It has been a wild year for Canadian energy stocks. Crude oil prices started 2026 at $56 per barrel. Oil shot up to as high as $112 and has since pulled back to $99 today. The conflict in the Middle East, and particularly the halting of shipments through the Strait of Hormuz, have drastically restricted global crude supplies.
Canadian energy stocks could still run from here
Many countries have already exhausted their strategic energy reserves. Even if the conflict resolves today, crude prices are likely to remain elevated for some time.
This is especially good for Canadian energy stocks. Since the pandemic, they have spent the past few years consolidating assets, streamlining operations, reducing their cost structure, and lowering debt. Most companies are sitting with the lowest debt they have had in years. As a result, they are true cash flow machines. That is made even more true when oil prices are trading over $80 per barrel.
While the S&P/TSX Capped Energy Index is up 46%, there are still stocks to be found that look reasonably cheap today.
Strathcona Resources: A mid-cap energy stock
Even after rising 72% this year, Strathcona Resources (TSX: SCR) looks interesting. Strathcona is trading with a 12% free cash flow yield and 8 times free cash flow.
Since 2017, Strathcona has been consolidating heavy oil plays across Western Canada. Today, it produces around 125,000 barrels per day. With a market cap of $10.5 billion, it is a solid energy mid-cap stock.
Strathcona is aiming to grow production to 200,000 barrels per day in the coming five years. It has 29 years of delineated reserves on hand that it can unlock.
The company is breakeven at $41 per barrel and can fund its growth plans and dividend at $58 per barrel. Any excess beyond that can be allocated between mergers and acquisitions, debt repayment, and shareholder returns (buybacks or special dividends).
Strathcona trades at the low-end of the valuation range for Canadian heavy oil peers. Yet, it might have the highest production growth potential of the group. Strathcona pays a 2.5% dividend yield. This stock gives you a nice mix of income and then capital upside as it executes on its growth strategy.
Cenovus Energy: A top integrated energy producer
Cenovus Energy (TSX: CVE) stock is up 79% this year. Keep in mind that its stock was trending upwards even before the Middle East crisis hit. This suggests that more and more institutional investors have been returning to the energy space. Currently, Cenovus trades with a 12% free cash flow yield and for 8.4 times free cash flow.
This is one of the best integrated energy platforms you can find today. It produces 972,000 barrels of oil per day and refines around 460,000 barrels.
The company struggled with its refinery assets for several years. However, it has cleaned up those operations. That business seems to be chugging away with near capacity utilization, right when gasoline prices are historically elevated.
Cenovus also massively bolstered its oil sands and thermal production when it added MEG Energy’s assets into its portfolio. Many are suggesting that it snagged an absolute bargain in that transaction.
This energy stock yields 2.1% today. It has raised its dividend for the past six consecutive years. As it pays down debt from the MEG transaction, shareholders will see increasing returns (dividends and buybacks) back to them.
