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Canadian energy stocks have been in severe pressure for the past few weeks due to fluctuations in oil prices. Although a possible 2023 recession could still have a significant impact on energy demand, too much fear of a recession may be already baked into energy stocks at this point. The earnings so far have been incredible.
Though just 10% of quarterly results have been unveiled, it’s hard to dispute that earnings have been much better than feared. Are corporate profits resilient enough to absorb shocks from Federal Reserve and Bank of Canada rate hikes? It’s becoming increasingly plausible.
The energy prices may be ready to rebound
Oil could be staying above the US$100 price for longer, after Tuesday’s strong up day. The Canadian energy stocks that are in decline may be worth grabbing, as they try to rebound.
You might consider buying shares Suncor Energy (TSX.SU), (NYSE.SU) Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ). These top producers appear too affordable to ignore after a dramatic plunge into bear market territory.
Suncor Energy, an integrated energy powerhouse, saw its shares rise 3.2% on Tuesday as oil rose above US$104. Though shares are still down just north of 23% from its highs, I think there’s real value to be had, as the firm looks to see its operating cash flow stream swell in response to elevated energy prices.
The stock trades for 9.55 times trailing earnings with a 4.6% dividend return. I think that’s too cheap, given the significant changes that could be to come in the c-suite. Indeed, activist investors are pushing for change, not only to improve the firm’s safety track record, but to unlock hidden value and regain a more premium multiple relative to its peers in the Albertan oil patch. There are still questions about how many departures Mark Little will make before there is real cultural change.
Suncor is currently searching for a new CEO. I believe it will find the right candidate in the shortest time. For now, I’d look to nibble away at the stock here and now before another run-up in energy prices.
Canadian Natural Resources
Canadian Natural Resources stock rose 1.7% on Tuesday. Investors applauded quarterly earnings results, while ignoring recession fears. The stock has fallen 26% since its high of $64.41 per shares.
Canadian Natural is fresh off a solid Q1 beat, with EPS numbers coming in at $2.86 — ahead of the $2.57 consensus estimate. The surge in oil prices was partly responsible for the increase in revenue. Canadian Natural might have yet another impressive quarter ahead. Wall Street analysts have upgraded Canadian Natural’s name for the quarter. They cite oil price strength as one reason to buy the stock after the bear market slump.
I believe the CNQ stock could be pushed to new heights by the second quarter. CNQ stock, which is a bargain for passive income seekers, is a bargain at 8.1 times trailing earnings and a 4.66% dividend return.