Canadian Natural Resources (TSX:CNQ) is up 14% since early March. Investors who missed the bounce are wondering if CNQ stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.
Canadian Natural Resources stock price
CNRL trades near $44 at the time of writing. The stock recently picked up a new tailwind after an extended slide that saw the share price fall from $56 last April to $38 a few weeks ago.
Most of the damage that occurred over the past year was due to falling oil prices. Weak demand in China and rising output in countries like Canada and the United States that are not part of Audi-led OPEC combined to put pressure on oil prices. West Texas Intermediate (WTI), for example, trades below US$70 per barrel right now compared to $87 in April 2024. It was as low as US$66 earlier this month. The modest rebound is one reason bargain hunters have moved back into CNQ stock.
Another boost for the share price might be the tightening of the gap in the price differential between WTI and Western Canadian Select (WCS), which is the price most Canadian producers get for their oil. The difference is less than US$10 per barrel right now, which is the smallest the price gap has been in more than four years.
The new U.S. administration’s threat to put 25% tariffs on countries that buy oil from Venezuela is actually helping Canadian energy companies. The oil that Canada produces is similar to the oil that comes from Venezuela, so the market appears to be betting on more demand for Canadian crude oil. The opening of the expansion of the Trans Mountain pipeline last year is also helping Canadian producers get more oil to international buyers.
Opportunity
A reduced tariff on Canadian oil or even a tariff exemption for Canadian energy products would potentially bring investors back into the Canadian energy sector in the coming months. Investors also need to keep a close eye on the political news in Canada with respect to discussions about reconsidering national east-west oil and natural gas pipeline projects. A change of attitude towards new large cross-country pipelines could open the path for new access to both the Atlantic and the Pacific. This would be positive news for Canadian energy producers.
Risks
The Trump administration wants to keep oil prices low to take pressure off inflation. At the same time, a global trade war could plunge the world economy into a recession that would reduce oil demand. In that situation, oil prices could hit new 12-month lows in the coming months, potentially sending oil stocks into a new downturn.
Is CNQ a buy now?
Energy investors should prepare for a bumpy ride. However, oil and natural gas bulls with a contrarian investing style might want to start nibbling on any new weakness and then look to add on additional downside. CNQ stock offers a 5.3% dividend yield right now, so you get paid well to ride out the volatility and the distribution should be safe. The board has increased the dividend in each of the past 25 years.
