Following recent changes in the economic landscape, including a decline in inflation and a significant rate cut by the United States Federal Reserve, oil prices have seen an uptick. The price of WTI crude has increased by approximately 9.5% from its recent low this month. Despite this recent increase, WTI crude is still trading at a 10% discount compared to its previous month’s high. In light of improving investor sentiment, we will explore two undervalued energy stocks that present attractive investment opportunities.
Canadian Natural Resources, a company with a diverse and balanced asset base, delivered a strong performance in the second quarter, with total production increasing by 8%. The company’s adjusted fund flows grew by 15.2% to $3.6 billion, driven by production growth and higher price realization. Canadian Natural Resources has been executing a $5.4 billion capital expenditure program, with $2.7 billion already spent in the first two quarters. Management anticipates total production for this year to be between $1,330–$1,380 million barrels of oil equivalent per day, representing a 1.8% increase from the previous year. With the company’s debt below $10 billion, it plans to return 100% of its free cash flows to shareholders this year. Moreover, Canadian Natural Resources has a track record of increasing dividends for 24 years at an annualized rate of 21% and currently offers a healthy forward dividend yield of 4.6%. Despite a decline in oil prices impacting the stock value, its NTM price-to-earnings multiple of 11.6 makes it an appealing investment at current levels.
Suncor Energy, another undervalued energy stock, reported a strong second-quarter performance, with adjusted operating earnings of $1.6 billion, marking a 29.8% increase from the previous year. The company benefited from higher crude oil prices, increased oil sands sales volume, and improved refinery production. With most planned maintenance completed for the year, Suncor Energy expects a solid performance in the second half. The company is set to make a capital investment of $6.3–$6.5 billion this year, enhancing its asset base. Suncor Energy projects total upstream production for this year to be between 770,000 and 810,000 thousand barrels of oil equivalent per day, with a potential increase in refinery utilization rate. Despite trading at a discount compared to its 52-week high, Suncor Energy’s NTM price-to-earnings multiple of 10.1 and forward dividend yield of 4.3% make it an attractive investment opportunity. The company aims to sustain annualized dividend growth of 3-5%, further enhancing its investment appeal. Considering these factors, Suncor Energy presents a compelling buying opportunity at the moment.
