As the U.S. market starts getting a tad choppier, Canadian investors may wish to check out some of the less-correlated names that can perhaps better weather a summer or autumn storm. Indeed, the energy sector has been a rougher ride in recent months, but some oil stocks still look quite intriguing for value investors looking for a great deal and a solid dividend to go!
Though energy stocks may introduce some volatility in your portfolios, I’d argue that once the markets head south, energy exposure may help your portfolio dodge and weave past any big punches thrown your way by this market. Above-average betas entail greater market risk and correlation to the TSX Index. However, back in 2022, we saw many energy stocks pick up traction while the rest of the market found itself stuck in a bit of a hangover as investors sold, and Mr. Market marked down many stocks in response to higher interest rates.
Let’s check in with two energy stocks that could “slay the rollercoaster” should market volatility (likely due to a reversal in the AI trade) return to Bay Street in H2 2024.
Suncor Energy
Suncor Energy (TSX:SU) stock has been picking up speed this year, now up 25% year to date, outpacing its rival in Canadian Natural Resources (TSX:CNQ), which is up just shy of 14% year to date. As Suncor improves its safety and operating track record, the relative discount to peers could narrow further. Despite the strong first-half performance, shares of Suncor are still dirt-cheap at 8.8 times trailing price-to-earnings (P/E). Indeed, Suncor’s operations still have more room for improvement.
Either way, the Canadian oil patch has a lot going for it these days, especially as new innovations help lower production costs. Indeed, the oil sands projects can be quite costly. As underlying economics improve, I view SU stock as a top-value stock to consider before a potential breakout that may be reminiscent of CNQ stock’s meteoric rise. Of course, oil prices may continue running hot into the second half, providing a lift to the broader energy sector.
With a nice 4.1% dividend yield and good amount of newfound momentum since the year began, SU stock is one of my top value picks to play the energy scene.
Canadian Natural Resources
Canadian Natural Resources stock has been a far better bet over the past five years, with shares up 191.5%. After a recent 10% correction off highs, though, investors may be wondering if it’s time to trade up to a cheaper option. Indeed, Suncor Energy is a name that immediately comes to mind. At writing, CNQ stock goes for a rather rich 14.7 times trailing P/E. Not exactly lofty, but still a richer multiple than some of CNQ’s energy rivals.
Arguably, the premium is worth paying for, given the strong management and impressive operating economics. With a 4.1% dividend yield and economies of scale coming from being a $106 billion behemoth, I do think the latest dip is more of a buy than a sign to jump ship to a cheaper peer. Either way, for Canadians seeking more exposure to the oil patch, I’d much rather be a net buyer of CNQ and SU.
