2 Incredibly Cheap Canadian Energy Stocks to Buy Now

Dividend-paying TSX energy stocks, such as Ovintiv, trade at cheap valuations in 2024.

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While tech stocks have staged a remarkable comeback in the past 15 months, energy stocks are feeling the heat due to a sluggish macro environment and lower oil prices. The ongoing pullback in energy stocks allows you to identify quality stocks trading at a discount and buy the dip. Here are two incredibly cheap Canadian energy stocks to buy now.

The bull case for Ovintiv stock

Valued at $18.6 billion by market cap, Ovintiv (TSX:OVV) is an energy producer focused on developing its multi-basin portfolio of oil, natural gas, and natural gas liquids. Its principal assets include the Permian in Texas, Anadarko in Oklahoma, and Montney in British Columbia.

Despite an uncertain and challenging environment, Ovintiv beat and reset its targets twice in 2023. It ended 2023 with net earnings of $2.1 billion and an operating cash flow of $3.9 billion. It invested $2.7 billion in capital expenditures, which suggests its free cash flow stood at $1.2 billion, allowing it to return $733 million to shareholders via dividends and buybacks.

Last June, Ovintiv more than doubled its premium drilling inventory in the Permian thanks to three accretive acquisitions. These acquisitions have added 1,650 premium drilling locations to its portfolio in the last three years.

In 2023, Ovintiv reduced total debt by $426 million, strengthening its balance sheet. It continues to focus on maximizing returns on invested capital and free cash flow to enhance shareholder returns. Ovintiv expects to end 2023 with a free cash flow of $1.6 billion, an increase of $450 million year over year, assuming flat production and lower commodity prices, which should drive dividends higher.

Ovintiv pays shareholders an annual dividend of $1.20 per share, translating to a forward yield of 2.3%. These payouts have risen by 50% in the last two years. Priced at less than 10 times forward earnings, the TSX energy stock is quite cheap, given earnings are forecast to expand by 17.3% annually in the next five years.

Is Secure Energy Services stock undervalued?

Valued at $3.2 billion by market cap, Secure Energy Services (TSX:SES) is engaged in the waste management and energy infrastructure businesses in Canada and the United States. The company delivered significant shareholder value in 2023, returning $280 million to shareholders.

Its share buybacks in the last 12 months decreased the outstanding share count by 7%, allowing Secure Energy Services to improve adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 11% year over year.

Moreover, it executed two critical infrastructure growth projects which are backed by long-term commercial agreements, resulting in stable cash flows across business cycles.

In 2023, SES reported revenue of $1.64 billion, an increase of 7% year over year. Its adjusted EBITDA stood at $590 million, indicating a margin of 36%.  Further, net income was $195 million, or $0.66 per share, while funds flow from operations rose 18% to $474 million.

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SES pays an annual dividend of $0.40 per share, translating to a forward yield of 3.5%. These payouts have risen by 25% annually in the last seven years.

Priced at 13.8 times forward earnings, SES stock is not too expensive and trades at a discount of 11% 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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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