The energy sector currently accounts for 17.8% of the Toronto Composite Index based on market cap, making it the second-largest sector after financials. While energy stocks have underperformed the broader market in the last year due to weak oil prices and shifting investor sentiment, 2025 could mark a turning point. With geopolitical tensions rising and improving global demand outlook, Canadian energy companies are beginning to look increasingly attractive. For long-term investors, the sector’s strong long-term growth outlook could be a rare opportunity to buy high-quality energy stocks at a discount.
Let’s explore two top Canadian energy stocks that could outperform the broader market in the coming years as the sector regains momentum.
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ARC Resources stock
So, let’s kick things off with a fundamentally solid Canadian energy stock, ARC Resources (TSX:ARX), that’s gaining momentum with strong production growth lately. This is a major oil and gas producer that has been around for nearly three decades and focused on the Montney region in Alberta and northeast British Columbia.
ARX stock currently trades at $28.25 per share, with a market cap of $16.6 billion and a 2.7% annualized dividend yield. It’s up more than 25% over the past six months, outperforming many peers in the energy sector.
In the fourth quarter of 2024, ARC posted record production of 382,341 barrels of oil equivalent per day with the help of strong well performance at its Kakwa natural gas play and new volumes from the Attachie Phase I project. As a result, the company’s revenue climbed by 17% sequentially, and adjusted net profit rose over 12% from the previous quarter, hitting $370 million despite a tough pricing environment for natural gas.
More importantly, ARC plans to ramp up free funds flow in 2025 while keeping capital spending in check. With more condensate-heavy production coming online and a deal to supply natural gas to a future liquefied natural gas project, this energy company’s long-term growth outlook remains bright, which could help it reward investors along the way.
Imperial Oil stock
Another strong energy stock to consider for 2025 is Imperial Oil (TSX:IMO), a long-time Canadian heavyweight in the oil and gas sector. Just like ARC, it’s been around for decades and runs everything from exploration and production to refining and retail.
After surging by around 15% over the last three months, IMO stock is currently trading at $104.46 per share with a market cap of $53 billion. At this market price, it offers a quarterly dividend with a 2.8% annualized yield.
In the quarter ended December 2024, Imperial posted a net profit of $1.2 billion, driven by strong upstream production and solid refinery performance. Its Kearl and Cold Lake assets delivered record output, pushing total quarterly production to 460,000 barrels per day — the highest in over 30 years. Despite lower oil prices, the company’s refining capacity utilization hit 95%, boosting its margins.
Recently, Imperial Oil raised its dividend by 20% and is building Canada’s largest renewable diesel facility, set to start in mid-2025. That mix of strong performance and strong growth prospects makes it a stock worth holding for the long term.
