Is CNQ Stock a Buy in January 2023?

CNQ stock is down from the 2022 high. Is it time to buy?

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Canadian Natural Resources (TSX:CNQ) soared last year on the back of rising oil and natural gas prices.

In fact, energy stocks across the board delivered solid returns in 2022 and helped the TSX limit its losses. The back half of 2022, however, saw oil and gas producers go through some volatility, as commodity prices fell, and investors booked profits.

Investors with some cash to put to work in 2023 are wondering if CNQ stock is good to buy at the current level.

Canadian Natural resources overview

CNRL is Canada’s largest energy producer with a current market capitalization around $83 billion. The stock rose roughly 40% in 2022, moving from $53 at the end of last year to $75 at the 2022 close. CNQ traded as high as $88 in June before pulling back on the dip in oil prices. West Texas Intermediate (WTI) oil topped US$120 per barrel last year and currently trades near US$80. This is still a profitable level for the company.

CNRL is primarily known for being an oil producer with its diversified assets that include oil sands, offshore oil, conventional heavy oil and conventional light oil production. The company is also a major natural gas producer in Canada. This side of the business often provides a nice revenue hedge against volatility in the oil market.

CNRL typically owns 100% of its assets. The strategy increases risks on large projects, but it also provides management with the flexibility to move capital around the portfolio to take advantage of changes in market prices for the commodities.

Dividends

CNRL raised its dividend in each of the past 22 years, and investors have received a compound annual growth rate of better than 20%. This makes CNRL one of the top dividend-growth stocks on the TSX over the past two decades.

The board increased the quarterly payout significantly in the past two years from $0.47 to the current payout of $0.85 per share. In addition, CNRL distributed a bonus dividend of $1.50 per share in August.

At the time of writing, the stock provides an annualized yield of 4.5%.

Outlook

A warm start to the Canadian winter is putting pressure on domestic natural gas prices. In global markets, Europe managed to get its storage high enough to make it through the winter, despite the reduction in supply from Russia. This has led to a reduction in liquified natural gas prices that had soared in 2022. More volatility is expected in 2023.

Oil bulls are of the opinion that WTI oil will top US$100 per barrel in 2023. China is relaxing its COVID-19 policies, and global air travel continues to rebound. Commuters will also hit the highways again in higher numbers, as businesses call workers back to the office. The surge in fuel demand is expected to occur as producers continue to limit output increases.

On the negative side, a deep global recession could minimize demand growth in the oil sector. Investors should expect to see price volatility as the year progresses.

Should you buy CNQ stock today?

CNRL pays an attractive dividend and continues to use excess cash to reduce net debt and buy back stock. Profits should remain robust in 2023, and investors will probably see another dividend hike or bonus payout. Additional downside is certainly possible from the current price, but if you are an oil bull, CNQ stock deserves to be on your radar today.

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 recommends Canadian Natural Resources. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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