Oil prices have gone up significantly in the last two weeks. The prices started going up at the end of 2024, and the momentum is still relatively strong. This momentum has carried over to the TSX-capped energy index, which has climbed over 11% in the current bull run. However, the forecasts for 2025 are not as optimistic.
If oil prices mostly fall and fluctuate this year, it will impact energy stocks as well, albeit not all of them. One energy stock has already gone through a brutal correction phase and has a few other positive factors influencing its performance that may cause it to grow significantly in 2025, even contrary to the sector’s performance.
A Colombia-based oil company
Parex Resources (TSX:PXT) is an oil company trading and headquartered in Canada but operating almost exclusively in Colombia. It has a significant land position in the country — about 5.4 million net acres. That’s comparable to Cavernous Energy, a company with a market capitalization 26x larger than Parex, that holds roughly six million net acres in Canada.
So, despite its modest market capitalization of $1.5 billion and the fact that it’s not even in the mid-caps yet, let alone counted among the large-cap stocks, it’s a giant and leader in this space (in terms of assets held).
Parex’s average production is at around 44,700 barrels of oil equivalent per day or boe/d, which makes up a significant segment of the country’s overall output (between 5-6%). The bulk of this production is in heavy crude, followed by light crude with only a limited amount of natural gas.
The company is focusing on developing its natural gas production, but we might not see any significant difference until the end of this decade.
The stock’s growth prospects
The company has a solid position in the country it’s operating in. Its revenues are inconsistent (or at least have been for the last few quarters), but net income looks promising. More importantly, the company has minimal debt and significant cash reserves, which leaves it with enough capital to fund its projects and growth without incurring substantial debt.
The stock is trading at a massive discount, about 47% down from its 2023 peak. The slump was caused by a major cut in production outlook, and it came at a time when most upstream energy stocks were fluctuating but not appropriately bearish. Parex also didn’t experience the massive bullish surge post-pandemic, so there is a precedent of the stock performing contrary to the energy sector in Canada.
It’s also relatively undervalued right now, with a price-to-earnings ratio of just 4.1. The discount, undervaluation, and contrary performance potential might indicate a strong candidate poised for growth (recovery-fueled) in 2025.
Foolish takeaway
A decent chance of a full recovery is a strong enough reason to consider this stock. But if you want another compelling reason to add this stock to your portfolio, the 10% yield backed by a payout ratio of 44% might make the cut. The company is raising its dividends, and Parex may as well be the next energy aristocrat in the making.
