Fellow Canadian investors, if your portfolio doesn’t have at least one energy stock right now, you’re missing out on one of the best opportunities to fortify your returns amid global uncertainty.
Energy remains the lifeblood of our economy. Indeed, from electric vehicles (EVs) to artificial intelligence (AI) data centres, our entire economy is bolstered by energy in one form or another.
Here’s why energy exposure is more important than ever as a diversification tool, and some ideas to consider right now for those looking to amplify their exposure to this sector.
Source: Getty Images
Why every portfolio needs energy exposure
Geopolitical risks have picked up, if you haven’t noticed. There’s the ongoing war in the Middle East, flare-ups in other parts of the world, and still-combative U.S. tariff and trade policies, which are providing incredible uncertainty to investors and driving a risk premium in certain stocks we haven’t seen in some time.
With oil prices continuing to hover above the US$100-per-barrel level at the time of writing, the reality is that input costs for many global firms will rise. This could pressure margins (and therefore earnings) broadly, and that’s why we’re seeing most major stock indices creep lower of late.
That said, the inverse is true for energy stocks. Majors in this sector can expect current price levels to juice profits for top Canadian producers. Unlike tech or consumer stocks battered by rate volatility, energy giants deliver reliable free cash flow, share buybacks, and dividends yielding 3-5%. That makes these names perfect for retirement builders like us.
Three energy stocks to buy now
My top three picks include pipelines, integrated oils, and midstream stability. These three companies all trade at attractive multiples with plenty of long-term growth catalysts.
TC Energy (TSX:TRP) tops this list due to its defensive moat.
With $21 billion in secured projects and just 2% commodity exposure, TC Energy is expected to produce very robust earnings before interest, taxes, depreciation, and amortization (EBITDA) growth over the next three years (between 5% and 7% annually), while also distributing an impressive 4% dividend yield. Indeed, this is one of my top dividend stock ideas in the market right now, for this reason.
Moving onto oil producers, we have one of my favourites in the Canadian oil patch: Cenovus Energy (TSX:CVE).
This company stands out to me not only as a favourite pick of other world-class investors like Bill Gates, but as a way for investors to gain double-digit total returns for the foreseeable future.
Finally, we end this list with another world-class Canadian energy giant, Suncor Energy (TSX:SU).
Suncor rounds this list out as the clear value play of the three. With a price-to-earnings multiple of around 17 times, that’s dirt cheap for a stock that’s expected to see robust earnings growth in the coming quarters due to the aforementioned catalysts. Those thinking long-term would do well to consider a portfolio with at least one of these names, but if you pick another one of Canada’s leading energy names, I won’t hold it against you.
