Energy stocks can be quite volatile, especially if macro events send prices viciously in either direction. Undoubtedly, timing the price moves of various commodities can be incredibly hard to do. There are just too many variables to make it worth the while to predict what a specific commodity (especially oil, uranium, or anything else tied to energy) is going to do over the short- to medium-term. Heck, even the long-term forecast can be quite cloudy, given just how unpredictable the future can be.
Black swans happen, and unless you’ve got some sort of crystal ball, you’re going to need to be prepared to deal with them as they swim by. Like it or not, the magnitude of volatility facing the top energy plays isn’t going anywhere. But for those who do have a strong stomach for high-beta volatility (higher beta entails more correlation to the TSX), I do think it’s a smart move to be a net buyer of the highest-quality energy stocks during their moments of immense weakness.
In this piece, we’ll have a quick look at two names in the oil patch that have been reeling lately. Indeed, oil prices aren’t skyrocketing. But they don’t have to be for the following operationally-efficient players to do well and continue producing immense amounts of cash flow for reinvestment and distribution (in the form of dividends).
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Suncor Energy
Suncor Energy (TSX:SU) is a $66 billion relative value play in the Canadian energy patch. And while the longer-term chart (think the 10-year) may be less impressive than that of many of its peers (big and small), I do see serious value for those willing to buy and hold for at least the next five years. Indeed, getting paid a fat 4.5%-yielding dividend while you wait certainly makes the long-term hold that much easier! And if oil prices experience a sudden surge due to some unforeseen event, perhaps the dividend stands to grow at a rate that’s slightly above what investors have come to expect.
Either way, I’m a big fan of the value to be had from the name while it’s going for just 11.2 times trailing price-to-earnings (P/E). That’s too cheap for a misunderstood blue-chip stock that has what it takes to ride out periods when oil prices are on the lower end. Sure, Suncor goes for a hefty discount to its peers, but if long-term value is what you seek, I think it’s time to stash the name on your radar. It’s one of my top long-term value plays in the energy patch, and it’s worth considering while its yield is well above 4%.
Cenovus Energy
Cenovus Energy (TSX:CVE) has had a terrible start to 2025, now down 11% year to date, putting the name around 35% away from its 2022 all-time highs. The $35.6 billion firm has a 4.3% dividend yield and a similar beta (1.27) to Suncor. And while the negative momentum has been tougher to get behind of late, I still think the name could be a great bounce-back option once oil prices get going again.
For now, the company is in cost-cutting mode, even after posting some decent Q1 earnings to go with a nice dividend hike. All considered, CVE stock looks deeply undervalued at a 12.9 times trailing P/E. It’s tough to tell how much room there is for the latest bounce off multi-year lows to run. Either way, newer investors should look to buy incrementally over time for the passive income and decent value proposition.
