Oil prices have been incredibly hot of late, with the price of West Texas Intermediate (WTI) surging above the US$90 mark in recent weeks. Undoubtedly, higher oil prices have fuelled some inflation fears. Here in Canada, inflation seems to be picking up again. Though one month of hotter inflation doesn’t necessarily mark the start of a resurgence, I think central banks don’t have room to be dovish as we head into the end of the year. I expect another rate hike, maybe two, as central banks stay the course in an effort to put the inflation fire out for good.
In short, higher oil may become a pressure point for the U.S. markets. On the energy-heavy Canadian market, though, investors may have an opportunity to gain a leg up, as they pick away at the still-depressed energy stocks as they look to benefit from the recent surge in the price of oil. Canadian crude prices are really having a chance to flex their muscles. And with that, the cooled-off TSX energy plays may have the means to finish off 2023 with a huge bang!
Looking ahead, oil’s run could take it back above the US$100 mark. And if it does, it’s the broader basket of oil plays that could be in for a sizeable leg up. In this piece, we’ll take a look at a trio of TSX energy stocks that look too undervalued, given the recent rally in the price of oil.
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Suncor Energy
Suncor Energy (TSX:SU) stock has really heated up for the summer months, soaring more than 22% since its June lows. As the tide lifts all the boats in the broader energy sector, look for Suncor to sustain a run, potentially back to its May 2022 highs, just shy of the $54 mark.
Recently, Suncor Energy stock got downgraded to Hold from Buy by Desjardins. The move added a bit of pressure to shares. Though the company has taken steps to improve its operating track record, Desjardins noted a few underwhelming results that Suncor posted in recent years.
Despite the downgrade, I’m upbeat while shares go for 10 times trailing price-to-earnings (P/E), with a 4.44% dividend yield. Sure, Suncor hasn’t shined as bright as some of its peers in the oil patch. However, there’s already a nice discount attached to shares to compensate for such. If Suncor can improve its relative positioning, I view the potential for multiple expansion-tied upside.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) stock is a preferred way to play the Albertan oil patch. The stock’s latest 5% slip off highs, I believe, is a buying opportunity for Canadian investors looking to increase their exposure to the energy scene. The latest second quarter was impressive, and it could be just the start as the $92.4 billion Canadian energy king looks to strengthen further.
The stock trades at 12.3 times trailing P/E, which is quite low for such a proven big-energy kingpin with impressive cash flows. Should oil stay strong, I do think the next stop could be $100 per share. The 4.19% dividend yield is just the icing on the cake!
