Energy stocks have taken a backseat to many of the market’s leaders (which is dominated by tech these days). Indeed, when stocks were sagging, commodity plays had a chance to shine in 2022. As 2023 comes to a close, some pundits think the cooling energy plays could be in for big gains from here.
Specifically, Bank of America (NYSE: BAC) recently came out, pounding the table on the broader basket of Canadian energy stocks. As oil and gas plays begin to pick up ground again, I do think it makes a lot of sense to get back in the energy trade, especially if you took profits at some point in 2022 or 2023.
Valuations, on the whole, seem quite intriguing at the moment. Suncor Energy (TSX: SU), Tourmaline Oil (TSX: TOU), and midstream pipeline player TC Energy (TSX: TRP) are just three attractively valued candidates that may be a right fit for your TFSA (Tax-Free Savings Account) portfolio. Let’s have a closer look at each name.
Suncor Energy
Suncor Energy is a producer that’s starting to look stupidly cheap, with shares currently going for just 7.3 times trailing price-to-earnings (P/E). Does the company have the best safety and efficiency track record on the planet? Probably not. But the energy producer is taking steps to improve in these areas. As it puts in the effort, I do not doubt the firm’s ability to close the gap with its big-energy rivals.
Perhaps the most enticing part of shares of SU is its 4.8% dividend yield. It’s safe and could keep growing from here, especially if oil prices can pick up traction again after their latest mini-slump. Indeed, if 2024 is another challenging year (a repeat of 2022?), Suncor Energy stock could be in a spot to prosper.
For now, the stock’s around 14.6% off its five-year highs. I think such a level could be breached in 18 months if the firm can keep improving its safety and profitability track record. So far, the signs are pretty good. But I don’t think the stock has been rewarded quite yet.
Tourmaline Oil
Up next, we have Tourmaline Oil, whose stock has been red-hot since bottoming out back in Spring of 2020. Since then, the stock has soared over 750%. Undoubtedly, the $22.7 billion firm is unlikely to repeat the magical returns over the next three years or so. But that doesn’t mean shares can’t march considerably higher from here, as it looks to better itself.
If you don’t mind amplified volatility, TOU stock looks like a solid play. The 1.5 beta entails a high correlation to the broader market, which means choppier trading days. If you’ve got a strong stomach and see value in the firm as it goes for 22.9 times trailing P/E, I’d not be afraid to punch a ticket right here, perhaps for a growth-focused TFSA fund.
TC Energy
Finally, TC Energy is a great pipeline pick now that its B.C.-based Coastal GasLink project is mostly finished. Undoubtedly, TRP stock is a far better pick for income investors, given the juicy 7.35% dividend yield.
As conditions normalize, I view TRP more as a utility-like play, given its lower sensitivity to the price of oil. In any case, the $52.7 billion firm seems cheap and poised for a relief run, perhaps as soon as 2024. Of the energy stocks on this list, TRP stands out as my top pick.
