The energy sector has fallen and risen multiple times since the beginning of 2023. The energy index has been bullish since mid-March and has grown over 13% in less than a month.
It’s difficult to say how long this bull market phase may last, and considering the recent fluctuation, it may not be wise to buy energy stocks just to leverage this trend. But that doesn’t mean you should stay clear of the sector as a whole. There are multiple top energy stocks that you can buy right now and may hold long term.
An exploration and production company
Ovintiv (TSX:OVV) is currently one of the most undervalued companies in Canada’s energy sector. It’s also trading at a 33% discount from its 2022 peak and a 42% discount from its 2018 peak. The company has stakes in multiple Canadian and U.S. assets, including the $4.2 billion expansion to its U.S.-based inventory that it has recently closed.
Its U.S. presence and rich assets make it a decent energy pick in almost any given market, especially now, thanks to the discount. The dividends at a 3% yield are not much of an incentive. However, its valuation and price discount, which may lead to decent capital appreciation in the long term if the energy sector remains healthy, are compelling reasons to buy this energy stock right now.
A pipeline company
If the uncertainty of the energy sector is a major point of contention for you, a stable pipeline stock like Pembina Pipeline (TSX:PPL) may be a better fit. It’s moderately discounted and undervalued right now and is offering a healthy 5.7% yield to its investors. The stock also offers decent long-term capital-appreciation potential compared to other pipeline stocks.
Pembina’s stability and strength come mainly from its midstream business model. It controls over 18,000 kilometres of pipeline in Canada and the U.S. and offers other midstream services to its clients, including marketing. It’s also a sizable player in the natural gas market capable of producing five billion cubic feet daily.
An energy equipment and service company
If you are looking for an energy stock that you can buy now and hold for years for its consistent growth potential, Terravest (TSX:TVK) might be a great pick. This small-cap company provides infrastructure and support to the energy sector and develops specialized products like energy liquid and gas transportation and storage vessels.
The stock has been going up consistently for the past decade and has risen by about 600% in the last 10 years. The overall returns over the decade are even more attractive (1,000%) thanks to its generous dividends, which it’s currently offering at a yield of about 1.85%. The company is trading at a fair value, and its financials are solid.
Foolish takeaway
The three energy stocks will make good additions to your portfolio. The three companies are quite different and may offer you contrarian returns compared to the rest of the sector. Ovintiv’s capital-appreciation potential is speculative, as the recent history doesn’t support it, but if it pays off (in the long term), the returns might be substantial.
