Oil prices continue to fall as U.S. producers refuse to back down in the battle with OPEC. Crude inventories south of the border are now sitting at their highest levels since 1982!
The recent rout in in the oil market is hitting the Canadian sector hard, and the latest round of selling looks like the final holdouts are starting to throw in the towel.
Panic is normally a good indication that the bottom is near. If you have some extra cash sitting on the sidelines, it might be time to consider adding Canadian Natural Resources Ltd. (TSX:CNQ)(NYSE:CNQ) and Husky Energy Inc. (TSX:HSE) to your watchlist.
Canadian Natural Resources
Canadian Natural is going to be one of the long-term winners from the current rout in Canada’s oil sector. The company has a very strong balance sheet and has the size and financial firepower to ride out the slump. As distressed assets start to go on sale, Canadian Natural will be one of the companies sitting at the bidding table.
Management has done a good job of building a diversified energy portfolio. The company owns extensive oil sands, conventional oil, natural gas, and natural gas liquids assets that give the company a balanced revenue stream across the energy spectrum.
Canadian Natural also owns 100% of its properties. This is important in the current environment because it gives management the flexibility to move capital quickly to maximize returns across the portfolio.
The company pays a dividend of $0.90 per share that yields about 2.6%. The payout ratio is very low so the distribution should be safe.
Husky Energy Inc.
Husky is one of Canada’s largest integrated oil companies with a nice mix of assets all along the value chain. The company owns heavy oil and natural gas liquids properties in western Canada, and significant gas projects in Asia. Husky also operates large refining facilities and a network of retail outlets.
The integrated business model provides a good revenue hedge when energy markets are volatile. The refining operations benefit from lower feedstock costs as oil prices fall. At the same time, gas stations bring in a consistent stream of revenue.
Canadian investors often overlook Husky’s Asian gas assets, but these are key components to the long-term profitability of the company. Unlike the North American market, where natural gas prices are in a funk, Asian gas demand and prices are very high.
Husky pays a dividend of $1.20 per share that provides a nice 4.6% yield. The dividend should be safe.
Buying beaten-up companies during times of market turmoil takes some guts and a willingness to ride out short-term volatility, but it can be a very profitable strategy when you pick a stock that has turned the corner and is ready to run higher.
The Motley Fool team had recently identified one such opportunity.
