October is shaping up to be a prime time for Canadian investors to tap into the energy sector. Crude oil has posted an 11.4% gain and natural gas prices are up 19.2% over the past month. Geopolitical tensions, particularly the recent escalations between Iran and Israel, have sent oil prices rebounding. This upward pressure, coupled with increasing global demand, suggests that energy prices could remain elevated for the foreseeable future.
For savvy investors, October presents a golden opportunity to capitalize on potentially undervalued TSX energy stocks with strong growth momentum. Secure Energy Services (TSX: SES), CES Energy Solutions (TSX: CEU), and Headwater Exploration (TSX: HWX) are among the top Canadian energy stocks to consider adding to your portfolio this month. Here’s why.
Source: Getty Images
Secure Energy Services stock
Secure Energy Services is a key player in the midstream sector, providing crucial waste management and environmental services to oil and gas producers across North America. Instead of riding the waves of volatile commodity prices, Secure Energy generates stable and recurring revenue through its strategically located network of facilities. This focus on essential services, coupled with an impressive five-year diluted earnings per share (EPS) compound annual growth rate (CAGR) of 73.7% and a 10-year revenue CAGR of 17.9%, makes SES stock a compelling energy sector growth investment candidate.
Despite Secure Energy Services’s strong revenue and earnings growth performance, the stock appears undervalued with a forward price-earnings (PE) multiple of 16.7 and a price-earnings-to-growth (PEG) ratio as low as 0.2 – implying the market underappreciates the company’s earnings growth potential.
Adding to its appeal, Secure Energy stock offers investors a well-covered quarterly dividend with a 2.9% annual yield. While regulatory changes and competition may pose potential risks, the company’s strong fundamentals and stable revenue streams position it for continued growth.
Secure Energy stock has produced a 21.3% investment gain during the past month.
CES Energy Solutions stock
CES Energy Solutions stands out as a leading provider of essential chemical solutions for the oil and gas industry. From drilling and completion to production and transportation, CES’s products and services are integral throughout the entire oilfield lifecycle. This translates to consistent demand and strong growth potential, evidenced by the company’s five-year diluted EPS CAGR of 48% and a 10-year revenue CAGR of 10.8%.
With a forward PE of 8.9 and a PEG ratio of 0.7, CEU stock appears undervalued relative to its earnings growth potential. Furthermore, the company’s asset-light business model allows for strong free cash flow generation, which is returned to shareholders through a growing dividend (currently yielding 1.6%) and active share repurchase programs.
While commodity price volatility and technological disruption are potential risks, CES’s focus on essential chemicals and a strong financial position make it an attractive option for long-term growth-oriented investors.
CEU stock has generated 129.1% in total returns to investors so far this year.
Headwater Exploration stock
Headwater Exploration is a Canadian oil and gas exploration and development stock with a proven track record of organic growth and strategic acquisitions, resulting in a 10-year revenue CAGR of 35.4% and a five-year diluted EPS CAGR of 58.7%.
With ambitious production growth targets for 2024 and 2025, Headwater is well-positioned to capitalize on the current energy market. Investors will also appreciate the company’s attractive and well-covered dividend, which currently yields 6%.
Despite its strong revenue and earnings growth performance and encouraging future prospects, Headwater’s forward PE of 4.7 suggests that the stock is undervalued given an industry average PE of 12.5. While oil price volatility and execution risks are factors to consider, Headwater stock’s strong track record and focus on a high-potential play make it a compelling addition to any energy portfolio.
Investor takeaway
October presents an enticing opportunity for Canadian investors to gain exposure to the energy sector. Secure Energy Services, CES Energy Solutions, and Headwater Exploration offer compelling investment cases, combining strong growth potential, undervaluation, positive price momentum, and shareholder-friendly policies.
However, it’s crucial to remember that energy investments come with inherent risks. Conduct thorough research, re-assess your risk tolerances, and ensure every portfolio addition aligns with your investment objectives. Diversification within the energy sector and across other asset classes is also essential for building a balanced and resilient retirement portfolio.
