The TSX’s Biggest Losers in January 2023 (Should You Sell?)

While markets have trended up in 2023, the recent natural gas drop has made some energy stocks the TSX’s biggest losers.

| More on:
Dice engraved with the words buy and sell

Image source: Getty Images.

Markets have started 2023 on a positive note with easing inflation and rate-hikes woes. While the TSX Index has soared 7% so far, last year’s star commodity — natural gas — has notably lost steam. So, this price action was mimicked in gas-weighed TSX energy stocks of late, making them some of the TSX’s biggest losers of 2023. Canada’s largest natural gas producer, Tourmaline Oil (TSX:TOU) stock, has dropped 13%, while the third-largest, ARC Resources (TSX:ARX), has lost 17% of its market value so far in 2023.

Why are natural gas prices falling in 2023?

Natural gas prices were close to US$10/Btu (British thermal units) in August last year, which have now come down to US$2.4/Btu. Warmer weather in the U.S. and Europe has largely been behind natural gas’s muted demand this winter season. People use gas for heating homes. So, demand for natural gas goes up in the later part of the year.

Moreover, the U.S. EIA (Energy Information Administration) forecasts an oversupply of gas in 2023 due to record-high production and lower demand. Thus, natural gas prices seem unlikely to revive anytime soon.

Natural gas surged last year, as the war in Ukraine risked energy supplies from Russia. However, Europe has managed to fill its reserves to multi-year highs lately, which will be enough to cater to its winter demand. Plus, milder weather has further lowered the demand, making the current storage plentiful for longer.

Tourmaline Oil

Tourmaline Oil is a $20 billion energy production company with almost 80% gas-weighted production. While natural gas prices have declined 75% in the last six months, TOU stock has dropped only 25%.

And that’s because of Tourmaline’s strong balance sheet and special dividends. It also paid a special dividend of $2 per share on January 12, highlighting its cash flow visibility and sound financial position. Last year, TOU stock returned 80%, including dividends, remarkably outperforming its peers.

Tourmaline stands tall among peer energy stocks due to its low-production costs and exposure to premium markets in California. It sells a significant portion of its production in Sumas, Citygate, and Malin, where gas prices trade much higher than local AECO prices.

Tourmaline Oil is an appealing name in the Canadian energy space because of its scale and strong balance sheet. A less leveraged balance sheet makes a company less vulnerable in a low-price environment. TOU stock looks attractive from a valuation perspective as well. So, if gas prices recover later in the year, TOU stock could once again climb higher.

ARC Resources

ARC Resources is Canada’s third-biggest natural gas producer. It also produces oil and condensate, which compensate for ARC’s natural gas exposure and make it relatively less susceptible to some extent.

ARC plans to produce 350,000 barrels of oil equivalent per day this year, nearly 3% higher than last year. Its high-quality Montney assets and owned infrastructure facilitate lower costs and help obtain relatively higher margins.

As is the case with Tourmaline, ARC has also repaid millions of debt in the last few quarters. Its lower leverage put it on a much stronger footing than it has been historically. This has been the theme across the energy sector since the pandemic. Energy producers have held back on production growth and used excess cash to improve their balance sheet strength.

These leading gas producers might have a limited downside from here due to their solid financials and ongoing share buybacks. However, a large correlation with natural gas prices makes them relatively riskier.

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. The Motley Fool has a disclosure policy.  Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

More on Stocks for Beginners

bulb idea thinking
Stocks for Beginners

3 No-Brainer Stocks to Buy Now for Less Than $1,000

If you're looking for companies bound for more greatness, these three no-brainer stocks are easy buys, no matter what the…

Read more »

Dollar symbol and Canadian flag on keyboard
Stocks for Beginners

TFSA: 4 Canadian Stocks to Buy and Hold Forever

Here are four stocks that you can buy and hold for decades in your TFSA.

Read more »

Young adult woman walking up the stairs with sun sport background
Stocks for Beginners

New to Investing? This Step-by-Step Guide Will Get You Started

New to investing? Then follow this guide to help you get started, by paying off your debts and saving towards…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

3 Ways Canadian Investors Can Save Thousands in 2024

If you've done the budgeting and are still coming out with less money than you'd like, consider these three ways…

Read more »

edit Person using calculator next to charts and graphs
Stocks for Beginners

Where to Invest $7,000 in April 2024

Are you wondering how to deploy the $7,000 TFSA contribution increase in 2024? Here are four high-quality stocks for earning…

Read more »

investment research
Stocks for Beginners

New Investors: 5 Top Canadian Stocks for 2024

Here are five Canadian stocks that might be ideal for a beginner investment portfolio.

Read more »

Dots over the earth connecting the world
Tech Stocks

Hot Takeaway: Concentration in 1 Stock Can Be Just Fine

Concentration in one stock can be alright under the right circumstances, and far better than buying a bunch of poor-performing…

Read more »

tech and analysis
Stocks for Beginners

If You Invested $1,000 in WELL Health in 2019, Here is What It’s Worth Now

WELL stock (TSX:WELL) has fallen pretty dramatically from all-time highs, but what if you bought just before the rise? Should…

Read more »