Here’s Why Everyone Should Hold Canadian Oil Stocks

When we say everybody, we mean everybody. Canada sits on vast reserves of oil, and stocks are currently undervalued. Buy and hold. Here’s how.

| More on:

There may come a time when society no longer has a need for oil, but that won’t happen anytime soon. Oil and gas are central to pretty much all production and consumption right now. Plugging into the fuel source that drives industry makes a lot of sense as an investor. And what better market to do that than on the TSX? Here’s why you should cover yourself with some of the best oil around.

If you don’t hold Canadian oil stocks, you don’t know what you’re doing

Delays in pipelines and a surging US dollar don’t sound like good playmates. But when it comes to oil stock value, it means deep discounts. Buy Canadian oil stocks and you’ll be getting a defensive equity that pays dividends, can sit in your portfolio for years, and requires very little maintenance. If you buy stocks on the TSX and don’t hold oil, you may want to rethink your game.

The situation reflects the state of the Canadian economy, and while we won’t get into that here in too much detail, there are a couple of key takeaways here. Global investors know that individual debt is high in Canada, which means that consumption will start to run low. This lack of cash flow from abroad means that domestic investors have the run of the TSX. It also means that the economy itself is poorly diversified.

Sometimes your portfolio should resemble the economy

Simply put, oil dominates in Canada not just because we have such huge reserves of the stuff. Technology, for instance, is poorly represented in the Canadian economy, which is why tech stocks don’t get much airtime here. The tech sector is booming in other countries, which reflects spending at high levels, with more emphasis on land (such as real estate) than on research and development.

If you’re following the thread of my argument, you’ll see that Canadian oil stocks form the backbone of the entire TSX. Heavy on resources and not booming in the way they should be, oil stocks are nevertheless solid and will perform well long-term. Here’s how to get in on this.

There are many ways to play the oil game

You can play defensively by sticking to a stock with a proven track record. Go for a solid dividend performer like Suncor Energy Inc. (TSX:SU)(NYSE:SU). It’s an obvious choice, but sometimes the obvious choices are the best ones. Buy it, hold it, and enjoy years of dividends – what’s not to like about that?

Conversely, you can dig around for a deep discount and back an undervalued stock such as Vermilion Energy Inc. (TSX:VET)(NYSE:VET). It’s a good choice if you’re looking for well-diversified value. Vermillion is a good way to go if you want a long-term player with strong assets.

Or you can look mid- to long-term and take a gamble on a smaller oil producer with a lower market cap, such as Bonavista Energy Corporation (TSX:BNP). A Calgary oil and gas producer with a market cap of $307.5 million, Bonavista has reserves that far exceed its current production, which means that it can keep chugging for longer than its competitors: over 140 years compared to its peers’ average of 30 years.

The bottom line

Canadian oil stocks are far from being overlooked. Indeed, there are thousands of investment think pieces out there telling you why you need them. But they are discounted, and the somewhat neglected Canadian stock exchange is dominated by energy. If you own oil stocks in Canada, you’re sitting on an investment that will set you up for years to come. Simply put, Canadian oil stocks should form part of any portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.

More on Dividend Stocks

profit rises over time
Dividend Stocks

Buy 2,990 Shares of This Stock for $165.25/Month in Passive Income

A high-yield dividend stock can transform your investment into monthly passive income streams.

Read more »

close-up photo of investor Warren Buffett
Dividend Stocks

3 Warren Buffett Stocks to Buy Hand Over Fist in November

Warren Buffett has been buying Occidental Petroleum (NYSE:OXY) hand over fist. He previously owned the similar Canadian oil giant Suncor…

Read more »

dividend growth for passive income
Dividend Stocks

Is Intact Financial Stock a Buy for its 1.8% Dividend Yield?

Intact Financial's dividend is not that attractive, but its strong history of execution and dividend growth are compelling factors for…

Read more »

Hourglass and stock price chart
Dividend Stocks

Where Will Brookfield Stock Be in 5 Years?

Based on its recent successes, Brookfield Corp (TSX:BN) looks poised to be more valuable in five years' time than today.

Read more »

hand stacks coins
Dividend Stocks

The Smartest Dividend Stocks to Buy With $400 Right Now

The market is full of dividend stocks to buy. Here's a look at two options that cater to both growth…

Read more »

ways to boost income
Dividend Stocks

This Top TSX Dividend Stock Down 10.78% Is Ready for a Rebound

The rebound of an underperforming but top TSX dividend stock is coming due to a significant product diversification.

Read more »

Canadian Dollars bills
Dividend Stocks

3 Dividend Stocks to Supercharge Your Passive Income

These companies are known for their consistent payout histories and high yields can supercharge your passive-income portfolio.

Read more »

space ship model takes off
Top TSX Stocks

My 5 Favourite Stocks to Buy Right Now

There are plenty of great stocks on the market. Here's a look at my favourite stocks to own for growth…

Read more »