The Canadian energy sector is finally showing some life. It started growing in the last days of 2024, and the bullish phase continues. The S&P/TSX Capped Energy Index climbed almost 9% over two weeks, indicating strong momentum. While there are many stocks you can buy to leverage this trend, there is one Canadian producer that might be a good pick, even if the current trend doesn’t last long.
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The company
Parex Resources (TSX:PXT) is an energy producer listed and trading in Canada but operating exclusively in Colombia. It’s the country’s largest independent energy exploration and production company, with significant land holdings and production outputs.
These outputs and their slashed projection were one of the reasons the company stock slumped last year, but that doesn’t undermine the company’s fundamental strengths.
A totally foreign operation is one of these strengths. With the company operating outside Canada, it has more buffer to survive local headwinds. That doesn’t mean it’s not impacted by energy trends in Canada or even the Canadian energy sector’s performance, but the impact is modestly cushioned.
But on the flip side, it can also cause the stock to slump even when the rest of the energy sector is thriving, which happened in the second half of 2024.
Reasons to buy this stock
There are many reasons to consider Parex Resources as your top energy pick right now, starting with its price-to-earnings ratio of 4.1, which makes it one of the most undervalued stocks in the energy sector right now.
Another promising aspect of the company that might encourage investors is insider buying. In the last six months (when the stock was discounted), insiders have bought a significant number of shares in the company and there is no major insider selling.
Lastly, the reason this company is getting on many dividend investors’ radar is its generous 9.9% yield. It was in double digits a while ago, but the stock has started on a slow recovery path, so the yield is falling. The dividends are also financially viable and backed by a solid payout ratio of 44%. The company is also growing its dividends at a healthy pace.
Foolish takeaway
Assuming that this energy stock is on a recovery journey, the 46% discount it is trading at might be the most compelling reason to buy this stock. Even if the recovery takes time, the dividends add another layer of attraction to the stock.
In addition to these factors, the stock has also shown adequate resilience over the years, and combining it with its operational advantage, it’s reasonable to assume that it might survive a wide range of headwinds and negative market dynamics.
