Oil prices have experienced significant increases recently due to concerns regarding potential disruptions in the supply chain caused by escalating tensions between Iran and Israel. Investors who missed out on the rise in oil stocks on the Toronto Stock Exchange (TSX) are now seeking undervalued options that may prove beneficial if oil prices continue to climb.
One potential option is Canadian Natural Resources (TSX:CNQ), a large player in the Canadian energy sector with a market capitalization close to $100 billion. The stock is currently trading around $47.50, down from $56.50 six months ago but up from $43.50 in recent weeks. CNQ offers exposure to both oil and natural gas, along with a competitive dividend yield of 4.4%. The company has a strong history of dividend growth, making it an attractive choice for investors looking to capitalize on potential future oil price increases.
Another option to consider is Baytex Energy (TSX:BTE), although it is considered a riskier investment due to its volatile share price. Currently trading around $4.40 per share, Baytex has experienced significant fluctuations in price over the past year, reaching as high as $6.30. Despite a turbulent history that includes a substantial debt burden and the elimination of its dividend, Baytex has made efforts to strengthen its balance sheet under new management and now offers a dividend yield of around 2%. Investors bullish on oil and willing to tolerate volatility may find Baytex a viable option at its current price, but those seeking stability may be better off sticking with Canadian Natural Resources.
In the event of a worst-case scenario involving a blockade in the Strait of Hormuz or significant damage to Iran’s oil infrastructure, oil prices could skyrocket to as high as US$200 per barrel, leading to a potential surge in Canadian oil stocks. However, ongoing concerns about global supply and weakening demand could result in a drop in oil prices below US$70 if tensions in the Middle East subside. Investors should carefully weigh the risks and benefits of investing in oil stocks and consider maintaining a conservative investment strategy in uncertain market conditions.
