Investing in energy stocks in 2025 requires a delicate balance of understanding market trends, geopolitical influences, and individual company performance. The energy sector is often a barometer of broader economic health. With the re-election of Donald Trump as U.S. president, his administration’s policies are expected to favour traditional energy sources like oil and gas, all while making strides toward energy independence. For Canadian energy stocks like Canadian Natural Resources (TSX:CNQ), this could present both opportunities and challenges, particularly in the shifting global market.
Why CNQ
CNQ is a standout in the TSX energy space, demonstrating resilience and growth potential. As of writing, its stock price trades at $46.10. This steady increase reflects investor confidence, particularly after the energy stock’s recent earnings report highlighted robust performance. CNQ reported trailing 12-month (TTM) revenue of $35.7 billion, with a profit margin of 21.3%, showcasing operational efficiency. Despite a slight year-over-year dip in revenue, its operating cash flow of $14.8 billion and levered free cash flow of $8.3 billion signal strong financial health.
One of CNQ’s key strengths lies in its diversified portfolio. The independent energy producer is not solely reliant on oil sands, as its operations span natural gas and conventional oil. This diversification cushions the energy stock against volatility in any one segment. Moreover, CNQ’s commitment to shareholder returns is evident, with a forward annual dividend yield of 4.7%. For investors seeking passive income, this is an attractive feature, especially given the company’s history of steadily increasing dividends.
Past performance indicates CNQ’s ability to weather economic turbulence. The energy stock has shown resilience through fluctuating oil prices, maintaining a stable dividend and leveraging its scale to reduce costs. The recent 2:1 stock split in June 2024 underscores management’s confidence in long-term growth and its commitment to keeping shares accessible to retail investors.
Future focus
Looking ahead, CNQ is poised to benefit from increasing global energy demand. While the Trump administration’s focus on fossil fuels may seem advantageous, the growing pressure for decarbonization and clean energy investments cannot be ignored. CNQ has been proactive in addressing these concerns, investing in carbon capture and storage (CCS) technologies to reduce emissions and align with environmental standards.
From a valuation standpoint, CNQ remains compelling. Its trailing price-to-earnings (P/E) ratio of 12.9 and forward P/E ratio of 12.6 suggest the energy stock is trading at a reasonable multiple compared to its earnings potential. For context, many of its peers trade at higher valuations, making CNQ a more cost-effective entry point for growth-oriented investors.
Geopolitics also play a crucial role. The Trump presidency, with its “America First” policies, may intensify competition in global energy markets. However, CNQ’s strong presence in Asia and Europe positions it well to navigate these dynamics. The energy stock’s strategic exports of liquefied natural gas (LNG) to Asian markets remain a growth lever, particularly as demand in countries like China and India surges.
In terms of risks, investors should be mindful of external factors such as fluctuating commodity prices and regulatory changes. While CNQ has a relatively low debt-to-equity ratio of 28.9%, its current ratio of 0.84 suggests potential liquidity concerns in the short term. However, its robust cash flows provide a buffer against these challenges.
Bottom line
Finally, the broader energy transition cannot be overlooked. CNQ’s ability to adapt to cleaner energy trends, coupled with its strong financials, makes it a compelling pick for investors looking to capitalize on both short-term growth and long-term sustainability. With Trump’s policies potentially reinvigorating the oil and gas sector, CNQ stands out as a Canadian energy leader poised for growth in 2025 and beyond. Its strategic initiatives and shareholder-friendly policies make it a stock to watch, especially for those seeking a blend of growth, income, and resilience.
