Four Canadian Oil And Gas Stocks To Watch

With the oil price having rebounded after its recent low in January, and global commodities bottoming out, it may be time to add oil and gas stocks back into your portfolio. In this article we will look at four Canadian oil and gas stocks to watch.

Canadian Natural Resources

Canada Natural Resources Inc. (TSE:CNQ) is an independent crude oil and natural gas producer and is one of the nation’s largest energy companies. It has a market capitalization of CAD 37.21bn and is currently trading at CAD 35.20.

Canada Natural Resources has reduced its spending to cope with lower oil prices this year, which will have an effect on production in 2016. However, the majority of planned expenditure is geared towards finishing its Horizon oil sands expansion project, which will be completed by the end of 2017. Once this project has been completed, Canadian Natural Resources expects its production and cash flows to soar, even if oil prices remain low. Moreover, by the end of 2016 the company believes its cash flow will be fully covering its capital expenditure and dividends going forward, even if the oil price goes to USD 30 per barrel.

Imperial Oil

Imperial Oil Inc. (TSE:IMO) is a fully integrated oil company. It engages in the exploration for, and production and sale of, crude oil and natural gas. Imperial Oil has a market capitalization of CAD 36bn and is currently trading at CAD 43.74.

Imperial Oil is 70%-owned by energy giant Exxon Mobil and both companies share chemical business operations. Imperial Oil could be somewhat considered as a miniature version of Exxon Mobil. Both companies generate a similar return on capital and have excellent management, with a focus on continual improvement and efficient allocation of capital. This close co-operation with Exxon Mobil makes Imperial Oil a safer long-term play than many of its peers.

Suncor Energy

Suncor Energy Inc. (TSE:SU) is Canada’s highest revenue generating company. Its operations include oil sands development and upgrading, conventional and offshore oil and gas production, petroleum refining and product marketing under the ‘Petro-Canada’ brand. It has a market capitalization of around CAD 55.60bn and its current stock price is at around CAD 35.80.

Suncor Energy has just completed the acquisition of Canada Oil Sands to grow its business further, while many of its competitors are cutting back on expansion. JPMorgan’s equity research team has stated on the topic, “while many peers have been significantly paring back capital spending, Suncor continues to push forward with its projects. As a result, we believe that Suncor will have the highest organic production compound annual growth rate in our coverage group.”

Furthermore, Warren Buffet has announced that his company Berkshire Hathaway has bought a stake in Suncor Energy as he believes in their management and likes the sector.

Vermilion Energy

Vermillion Energy Inc. (TSE:VET) engages in oil and natural gas exploration and production and is an interesting oil and gas stock to look at, as it is currently the highest yielding Canadian energy stock trading on the Toronto Stock Exchange with a dividend yield of over 6.5%. Vermillion Energy has a market capitalization of around CAD 3.5bn and its stock price is currently trading at around CAD 38.40.

TD’s equity research team has recently upgraded the stock to a buy recommendation stating, “We have always viewed Vermilion as a core oil holding within our investment matrix, driven by what we believe is a sustainable dividend-growth business that generates top-quartile return on common equity and profit margins, compounded by a suite of assets that we believe provides significant option value to shareholders.”

The Foreign Currency Aspect Of Investing In Canadian Stocks

If you are an overseas investor and are looking to buy Canadian stocks you need to be aware of the currency aspect of such a transaction. Stocks on the Toronto Stock Exchange are traded in Canadian Dollars (CAD). Hence, if you are based in the United States, Europe or elsewhere in the world, you will first need to exchange your domestic currency into Canadian dollars when purchasing Canadian stocks. This adds to your trading cost, as you will be charged bid/offer when exchanging your currency into Canadian dollars. Hence, it is important to look for cheaper CAD buying options, than those your broker provides you, to reduce trading costs.

Generally, your broker will automatically do the currency transfer when you buy foreign currency-denominated stocks. However, when your broker does it you may not always receive the best currency exchange rate and this would increase your trading costs. It is important to note that there are cheaper alternatives. For example, if you exchange currency using commercial money transfer companies that specialize in such transactions. That way you can exchange your domestic currency into Canadian dollars at the best rate available and transfer the CAD to your brokerage account, so that you can then buy Canadian stocks using Canadian dollars, reducing your overall trading costs.