Energy stocks nosedived in 2023 following two consecutive red-hot years. It’s the only TSX sector out of 11 with negative returns (-8.39%) thus far this year. Investors must be more discerning and limit their investment choices to Canadian energy stocks that continue to outperform during this market sell-off.
Keyera Corp. (TSX:KEY), MEG Energy (TSX:MEG), and Total Energy Services (TSX:TOT) defy the bearish sentiment, as evidenced by their positive returns.
Stronger and more competitive
Keyera is the top-performing pipeline stock with its 8.4% year-to-date gain. At $31.55 per share, the dividend yield is an enticing 5.90%. The business of this midstream oil and gas operator consists of natural gas gathering and processing; natural gas liquids processing, transportation, storage and marketing; and iso-octane production and sales. It generates revenue from fee-based contracts.
The $7.5 billion company also boasts an industry-leading condensate system. In Q1 2023, net earnings rose 21% to $137.8 million versus Q1 2022. Dean Setoguchi, Keyera’s President and CEO, said, “Keyera had a very strong start to the year, delivering record results in our fee-for-service business segments.”
Setoguchi adds that the completion and first shipment from the Key Access Pipeline System, or KAPS, is a major milestone. Because KAPS is now in service, Setoguchi believes Keyera is a stronger and more competitive company.
MEG Energy displays resiliency despite the significant drop in Q1 2023 earnings ($81 million) versus Q1 2022 ($362 million). The $5.9 billion energy company focuses on sustainable in situ thermal oil production (Southern Athabasca oil region) and develops oil recovery projects. At $20.46 per share, investors enjoy an 8.5% year-to-date gain.
Its President and CEO, Derek Evans, remains upbeat despite incurring losses: “In Q1, our Christina Lake operations delivered strong bitumen production at an industry-leading steam-oil ratio. These strong operating results enabled our ongoing commitment to debt reduction with $117 million of debt repaid in the quarter as well as share buybacks of $103 million.”
Management will allocate 50% of free cash flow (FCF) until net debt is $600 million, down from $1 billion. MEG, along with other Pathways Alliance members, is working on the proposed Carbon Capture and Storage (CCS) project.
Total Energy Services operates in the oil and gas industry and provides equipment and services such as contract drilling, rentals and transportation, compression and process, and well servicing. Besides Canada, the $353 million company caters to customers in Australia and the United States.
The energy stock is a screaming buy after reporting its Q1 2023 financial results. In the three months that ended March 31, 2023, cash flow and operating income ballooned 116% and 659% year-over-year to $48.7 million and $28 million, respectively. Net income soared 874% to $24 million versus Q1 2022.
Management said industry conditions remain generally positive, notwithstanding the oil price volatility and lower natural gas prices. The current share price is $8.75 (+2.63% year to date), with market analysts projecting a rise to $15.67 (+79%) in one year.
The erratic behaviour of oil prices despite a favourable demand outlook and an uptick in inflation could extend the slump of energy stocks. However, Keyera, MEG, and Total Energy Services should hold steady.