Best Stock to Buy Right Now: Baytex vs. Suncor?

One energy stock could provide higher returns but also comes with greater risk. The other offers better safety but lower returns potential. How will you choose?

| More on:
oil and natural gas

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Energy stocks can be a roller-coaster ride due to their sensitivity to commodity price fluctuations. This volatility significantly impacts oil and gas producers like Baytex Energy (TSX:BTE), while integrated energy giants like Suncor Energy (TSX:SU) are more mitigated from that risk. As investors seek opportunities in the current market, we’ll dive deep into both companies to determine which stock is a better buy right now.

Baytex Energy: A strong comeback story

Baytex Energy, headquartered in Calgary, Alberta, focuses on crude oil and natural gas production, primarily in the Western Canadian Sedimentary Basin and the Eagle Ford formation in the United States. Its liquids production mix in the first half of the year is as follows: approximately 52% in light oil and condensate, nearly 33% in heavy oil, and about 15% in natural gas liquids.

Created with Highcharts 11.4.3Baytex Energy PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

The second-quarter (Q2) results released on July 25 showcased a remarkable rebound from last year’s struggles. In the first half of the year, Baytex’s production surged approximately 73%, averaging 152,407 barrels of oil equivalent per day (boe/d). This impressive performance translated into an 87% increase in adjusted funds flow, reaching $956.7 million, with a per-share rise of nearly 29% to $1.16. Operating cash flow more than doubled to $889.4 million, equating to a 64% per-share increase to $1.08.

Consequently, Baytex also reported a 91% increase in free cash flow, totalling $180.6 million, with a per-share rise of 29% to $0.22. The company rewards its shareholders with a quarterly dividend, offering an annualized payout of $0.09 per share and a yield of about 2.1%.

Looking ahead, chief executive officer (CEO) Eric T. Greager expressed optimism for the second half of the year, highlighting the success of a new oil-weighted pad in the Eagle Ford. As they gear up for 2024, Baytex anticipates strengthening free cash flow, leading to increased shareholder returns and debt reduction.

Analysts currently rate the stock as undervalued, estimating a potential upside of about 47% from its current price of $4.24 per share, although it carries a junk S&P credit rating of B+.

Suncor Energy: Stable and diversified

In contrast, Suncor Energy operates as an integrated oil and gas company, benefiting from a diversified revenue stream that includes oil sands, offshore production, petroleum refining, and a network of Petro-Canada gas stations. This diversification provides a cushion against the volatility often experienced by pure-play producers.

Created with Highcharts 11.4.3Suncor Energy PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

On August 6, Suncor reported its second-quarter (Q2) results. For the first half of the year, net earnings dipped 19% to $3.2 billion, but adjusted operating earnings rose 12% to $3.4 billion, with adjusted funds from operations up 16% to $6.6 billion. Free funds flow increased by over 8% to $3.2 billion, demonstrating solid operational resilience.

The company experienced growth in production volumes, with oil sands production up 11%, upstream production rising 8%, and refinery utilization climbing to 95% compared to 82% a year ago. Suncor’s President and CEO, Rich Kruger, stated that with most of the planned maintenance for 2024 completed, the company is well-positioned for a robust second half.

Currently trading at $52.18 per share, the energy stock is estimated to have a 12-month upside potential of around 15%, and it enjoys an investment-grade S&P credit rating of BBB. With a dividend yield close to 4.2%, it appeals to income-focused investors.

The Foolish investor takeaway

When weighing Baytex against Suncor, it’s clear that Suncor is a more stable investment. Its diversified operations across both upstream and downstream offer greater resilience against market fluctuations. Additionally, Suncor’s stronger financial position and investment-grade credit rating further enhance its appeal to risk-averse investors.

While Baytex may offer the allure of higher capital-appreciation potential, it comes with increased risks associated with its more volatile operational nature. Investors should carefully consider their risk tolerance and overall investment strategy before making decisions in this dynamic energy sector. Ultimately, Suncor stands out as the better buy for those seeking a blend of stability and growth in their portfolio.

Should you invest $1,000 in BCE right now?

Before you buy stock in BCE, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and BCE wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Kay Ng 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.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

golden sunset in crude oil refinery with pipeline system
Energy Stocks

Is Enbridge Stock (TSX:ENB) a Buy for its 5.9% Dividend Yield?

This solid dividend payer has the potential to help investors generate reliable passive income for decades.

Read more »

nugget gold
Dividend Stocks

Recession Stocks Are Back: Consider Buying the Dip This April

Recession stocks are back, and this one could be a solid winner.

Read more »

Person holds banknotes of Canadian dollars
Energy Stocks

Best Stock to Buy Right Now: Suncor vs Cenovus?

Suncor stock's 4.2% dividend yield vs Cenovus Energy's growth potential: Tariff-proof safety or growth gamble?

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Earn $500/Month in Tax-Free Income With Your TFSA

Canadians can earn $500 or a desired tax-free income every month by saving and investing through the TFSA.

Read more »

how to save money
Energy Stocks

1 Canadian Stock Ready to Surge in 2025 and Beyond

This Canadian stock has seen significant growth, but more could come for 2025 and beyond.

Read more »

oil and natural gas
Energy Stocks

Here’s How Many Shares of Enbridge You Should Own to Get $2,000 in Yearly Dividends

Solid dividend stocks like Enbridge could help you generate reliable passive income for decades.

Read more »

Pumpjack in Alberta Canada
Energy Stocks

3 Canadian Oil and Gas Stocks to Watch for in 2025

Oil companies like Suncor Energy (TSX:SU) are doing well this year.

Read more »

Aerial view of a wind farm
Energy Stocks

The Best Renewable Energy Stocks to Buy Before They Take Off

Here are two of the best Canadian renewable energy stocks you can buy today and hold for the long term…

Read more »