Suncor (TSX:SU) and Canadian Natural Resources (TSX:CNQ) are down considerably in the past two weeks. Investors who missed the big rally off the pandemic crash are wondering if the recent pullback is a good opportunity to buy one of these TSX oil and gas stocks for their portfolios focused on income and total returns.
Oil price
Oil trades for less than US$70 per barrel at the time of writing compared to the 2022 highs above US$120. The sharp drop has occurred amid a broad-based market correction in energy due to concerns that recent bank failures in the United States and Europe could lead to a wider meltdown in financial markets.
Traders are also concerned that persistent inflation will force central banks to keep raising interest rates and trigger a deep recession. An economic downturn often leads to a reduction in oil demand.
Oil bulls, however, point to the rebound in air travel and a return of commuters to offices as a sign that fuel consumption is set to soar. The reopening of the Chinese economy is also expected to drive a surge in oil demand in the coming months. Meanwhile, energy companies are largely focused on returning cash to shareholders and are only spending the capital needed to maintain production. This should cap supply growth and potentially lead to a strong rebound in the price of oil later this year.
Suncor
Suncor trades near $42 per share at the time of writing compared to $48 earlier this month and $53 at the 2022 peak last June.
The stock has underperformed its oil sands peers over the past three years. In fact, Suncor currently trades below its price right before the pandemic.
A new chief executive officer recently took charge of the company, and Suncor continues to monetize non-core assets as it streamlines the business. Management used the cash windfall in 2021 and 2022 to reduce debt, so the balance sheet is now in solid shape. The board also reversed the dividend cut that occurred in the early days of the pandemic, and the distribution is now at an all-time high.
Investors who buy Suncor stock at the current price can get a 5% dividend yield.
Canadian Natural Resources
CNRL is widely known as an oil producer with a diversified portfolio of assets that includes oil sands, conventional heavy oil, conventional light oil, and offshore oil production. However, CNRL also has vast natural gas production and reserves in Canada.
Natural gas prices are down considerably after a massive spike last year, but the long-term demand outlook remains positive for the fuel as utilities transition from oil and coal to natural gas as a fuel for generating power.
New liquified natural gas (LNG) export facilities being built in British Columbia and in the United States open up global markets for North American natural gas producers.
CNQ stock currently trades near $72 per share compared to more than $80 a few weeks ago. The board has increased the dividend for 22 consecutive years with a compound annual growth rate of better than 20% over that timeframe. Investors who buy CNRL at the current level can get a 5% dividend yield.
Is one a better buy?
Suncor and CNRL both appear oversold right now and offer attractive dividends that should continue to grow. If you only buy one, I would probably make CNRL the first choice today due to its diversified production portfolio.
