In the world of defensive investing, many top energy stocks continue to dominate the mindshare of many investors. Companies in this sector do exhibit some cyclical trends (energy prices go up and down in cycles, of course). However, this space can also be lower beta and move less in lockstep with the overall market. For those concerned about a potential downturn, that makes various top energy stocks worth considering.
Here’s why I think these two particular stocks are undervalued and overlooked right now, and why energy investors may want to consider these names.
Suncor Energy
One of Canada’s top integrated energy players, Suncor Energy (TSX:SU), remains a top pick on my list, for a number of reasons.
First, the company’s status as an integrated oil giant means that investors can capture much of the upside from robust energy demand (and prices) over time. For those who believe that we’re only going to need more energy moving forward, Suncor remains a top way to play this space.
Additionally, Suncor has proven to be an excellent company from a fundamentals standpoint in recent quarters. The energy giant reported $2.8 billion in adjusted funds from operations and $2.2 billion in free funds flow for the third quarter of 2024. The corporation was able to repay $1.5 billion to shareholders as a result of its strong performance, which included $700 million in dividends and $800 million in share repurchases.
With an output of 487,600 barrels per day, Suncor operationally reached record refinery utilization rates, hitting 105% in the third quarter of 2024. Compared to 463,200 barrels per day and 99% utilization in the same quarter last year, this was a notable rise. Additionally, the business recorded record-breaking sales of refined products, with 612,300 barrels sold daily, up from 574,100 barrels sold during the same period last year.
Strategically, Suncor demonstrated good financial discipline and operational efficiency by hitting its $8 billion net debt objective nine months ahead of the estimate stated in its May 2024 three-year plan. To further demonstrate its dedication to shareholder returns, the business also raised its quarterly dividend by 5% to 57 Canadian cents per share.
Enbridge
Pipeline giant Enbridge (TSX:ENB) is perhaps the most defensive way to play the energy sector. With long-term revenues and earnings essentially locked in via long-term contracts, investors benefit from extremely stable cash flows, which the company is able to pay back to investors in the form of a sky-high 6.1% dividend yield.
Aside from the company’s dividend, which is the primary reason I’d argue this stock is worth holding right now, Enbridge has some growth catalysts worth considering. The company has demonstrated its dedication to growing its infrastructure and service capabilities. Recently, the energy firm increased its estimate of its secured expansion projects to $27 billion. Enbridge is well-positioned to benefit from the rising demand for a variety of energy sources thanks to notable projects like the $1.1 billion Sequoia Solar project and the $700 million Canyon System Pipelines project.
Prominent energy infrastructure provider Enbridge has also shown strong financial results and deliberate expansion plans. Enbridge announced a $1.3 billion profit for the third quarter of 2024, a significant rise over the $532 million profit for the same time the year before. Increased organic growth prospects and recent U.S. gas acquisitions were credited with helping to drive this expansion.
In its 2025 financial forecast, Enbridge projected distributable cash flow per share to be between $5.50 and $5.90 and EBITDA to be between $19.4 billion and $20 billion. As a sign of its confidence in its ability to generate cash flow in the future, the firm recently announced a 3% raise in its yearly common share dividend, from $3.66 to $3.77 per share, commencing March 1, 2025.
