2 Canadian oil stocks to buy for an increase in demand

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Written by Adam Othman at The Motley Fool Canada

The past few months have presented a complicated situation around the world, with some countries beginning to reopen their economies amid rising vaccination rates, while others have been forced to enact new restrictions due to the pandemic. increase in Delta variant cases.

The Organization of the Petroleum Exporting Countries (OPEC) is responsible for regulating oil production. With the uncertainty regarding oil supply and demand, increasing oil production may not be considered viable. Growing environmental problems have compounded the woes of oil producers and Canada’s energy sector was affected by the combination of uncertainty and environmental concerns.

The OPEC alliance decided to continue restoring crude supply in September in expectation of a smooth recovery in demand over the next few months. As demand growth heats up, Canada’s energy sector will likely see an overall improvement in performance.

Today I will discuss two undervalued stocks energy sector that you should watch closely before the surge in demand drives valuations higher.

Cenovus Energy

Lower crude oil prices in June and August resulted in a significant drop in the Cenovus Energy (TSX:CVE)(NYSE:CVE) stock market price. The Canadian oil giant has one of the largest integrated energy infrastructures in the country, surpassed only by Suncor Energy.

During rising oil prices earlier this year, Cenovus acquired Husky Energy in a deal worth nearly $4 billion, giving it a substantial boost to its ability to production.

While lower oil prices forced a pullback in the company’s stock prices, rising demand for oil in the second quarter of fiscal 2021 pushed its valuation up again. The Company’s reduced dependence on oil prices due to its integrated structure provides it with a relative degree of safety in the face of commodity price volatility. However, global challenges for the energy sector are impacting its performance.

The stock is trading at $11.24 per share at the time of writing and is up more than 18% from last month. Now could be a good time to buy its shares as it is still trading at an 11% discount from its 2021 highs.

TC Energy

TC Energy (TSX:TRP)(NYSE:TRP) is another energy infrastructure company that has had its fair share of challenges. All capital investments made by energy infrastructure companies in environmental activities offer low returns, but action is needed. The Keystone XL pipeline project has caused several problems for TC Energy shares. The whole project looks like a potential environmental disaster riddled with oil spills.

After what felt like an eternity, the company finally canceled the pipeline project. The cancellation of such a large project led to a drop in its share price. However, this decision should prove to be generally positive for the company. Any money that TC Energy had tied up in the project could be used in potentially more profitable ventures.

At the time of writing, the stock is trading at $62.47 per share, down 4.14% from its 2021 high. The stock price is up 6.51% since the August 19 and it could be a good time to buy its shares before it enters overbought territory under favorable conditions.

Insane takeaways

If you want to consider gaining exposure to the energy sector in anticipation of the world’s possible exit from the pandemic, shares of Cenovus Energy and TC Energy could be viable assets to consider.

Although some volatility may remain in the short term due to the evolving situation with the pandemic, the passive income you can earn through shareholder dividends of these stocks could provide you with decent returns on your investment until the sector sees a clearer path to recovery.

The post 2 Canadian Oil Stocks to Buy for Increased Demand appeared first on The Motley Fool Canada.

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Fool contributor Adam Othman has no position on any of the stocks mentioned. The Motley Fool has no position in the stocks mentioned.

2021


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