Oil Prices Are Rising: Here Are the Stocks That Will Benefit the Most

TSX energy stocks such as Suncor Energy should be part of your equity portfolio if you are bullish on oil prices in 2023.

| More on:
Canadian energy stocks are rising with oil prices

The fluctuating prices of oil and natural gas are the key driver of the cyclicality associated with the energy sector. Generally, in a bull run, oil prices remain elevated and nosedive when the economy is in turmoil.

While the macro environment remains sluggish, geopolitical tensions have acted as tailwinds for oil prices in the last 18 months, allowing several energy companies to report record profits in 2022.

So, if you invest in energy stocks, you need to be focused on the impact that price volatility has on oil and natural gas companies. Here are two TSX energy stocks you should buy if oil prices are rising.

Is Suncor Energy stock a good buy right now?

One of the largest Canadian companies, Suncor Energy (TSX:SU), is valued at almost $60 billion by market cap. With assets and investments in the Canadian East Coast and other international markets, Suncor Energy produces oil from the oil sands. It has four refineries in North America that process oil sands crude into refined products.

Suncor’s physically integrated and long-life asset portfolio provides the company with a competitive advantage, allowing it to offer shareholders an annual dividend of $2.08 per share, translating to a yield of over 4.6%.

Due to lower oil prices, Suncor Energy’s net income in Q2 fell by 53% year over year to $1.9 billion. It ended the quarter with free cash flow of almost $1 billion, indicating a payout ratio of less than 70%. This cash stream provides the energy giant with the flexibility to reinvest in growth, lower balance sheet debt, or raise its dividends further.

Suncor recently announced its intention to acquire the Canadian operations of TotalEnergies for US$1.5 billion. TotalEnergies EP Canada holds a 31.2% working interest in the Fort Hills oil sands mining project. The acquisition should add 61,000 barrels per day of net bitumen production capacity and 675 million barrels of proved and probable reserves to Suncor’s existing oil sands portfolio.

Priced at nine times forward earnings, Suncor stock is quite cheap and trades at a discount of 18% to consensus price target estimates.

What is the target price for Vermilion Energy stock?

Valued at $3.3 billion by market cap, Vermilion Energy (TSX:VET) acquires, explores, develops, and produces petroleum and natural gas in North America, Europe, and Australia. In Q2 2023, it reported free cash flow of $80 million or $0.49 per share and paid shareholders a dividend of $0.10 per share, indicating a payout ratio of less than 20%.

Vermilion Energy also utilized its cash flows to reduce balance sheet debt by $1.3 billion, which should reduce interest expenses in the near term.

Recently, Vermilion Energy emphasized its quarterly production for Q3 was at the upper end of its forecast after restarting production at projects located in Ireland and Australia.

Vermilion Energy has completed inspection and repairs at Australia’s Wandoo project and expects to produce 4,000 barrels of oil per day in Q4 from the country.

Priced at five times 2023 earnings, VET stock trades at a discount of 20% to consensus price target estimates.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Vermilion Energy. The Motley Fool has a disclosure policy

More on Energy Stocks

Aerial view of a wind farm
Energy Stocks

Brookfield Renewable Stock Climbs Higher: Time to Buy?

Brookfield Renewable stock (TSX:BEP.UN) continues to climb, but remains below the $40 mark. But that share price looks in view.

Read more »

Nuclear power station cooling tower
Energy Stocks

Up 35%, Is Cameco Stock a Buy in June 2024?

When a stock is bullish, and you have missed the starting point of the trend, it can be challenging to…

Read more »

Oil pumps against sunset
Energy Stocks

4 Top Energy Stocks (With Dividends) to Buy and Hold Forever

These four energy stocks are the best way to get in on long-term income from both growth and dividends.

Read more »

Man considering whether to sell or buy
Energy Stocks

Cameco Stock: Buy, Sell, or Hold?

Cameco stock (TSX:CCO) has risen by above 80% in the last year alone, and 14% in the last month. Will…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Brookfield Renewable Stock: Buy, Sell or Hold?

Brookfield Renewable stock (TSX:BEP.UN) has surged by 31% since earnings. Does this mean you should get in, or get out?

Read more »

green energy
Energy Stocks

Is it Too Late to Buy Brookfield Renewable Stock?

Brookfield Renewable (TSX:BEP.UN) stock has had a hard time getting shares above $40, so is it time to ditch the…

Read more »

Oil pumps against sunset
Energy Stocks

Lower Loonie? This Sector’s a Gusher Anyway

If the Canadian dollar weakens, this one industry is set to make enormous profits, and investors can get in on…

Read more »

Electricity pylons against a sunset
Energy Stocks

Northland Power Stock: Buy, Sell, or Hold?

Northland Power (TSX:NPI) stock continues to climb on the back of strong earnings, but with a CEO and president leaving,…

Read more »