2 Cheap Energy Stocks to Buy Now and Never Sell

Suncor Energy stock is one of the Canadian energy stocks to buy now, while they’re cheap and offer generous dividend yields.

| More on:
Man considering whether to sell or buy

Image source: Getty Images.

As oil and gas prices have fallen dramatically over the last year, so have energy stocks. They spectacularly rode the wave higher last year only to come crashing down in recent months. But has this altered the outlook for energy stocks? Or has it created some truly undervalued energy stocks to buy today?

In this article, I discuss two energy stocks that are too cheap to ignore.

Canadian Natural Resources

Canadian Natural Resources Ltd. (TSX:CNQ) is a $42 billion Canadian oil and gas company. Its assets consist of a diversified portfolio of high-quality natural gas, crude oil, and upgrading assets. Importantly, these assets are long life assets, and as such, the company’s reserves are expected to last 32 years.

Crude oil has fallen 35% from its 2022 highs of more than $120. Canadian Natural Resources stock has fallen a mere 7.5% in this same time period. The fact is that CNQ stock remains undervalued due to the sheer earnings and cash flow power of this energy stock. In 2022, adjusted funds flow increased 44% to $19.8 billion and free cash flow increased to $10.9 billion.

The company has been a strong cash flow generator for many years. This, in turn, has led to strong dividend payments and dividend growth. In fact, in the last 20 years, its dividend has grown at a compound annual growth rate (CAGR) of 25%!

Today, Canadian Natural Resources stock is trading at depressed multiples of 4.9 times cash flow and 2.3 times book value despite its strong cash flow growth rates and return on equity. Also, its dividend yield is a very generous 4.47%. All of this makes CNQ stock a cheap energy stock to buy today.

Suncor Energy stock

With a dividend yield of just above 5%, and depressed multiples of 3.1 times cash flow and 1.4 times book value, Suncor Energy Inc. (TSX:SU) stock is screaming value today. But what caused this former Canadian integrated oil and gas company to fall from grace? You see, Suncor stock was once an investor favourite that could do no wrong. Has it really fallen so far off the tracks, or is this a case of altered perception more than anything else?

Well, as is usually the case, the answer is grey. In truth, Suncor has had its issues. For example, its safety record has not been great. On top of this, there have been some operational deficiencies that have contributed to these safety issues and drove up costs. However, as it often happens in the stock market world, the shift in investors’ perception of Suncor was far worse than the reality.

You see, Suncor remains an oil and gas powerhouse, with a well-diversified business and strong and steady cash flows. In 2022, the company has continued to deliver strong results. In fact, Suncor posted record results. This was driven by strong oil prices as well as strong crack spreads.

So, Suncor generated adjusted funds flow of more than $18 billion in 2022, 77% higher than in 2021. This is yet another year of strong cash flows from Canada’s premier integrated oil and gas company. As a result of this consistently strong cash flow profile, Suncor’s dividend has increased at a compound annual growth rate of 17% in the last 20 years. This is a phenomenal track record and one that has made many shareholders extremely happy and wealthy.

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.

Fool contributor Karen Thomas has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources. The Motley Fool has a disclosure policy.

More on Energy Stocks

oil and natural gas
Energy Stocks

These Canadian Energy Stocks Are Bargain Buys for 2023

Here are two of the best Canadian energy stocks you can buy on the dip in 2023 to hold for…

Read more »

Oil pumps against sunset
Energy Stocks

Freehold Royalties Stock: A Dependable 7.5% Monthly Dividend

Canadian investors hungry for income can trust Freehold Royalties Ltd. (TSX:FRU) stock for its fantastic monthly dividend in 2023.

Read more »

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Wednesday, May 31

The TSX index could remain volatile today, as discussions and final voting on the U.S. debt ceiling deal will remain…

Read more »

Energy Stocks

Better Dividend Buy: Suncor Energy or Canadian Natural Resources Stock?

Suncor Energy stock's additional 10.6% dividend raise in 2023 is doubtful. Canadian Natural Resources stock may outperform despite a current…

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

TFSA Investors: The Best TSX Energy Stocks for Fast-growing Passive Income

Are you building your TFSA passive income portfolio? Then you can’t miss out on having Canadian energy stocks.

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

Suncor Stock: How High Could it Keep Going?

Down 26% from 52-week highs, Suncor stock offers you a dividend yield of 5.3%. But is this TSX energy stock…

Read more »

canadian energy oil
Energy Stocks

Better Buy: Suncor Energy Stock or Canadian Natural Resources Stock?

Suncor and Canadian Natural Resources are off their 12-month highs. Is one now oversold?

Read more »

Oil pumps against sunset
Energy Stocks

The Top TSX Energy Stocks to Buy This Summer

Recession fears have disproportionately weighed on TSX energy stocks lately.

Read more »