With inflation easing and the United States Federal Reserve slashing its benchmark interest rates by 50 basis points, oil prices have strengthened. WTI (West Texas Intermediate) crude is up around 9.5% from this month’s low. Despite the recent increase, WTI crude is still trading at a 10% discount compared to last month’s highs. Amid improving investor optimism, let’s look at two cheap energy stocks offering attractive buying opportunities.
Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ), which operates a diverse, balanced asset base, reported excellent second-quarter performance last month, with its total production increasing by 8%. Amid production growth and higher price realization, the company’s adjusted fund flows grew by 15.2% to $3.6 billion. Meanwhile, the company is continuing with its $5.4 billion capital expenditure program, with $2.7 billion already spent in the first two quarters.
Amid these capital investments, CNQ’s management projects its total production for this year will be between $1,330–$1,380 million barrels of oil equivalent per day. The midpoint of the guidance represents a 1.8% increase from the previous year. Moreover, with the company’s debt falling below $10 billion, it expects to return 100% of its free cash flows to its shareholders this year. So, the company, which has been raising its dividend for 24 years at an annualized rate of 21%, could continue with its dividend growth. Meanwhile, it currently offers a healthy forward dividend yield of 4.6%.
However, amid the decline in oil prices, CNQ has been under pressure over the last few months, losing around 19% of its stock value compared to its April highs. Besides, its NTM (next 12 months) price-to-earnings multiple stands at 11.6, making it an attractive buy at these levels.
Suncor Energy
Another cheap energy stock I am bullish on is Suncor Energy (TSX: SU), which reported a healthy second-quarter performance last month. Its adjusted operating earnings of $1.6 billion represents a 29.8% increase from the previous year’s quarter. Higher realized crude oil prices and oil sands sales volume, as well as increased refinery production, more than offset lower E&P (exploration and production) volumes and lower refined product realization to drive its adjusted operating earnings.
With most of its planned maintenance for this year complete, Suncor Energy is confident of a solid second-half performance. Further, the company has planned to make a capital investment of $6.3–$6.5 billion this year, strengthening its asset base. Amid these growth initiatives, the company projects its total upstream production this year will be between 770,000 and 810,000 thousand barrels of oil equivalent per day. The midpoint of the guidance represents a 2.5% increase from the previous year. Also, its refinery utilization rate could improve from 90% in 2023 to 92-96%. So, its growth prospects look healthy.
However, Suncor Energy trades at an over 10% discount compared to its 52-week high, while its NTM price-to-earnings multiple stands at an attractive 10.1. Besides, it currently pays a quarterly dividend of $0.545/share, translating into a forward dividend yield of 4.3%. Further, the company’s management hopes to maintain annualized dividend growth of 3-5%. Considering all these factors, I believe Suncor Energy would be a compelling buy right now.
