual dividends of $3 per share, indicating a forward yield of 4.15%. In the last 10 years, CNQ has increased its payouts at an annual rate of 22%. It also announced a special dividend of $1.5 per share after doubling cash flows in Q2 of 2022.
Canadian Natural Resources aims to utilize 50% of its cash flows to buy back shares and the rest to lower its debt balance and strengthen its balance sheet.
Lower oil prices may be a headwind for oil companies, but CNQ has a low-cost structure, making it an attractive bet in 2022.
Valued at less than six times forward earnings, the company is forecast to more than double net earnings in 2022. It’s also trading at a discount of 25% to consensus price target estimates.
