TSX energy stocks are among the cheapest and most promising equities in Canada. Trading at about 12 times earnings on average, they are optically cheaper than other TSX value sectors such as banking and utilities.
In the past, the apparent “cheapness” of TSX energy equities was fairly justified. Oil prices hit a high in 2015 that they didn’t hit again until 2022. Much of the TSX energy sector was going nowhere from 2015 to 2020, when WTI oil futures turned negative!
Since 2022, oil prices have been hovering in the $65—70 range pretty consistently, with occasional trips to $80. It’s not exactly an “exciting” market, but it’s one in which oil companies are more than capable of making money. So, as you’d probably expect, TSX energy companies have been mostly rising and paying good dividends in the last few years. If you are interested in entering this trade, then read on, because in this article I will reveal the ultimate TSX Energy stock to buy with $1,000 today.
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Suncor Energy
Suncor Energy Inc (TSX:SU) is a Canadian integrated oil company. “Integrated” means it’s involved in all — or at least most — energy sub-sectors. Suncor’s business activities include extracting and selling crude; marketing crude and natural gas; refining; and operating gas stations. These varied business activities give Suncor considerable optionality, and the ability to make money in many different oil and gas markets.
Whereas pure play E&P companies can only make solid profits when oil prices are high, integrated companies like Suncor have more options. Natural gas marketing has different supply and demand dynamics than the oil market. Refining profitability is based on the crack spread rather than oil prices as such. Finally, gas station profitability is based on gasoline prices rather than oil prices. So, Suncor is adequately diversified and can make money even if the oil industry is not in perfect condition.
Recent earnings
Suncor Energy’s most recent earnings release was pretty good, with earnings per share (EPS) about 10 cents ahead of estimates, though down somewhat on a year-over-year basis. It wasn’t a total release masterpiece, but it was satisfactory.
Future prospects
Suncor Energy’s future prospects appear to be pretty decent. The company is currently benefitting from a relatively healthy oil and gas market. Oil demand continues to increase modestly each year, and ditto with natural gas. The Organization of Petroleum Exporting Countries (OPEC) has been doing output hikes lately, which should put some downward pressure on prices. However, the hikes have not been massive when viewed in percentage terms.
Valuation compared to peer group
Last but not least, we can take a look at Suncor’s valuation multiples. At today’s prices, Suncor trades at:
- 10 times adjusted earnings.
- 11 times reported earnings.
- 1.4 times sales.
- 1.5 times book value.
- 4.3 times cash flow.
These multiples are lower than average for the oil and gas industry, yet Suncor is performing at least as well as its peers. So, SU looks like a decent value today.
Foolish takeaway
Suncor Energy is an energy stock that has it all. It’s cheap, it’s profitable, it’s diversified, it’s a leader in its sector. If I were just starting investing today with $1,000, I’d happily put a chunk of it in Suncor Energy.
