Canadian energy stocks could be due for an excellent year in 2026. Conflicts in the Middle East have propelled the price of oil above $100 for the first time in several years.
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Energy prices are volatile, but they could remain elevated for some time
Now, the energy price environment is volatile. Any bit of news showing Middle East escalation or de-escalation can cause oil prices to rocket or plummet. The good news is that energy prices are likely to remain elevated for longer than most people think.
Even if the conflict is resolved tomorrow, most countries have quickly absorbed their energy reserves that need replenishment. Likewise, released energy shipments will take months to reach their destination port. That doesn’t factor in the energy infrastructure that has been damaged from the conflict (which could take years to repair).
It all bodes well for Canadian energy producers. Canada is a relatively safe jurisdiction. Canadian energy companies have tons of energy reserves. These companies are in their strongest position in several years. Here are three of my favourite energy stocks to buy today. These stocks will rank from most volatile to least volatile.
Tamarack Valley: A mid-cap energy stock
With a market cap of $5.3 billion, Tamarack Valley (TSX:TVE) is a mid-cap energy producer with a ton of torque to energy prices. This stock is already up 35% this year.
85% of Tamarack Valley’s production is oil liquids. It is positioned in some very attractive Alberta oil plays where it has very low production costs (under $40 per barrel), low production decline rates, and nearly 25 years of reserves.
Its balance sheet is largely de-risked today. It is capable of delivering attractive shareholder returns ahead. Last year, it bought back 7% of its stock, while paying down 3% of its debt, and growing production 6%.
It pays a growing 1.54% dividend today. If oil prices are elevated for the rest of the year, it could nearly double its cash returns in 2026.
Cenovus: A large-cap energy stock
With a market cap of $63 billion, Cenovus Energy (TSX:CVE) is a large-cap energy stock to play higher oil prices. It has enjoyed a nice rebound in performance, especially after acquiring MEG Energy at a very attractive price.
Cenovus had good production assets that have now been bolstered by MEG’s low-cost, long-life heavy oil assets. It now sits with 28 years of energy reserves. It can generate economic shareholder returns when the price of oil is only $45 per barrel. That means when oil is over $90 per barrel, it can chug out serious cash flows to shareholders.
Cenovus’s refining assets have been the major drag on the stock. However, in a higher oil price environment, it does benefit from a wider crack spread. At some point, it may contemplate selling these assets, which could help bolster its valuation closer to energy production peers. In the meantime, enjoy a growing 2.38% dividend and attractive share buybacks.
AltaGas: An energy infrastructure leader
If you want exposure to an improving energy theme, but don’t want direct commodity exposure, AltaGas (TSX:ALA) could be a smart play. Over 55% of its business comes from a stable natural gas utility business in the United States. This is growing by a nice, high single-digit rate. This helps provide stability in its earning mix.
45% of its business is from its Western Canadian midstream operations. With several propane export facilities on the West Coast, it has become an important supplier in Asia.
With LPGs restricted in the Middle East, demand for Canadian LPG supply could massively grow. AltaGas is building out the infrastructure to meet this demand for the years to come. It yields 2.7% today. That yield will grow as it continues to execute growth at a high single-digit rate.
