Donald Trump’s latest tariff threats have put Canadian Natural Resources (TSX:CNQ) – Canada’s largest oil and gas exploration and production company –squarely in the spotlight.
As an upstream producer, CNQ is highly sensitive to energy prices and trade policies. Canada exports a significant portion of its oil and natural gas to the U.S., making any shift in tariffs a potential game-changer.
Interestingly, while Trump proposed broad 25% tariffs, energy exports were carved out with a much lower 10% rate – a clear sign that the U.S. still needs Canadian energy.
So, with all this uncertainty, is CNQ a buy, sell, or hold in 2025? Here’s my take.
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CNQ: The macro picture
This all comes down to the possibility and timing of tariffs. After meeting with Prime Minister Trudeau, Trump signalled a 30-day reprieve, later shifting focus to strengthening border measures instead. But once that grace period is up, it’s back to uncertainty.
CNQ isn’t just sitting around waiting. The company has been actively diversifying its export markets, with shipments to Asia and Europe rising 2%. A small step, but a necessary one.
The bigger problem? Trump is unpredictable. That’s just how he negotiates. Analysts estimate that if tariffs do kick in, CNQ’s cost of production could rise by $2 CAD per barrel, shaving off 1-2% in profit margins per quarter.
So, the macro outlook really depends on whether you think tariffs are an actual threat or just more political posturing. Personally, I lean toward the latter. Trump thrives on bluster and bravado, and this time, he played his hand too early. Canada called his bluff, and a compromise has already been struck.
CNQ: The fundamentals
CNQ remains one of Canada’s most efficient oil and gas producers. Its profit margin sits at 21.3%, operating margin at 31.7%, and return on equity at an impressive 19.1%.
Management has also been disciplined with debt. The company’s total debt-to-equity ratio is 28.9%, reflecting efforts to deleverage after the challenges of 2020, when oil prices briefly went negative.
One of CNQ’s biggest advantages is its oil sands operations. Unlike conventional drilling, oil sands require minimal ongoing maintenance, making them profitable even at low oil prices. CNQ’s break-even point is around US$40 per barrel, giving it a cushion in volatile energy markets.
Then there’s the reserve life. CNQ has an estimated 33 years of reserves, nearly double the 17-year average of its peers. That’s a huge advantage, making it Canada’s crown jewel in upstream production.
At a 12.1 forward price-to-earnings ratio, the stock offers an earnings yield of 8.2%, far higher than the 2.7% yield on Canada’s five-year government bond. That’s significant because bond yields set the benchmark for “risk-free” returns. CNQ offers much higher earnings potential while maintaining a strong financial position.
The Foolish takeaway
If I were inclined to invest in Canadian energy, this would be the one. CNQ is a buy in my books. The 4.9% dividend yield with 24 years of consecutive dividend growth is a nice cherry on top.
