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As I said to members of Stock Advisor Canada earlier this month, market volatility these days is about as low as it gets. Generally speaking, stocks that were attractive buys in, say, January or March remain attractive today.
But if there’s a lean in this month’s collection of our five favourite stocks to buy in June, it is toward the energy sector, which has been unduly hit of late. It’s our opinion that opportunities in that corner of the market remain plentiful, and we’ve tried to reflect this dynamic in this month’s list.
Foolishly yours,
Iain Butler
Chief Investment Officer, Stock Advisor Canada
“Best Buys Now” Pick #1:
Parex Resources (TSX: PXT)
Parex Resources’ (TSX: PXT) stock price has taken a hit in recent weeks alongside many of its oil-producing peers.
The thing is, Parex looks highly attractive at today’s going rate for crude oil (~$82 for WTI).
Even if we assume $75 crude, Parex will generate between $590 and $660 million in funds flow from operations. Remove ~$410 million in capital expenditures (approximate annual budget), and you’re left with $180 to $250 million of free cash flow to use in the service of shareholders. About $115 million is taken by the dividend, but there’s still plenty of ammo to buy back stock or seek out other ways to provide an attractive return on capital.
Yet, the market has Parex trading for just 4 times earnings.
Something’s gotta give.
The share count is down to 102.2 million at last report from 141 million at the end of 2019, and we suspect that will continue lower from here. Plus, the stock offers an amply supported 7% dividend yield.
While the rest of the market is looking elsewhere, Parex is screaming from the hilltops that there’s an opportunity here. Listen up!
