In today’s AI-obsessed market, oil stocks are easy to overlook. Not only are they not developing technologies that are pushing the boundaries of the human imagination, they are even seen by many as soon to be replaced by renewables!
Fortunately for investors, reports of oil’s death have been greatly exaggerated. Transitioning the world’s power grids to renewables will take decades, while nuclear power plants take many years to build and face political opposition.
Put simply, oil isn’t going anywhere. With that in mind, here are three oil and gas stocks that may be worth a look today.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) is a Canadian integrated energy company that ranks among the largest Canadian companies by market capitalization. The company owns assets in Western Canada, the UK, and elsewhere. It is involved in exploration and production, marketing, and midstream. It also supplies natural gas.
Canadian Natural Resources has been performing well in fundamental terms over the last few years. The company compounded its revenue at 11% per year and its earnings at 15.9% per year over five years. Decent results. Despite that fact, the company’s stock is pretty cheap, trading at 13 times earnings and 6.5 times cash flow – lower multiples than the TSX Composite Index as a whole. Provided that oil prices hold up over the next few years, CNQ stock should do well.
Suncor Energy
Suncor Energy Inc (TSX:SU) is a Canadian integrated energy company that extracts/sells crude oil, supplies natural gas, and operates gas stations. It’s fairly similar to Canadian Natural Resources except that it has a gas station business, which CNQ doesn’t. This is an important advantage. Because it extracts, sells and refines crude, while also supplying gasoline, it captures profit along the entire oil and gas supply chain.
Suncor Energy is quite profitable, with a 58% gross profit margin, a 14.8% net income margin, and a 15.5% free cash flow margin. Like CNQ, it has grown its revenue, earnings and cash flows at a respectable pace over the last five years. Finally, the company’s stock is even cheaper than Canadian Natural Resources’, trading at just 10.3 times earnings, 1.4 times book, and 4.5 times cash flow. Overall, this stock has much to recommend it.
Enbridge
Enbridge Inc (TSX:ENB) is a Canadian pipeline company that supplies an outsized percentage of the crude oil consumed in North America. Unlike the other two companies mentioned in this article, ENB doesn’t sell oil directly; for this reason, its revenues and earnings are not nearly as volatile as those of Suncor and CNQ.
Although midstream is technically part of the energy industry, it’s really a completely different business model. Enbridge leases use of its pipelines to customers on a long-term basis, typically 10 or 15 years. These long-term contracts help ensure that ENB’s revenue keeps coming in even when the market for oil is weak. That’s not to say that the company’s earnings are totally independent of oil prices: sometimes Enbridge’s contracts have clauses that stipulate that fees are higher if oil prices are higher. However, most of the time, the company’s revenue is pretty stable, growing steadily over the years.
Enbridge stock is well known for its high dividend yield, which is 6.1% at today’s prices. The company has had some legal and regulatory issues in the past, but has the support of the Canadian government and the incoming Trump administration as well. It looks like it’s smooth sailing for Enbridge for now.
