It’s the battle of the Canadian energy stocks in this piece, with Suncor Energy (TSX:SU) and Cenovus Energy (TSX:CVE) being stacked up. Undoubtedly, the energy patch had a great 2022, as technology stocks dragged down the broader market indices, primarily in the states.
This year has been a muted year for most energy stocks. And with West Texas Intermediate (WTI) prices recently dipping below US$70 per barrel this week, the oil producers have been hit with a bit of turbulence. Whether the plunge in oil prices is the start of something far worse going into 2024 remains a question mark at this juncture. Either way, recent pressure on oil stocks could prove buyable for investors seeking exposure to the space at a reasonable price of admission.
Indeed, investors are likely feeling pretty good going into the holiday season after a year of mega-cap-driven relief for the broad S&P 500 index. As markets begin to price in a rate cut (or more) at some point over the first half of 2024, we may see the market’s rally continue into the new year. And if there’s no rate cut to be found in the first or second quarter of 2024, stocks may be punished accordingly, especially if the winds of recession finally move in.
The case for energy stocks going into 2024
It’s hard (and not worthwhile) to time the markets, especially when investors start getting greedy again. When it comes to energy stocks, I view them as intriguing ways to further diversify your portfolio to better ready yourself for any unforeseen hailstorms.
Remember back in 2022 when energy stocks had the opportunity to shine? Though 2024 is highly unlikely to see a repeat of 2022, when energy stocks outdid tech plays, I do think that Canada’s top energy darlings are worthy buys on weakness. Don’t buy all in one go, though. I view them as great incremental buys over time, on the way down.
Energy stocks can be quite the choppy ride, after all. And dollar-cost averaging can help you deal with extreme levels of market chop.
Suncor is a great company that may have been discounted due to its past safety track record. The good news is that management is taking steps to improve. And in due time, I do believe the market will recognize and reward the firm for its progres on this front. At the end of the day, Suncor has great assets and the means to improve upon efficiencies over time through various initiatives.
At writing, the stock trades at 6.6 times trailing price-to-earnings (P/E) after its latest dip. With a 5% dividend yield and an impressive long-term trajectory, Suncor remains my top large-cap energy pick for those seeking to maximize value.
Cenovus is a spicier energy play, which fell 3% on Wednesday on the back of retreating oil prices. The stock is down around 24% from its October 2023 highs, retreating as the markets bounced back. Indeed, Cenovus stock has really cooled off but looks to be a better value for those still bullish on the long-term prospects for the energy scene. The stock yields 2.5% and goes for 10.4 times trailing P/E.
I think it’s a great buy for younger investors who can handle the amplified volatility.