3 Energy Stocks Already Worth Your While

TSX energy stocks could shine for much longer. Here’s why Canadian Natural Resources (TSX:CNQ), Parex Resources (TSX:PXT), and another oil sands play could be worth your while.

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News of slower-than-expected electric vehicle (EV) adoption rates in 2023 could have spooked some EV-theme investors a little. However, the same could be a welcome sign of the resilience of oil in the modern era. It’s far too early to forecast the demise of Canadian oil sands stocks. Investors could reap more capital gains and receive growing cash dividends from TSX energy stocks for much longer. Whatever happens to oil prices over the long term remains anyone’s guess, but three energy stocks are already worth your while.

Canadian Natural Resources (TSX:CNQ) stock, Parex Resources (TSX:PXT) stock, and Paramount Resources (TSX:POU) stock could be best buys right now. Here’s why.

Canadian Natural Resources

Canadian Natural Resources is one of the largest oil and gas explorers and a low-cost producer on the TSX. The $94.8 billion energy company could be a go-to dividend growth stock for income-oriented investors to buy right now.

Management’s commitment to allocating 100% of the company’s free cash flow towards shareholder returns once it achieves its conservative net debt target of $10 billion could become a reality during the first half of this year. Once achieved, CNQ could significantly amplify its share repurchases and substantially raise dividends to stock investors — as oil prices continue to comply.

Canadian Natural Resources stock’s current quarterly dividend of $1 per share yields 4.5% annually. It’s well covered by earnings and cash flow.

Most noteworthy, the company once boasted break-even oil prices in the US$30s per barrel in 2022. The top energy stock should do very well, amplify share repurchases and potentially raise dividends if oil prices sustain near current levels around US$78 for longer.

Parex Resources

Parex Resources is a $2.2 billion Calgary-headquartered oil producer that draws oil from Colombia’s rich resources and sells it at premium prices at the Brent Crude benchmark. Due to perceived foreign risks, some of which could be irrational, PXT stock is one of the cheapest and grossly undervalued energy stocks you can buy on the TSX today.

The energy stock is so generous to its loyal investors. The company pays a quarterly dividend of $0.375 per share that yields 7% annually. The dividend appears well covered by earnings, given a 20% payout rate. Investors could add PXT stock to passive income portfolios for 2024.

Furthermore, Parex Resources is experiencing growth in production. It could potentially fund another dividend increase in 2024 or support a share-repurchase program.

Investors can purchase PXT stock at an attractively low forward price-to-earnings (P/E) ratio of 4.1 times its projected 2024 earnings. A P/E-to-growth (PEG) ratio of 0.8 suggests shares could be undervalued, considering Parex Resources’s growth potential.

Paramount Resources

Paramount Resources is a prominent oil and natural gas producer worth $4.2 billion. The company is expanding the productivity of its Alberta and British Columbia assets. Despite the normalization of oil and natural gas prices over the past year, Paramount Resources achieved record quarterly results in 2023, indicating potential for further success.

Over the past three years, the company significantly reduced its debt and invested more in key assets. Management initiated a monthly dividend of $0.02 per share in 2021. Since then, the dividend has increased by 525% to reach 12.5 cents per share every month.

Why should you buy Paramount Resources stock now? This energy stock is one of the most financially stable options in the Canadian oil sands industry. By reducing its debt from $868 million in 2018 to around $26 million by September 2023, POU stock presents minimal leverage risk for shareholders.

Moreover, the company has the potential for opportunistic special dividends and value-enhancing share repurchases, given its growing free cash flow. In a November 2023 investor presentation, management outlined its forecast of more than doubling free cash flow from $165 million in 2023 to approximately $350 million this year.

Paramount Resources stock pays a monthly dividend yield of 5.1%, which makes it an attractive option for passive income. The dividend is comfortably covered by earnings, with a payout rate of 35%.

Most importantly, POU stock appears to be severely undervalued, given Bay Street analysts’ earnings growth projections of 48% over the next five years. While its forward P/E ratio of 13.2 looks reasonable, its forward PEG ratio of 0.2 strongly suggests Paramount Resources stock is grossly undervalued right now.

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 Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources and Parex Resources. The Motley Fool has a disclosure policy.

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