Better Buy: Suncor Stock or Canadian Natural Resources?

Amid the recent pullback, let’s assess which among Suncor Energy and Canadian Natural Resources would offer excellent buying opportunities.

| More on:

Despite the announcement of production cuts by Saudi Arabia, oil prices have declined by over 17% from their April highs. The concerns over the impact of prolonged high-interest rates on global growth appear to have dragged oil prices down. Amid the weakness in the energy sector, Suncor Energy (TSX: SU) and Canadian Natural Resources (TSX: CNQ) have been under pressure over the last few months.

Now, let’s look at the outlook of oil and assess which among Suncor Energy and Canadian Natural Resources could be a better buy.

Oil price outlook

International Energy Agency projects oil demand to rise by 2.4 million barrels per day in 2023 to 102.3 million barrels per day, which would be a record. The rebound in Chinese demand could drive oil demand. Additionally, OPEC (Organization of the Petroleum Exporting Countries) projects oil demand to reach 110 million barrels per day by 2045.

Meanwhile, OPEC and its allies’ announcement of production cuts and rising demand could drive oil prices in the coming quarters. Meanwhile, analysts look bullish on oil, with Goldman Sachs projecting Brent crude to reach US$86 per barrel by December, representing a 16.5% increase from its current levels. Rising oil prices could benefit oil-producing companies. Given the favourable environment, let’s look at both companies’ recent performances and growth initiatives.

Suncor Energy

In the March-ending quarter, Suncor Energy reported adjusted operating earnings of $1.809 billion, representing a 34% decline from its previous year’s quarter. Lower crude oil realizations, a decline in upstream production and refinery throughput, and higher operating expenses dragged its earnings down. Meanwhile, its adjusted funds from operations also fell 27% to $3 billion.

However, the company focuses on portfolio optimization by acquiring a 14.65% working interest in Fort Hills and selling wind and solar assets and the U.K. E&P (exploration and production) portfolio. It has utilized its excess cash flows in the last two years to lower its debt and buy back shares, which could boost its financials in the coming quarters. Additionally, it also rewards its shareholders with a quarterly dividend of $0.52/share, translating its forward yield to 5.41%.

Canadian Natural Resources

Canadian Natural Resources also witnessed a sharp decline in its financials amid lower price realization. Its adjusted operating earnings fell 44% to $1.88 billion while generating adjusted fund flows of $3.43 billion compared to $4.98 billion in the previous year’s quarter. However, year to date, the company has returned around $2.8 billion to its shareholders through share repurchases and dividends as of May 4.

Notably, the company expects to make a capital investment of around $5.2 billion this year, reinforcing its production growth of 70,000 barrels of oil equivalent per day. Given its long-life, low-decline assets, the company would break even at West Texas Intermediate crude trading in mid-US$30 per barrel. So, with oil trading substantially higher and projected to rise further, I am bullish on CNQ.

CNQ has raised its dividends at a CAGR (compound annual growth rate) of 21% for the previous 23 years. Its forward yield stands at a healthy 4.94%.

Investor takeaway

Amid the decline in oil prices, both companies have been under pressure over the last few weeks. Suncor Energy has lost 23.5% of its stock value compared to its 52-week high, while CNQ is down by 13.5%. The selloff has dragged their valuations down, with Suncor Energy and CNQ trading at next 12-month price-to-earnings multiples of eight and 10, respectively.

Although the recent corrections and attractive valuation offer excellent buying opportunities in both stocks, I am more bullish on CNQ due to its stable returns, diversified asset portfolio, and consistent dividend growth.

Fool contributor Rajiv Nanjapla 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

diversification and asset allocation are crucial investing concepts
Energy Stocks

This Undervalued TSX Stock Could Be Your Ticket to Lasting Wealth

Hammond Power Solutions just posted record sales and rising margins, yet this top TSX stock still looks undervalued today.

Read more »

concept of growth
Energy Stocks

Top Discounted TSX Dividend Stocks to Snap Up Now

These dividend-growth stars now trade at attractive prices.

Read more »

runner checks her biodata on smartwatch
Energy Stocks

1 Canadian Stock Down 14% to Buy for Lifelong Passive Income

This stock now offers a dividend yield above 5.5%.

Read more »

how to save money
Energy Stocks

This Dividend Stock Pays Monthly and Yields 6%: Here’s What $7,000 Could Pay You

Freehold Royalties pairs a 6%-plus monthly dividend with an asset-light royalty model that can keep cash flowing without drilling wells.

Read more »

Dam of hydroelectric power plant in Canadian Rockies
Energy Stocks

Here Are the Canadian Stocks I’d Feel Safest Holding Forever

Given their regulated asset base, low-risk operations, consistent dividend growth, and visible growth prospects, these two defensive stocks are ideal…

Read more »

Aerial view of a wind farm
Energy Stocks

Cautious Investors: 2 Safer High-Yield Dividend Stocks for Canadians

Canadians should add Enbridge and Brookfield Renewable Partners on their watchlist for potential buy-the-dip opportunities on market corrections.

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

Enbridge Stock: Should You Buy, Sell, or Hold It Right Now?

Enbridge just reaffirmed 2026 guidance and grew its project backlog to $50 billion. Here's what it means for the TSX…

Read more »

boy in bowtie and glasses gives positive thumbs up
Energy Stocks

Down 12% From Its All-Time High: Is This 5.5% Dividend Stock Now a Buy?

This TSX giant might be getting oversold.

Read more »