3 Canadian oil stocks undervalued by The Motley Fool

© Reuters. 3 Undervalued Canadian Oil Stocks

Canadian oil stocks are rebounding this year. But surprisingly, they remain undervalued. This year, the oil giants are increasing their profits by 200%, 300% or more, but their stock prices have only increased by 50%. The result has been that stocks trade barely above book value and price-to-cash flow ratios hover around six.

Clearly, people think oil prices are going to crash, taking the profits from energy stocks with them. Oil prices may come down a bit, but today energy stocks don’t even appear to have priced oil at $100, let alone the crude at $115 we’re seeing right now.

In this article, I will explore three undervalued oil stocks that I will enter in June.

Cenovus Energy

Cenovus Energy (TSX: TSX:)(NYSE: CVE) is an integrated Canadian energy company that sells petroleum and operates gas stations. As an integrated energy company, it is involved in all aspects of the industry: E&P, refining and marketing. It’s a diverse mix of energy business that allows the company to bring in truckloads of cash when oil prices are high.

Indeed, Cenovus does it now. In its last quarter, CVE’s profits grew so much that the company tripled its dividend! It was a fantastic demonstration. Yet Cenovus shares are still very cheap, trading at just one times sales and seven times operating cash flow. Talk about an underrated energy game.

Pembina Pipeline (TSX:) Pembina Pipeline (TSX: PPL) (NYSE: PBA) is a Canadian pipeline company. Its main activity is the transportation of oil and gas. The company recorded excellent results in its last quarter:

  • $3 billion in revenue, up 50%
  • $858 million in gross profit, up about 30%
  • $655 million in cash from operations, up 30%
  • $481 million in revenue, up 50%

As you can see, all relevant PPL financial metrics improved in the first quarter. Nonetheless, the stock still trades at just 9.8 times operating cash flow. Talk about a bargain!

Suncor Energy Suncor Energy (TSX: TSX:)(NYSE: SU) is an integrated energy company similar to Cenovus. It is involved in a variety of different oil and gas activities, including exploration, refining and marketing. It is perhaps best known for its chain of Petro-Canada gas stations, one of the largest such chains in Canada.

Suncor took heat for its gas station business this year when an activist investor targeted the company and demanded the gas stations be dismantled. It sounded like a challenge at the time, but shortly after the release of the investor report, Suncor issued a successful press release that silenced all naysayers. In the release, Suncor noted the following:

  • $4 billion in adjusted operating funds, up nearly 100% overall and more than 100% per share
  • Operating profit of $2.75 billion, up 268%
  • $2.9 billion in profit, up 259%
  • $728 million net debt reduction

All of these results far exceeded analysts’ expectations, and SU’s share price rose significantly after their release. It was a great performance from Canada’s most famous energy company, and if oil prices stay high, then there could be more results like these on the way.

The post 3 Undervalued Canadian Oil Stocks appeared first on The Motley Fool Canada.

Foolish contributor Andrew Button has positions in Suncor Energy. The Motley Fool recommends PEMBINA PIPELINE CORPORATION.

This article first appeared on The Motley Fool


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Felix J. Dixon