Warning: Stocks You Should Not Buy and Forget

Here’s why Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) and another stock require special attention.

| More on:

You might buy and forget stocks that have increased their earnings or cash flow over many years. However, investors need to be very careful around commodity stocks such as Cameco (TSX:CCO)(NYSE:CCJ) and Crescent Point Energy (TSX:CPG)(NYSE:CPG).

Cameco

Cameco stock has done very well in the last 12 months by appreciating about 20%. However, it’s not the type of investment that you can buy and forget.

As one of the largest producers of uranium, Cameco’s profitability is more or less based on the demand and pricing for the commodity. Its uranium products are used to generate electricity in nuclear power plants.

Take a look at Cameco’s long-term price chart on Yahoo Finance to see how volatile the stock is. Particularly note that the stock has actually fallen about 27% in the last five years, despite the recent boost in its stock price.

From 2014 to 2017, Cameco’s revenue declined 10%, and the company operated at a loss in 2016 and 2017 based on GAAP earnings. So, it wasn’t surprising that Cameco cut its dividend by 80% from 2017 to 2018.

In the first nine months of the year, Cameco turned a profit with diluted earnings per share of $0.02, which was much better than prior year’s -$0.36. If its profits continue to rise, the stock should head higher.

Thomson Reuters currently has a 12-month mean target of $16.90 per share on the stock, which means there’s 4.8% near-term upside potential. So, the stock looks, at best, fairly valued right now.

Crescent Point Energy

Crescent Point stock has been in a downward trend for multiple years. In the last five years, it has fallen almost 90%. So, it’s certainly not the type of investment that you can buy and forget.

It seems to have been a futile effort to try and pick a bottom in the stock, as the energy sector and particularly oil and gas producers have faced great challenges in the environment they operate in.

Canadian oil and gas producers have suffered as the WTI oil price has fallen from roughly US$70 per barrel to about US$51 per barrel in about two months. To make matters worse, Canadian oil tends to sell at a discount to WTI, partly because there are costs involved in transporting oil to U.S. refineries.

Oil and gas producers like Crescent Point are challenged by the lack of access to its markets with pipelines operating at full capacity. Some producers have even resorted to transporting oil by rail to the U.S.

Investor takeaway

Can Cameco stock head higher from here? Will there be a time for Crescent Point to shine again? It depends on the prices of the underlying commodities as well as the companies’ abilities to manage costs.

One thing is certain — investors can’t leave these stocks unattended. These stocks require much more attention than the ones that have a track record of increasing their profitability.

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 Kay Ng has no position in any of the stocks mentioned.

More on Dividend Stocks

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »