The oil price falls after the OPEC+ meeting on June 6, the previous rally had already been discounted. American oil companies will have their profits cut due to the Covid crisis and its consequences, the market equilibrium will lead to the growth of crude oil prices. Canadian energy companies are very good opportunities to invest in oil considering the performance of the last few days.
“Buy on hold and sell on the news”: this advice is always valid on the financial markets and also this time with oil it has not failed. In the previous days, the market had already discounted the agreement reached between OPEC+ oil producers in the meeting on Saturday 6 June, with Brent prices reaching $ 43.39 after a month-and-a-half rally. In the following days there were the expected realizations and today the crude oil price fluctuates around 40 dollars.
The agreement has certainly traced an important path for oil, which involves the main protagonists of OPEC+. The cuts will be more substantial, up to 11 million barrels per day in July, and unruly countries like Iraq and Nigeria have adapted. At this point one wonders whether or not oil is a commodity to invest in, also and above all in relation to the companies that are attached to the raw material.
Oil company: balance between supply and demand will offset declining profits
The balance of supply and demand for crude oil is a fundamental factor for energy companies, which in 2020 will see profits collapse due to the coronavirus crisis and the changes it will bring to the market. According to the management company Schroeders, the demand is recovering but the output for the moment will not return to grow even if prices were to return to the levels before the shock. This would be confirmed, for example, by the fact that extraction plants in the USA have fallen numerically from 700 to 237. This means that production will be expected to drop drastically for the next few months, or even permanently.
Furthermore, it must be considered that several oil companies have forfeited, also because of loans that are more complicated to be received by lenders. So those that remain on the market will certainly be better equipped and more solid from an economic and financial point of view.
At present, the shares of the energy sector represent only 3% of the S&P 500 index, a figure in free fall if we consider that in 2008 the share was 16%.
Oil stocks: investing in Canada
For the analysts of Rbc Capital Markets, Canada, a major oil exporter, is the country where companies in the oil sector have enormous potential, with stock market increases of up to 140% of their current value.
The Canadian oil companies they recommend investing on are:
- ShawCor: specializing in the supply of services to the gas pipeline sector in the oil and gas market, it is one of the world’s largest suppliers of pipe coatings. In one year, shares fell by 70.28% but the recovery from the lows of March 18, 2020 was amazing. In fact, from 0.80 back then the shares are now worth 5.13, therefore with a rise of 641%. The company does not distribute dividends and the current rating is Neutral. The wait is for a future performance of 24%.
- Tervita: Canadian public company specializing in energy services and environmental waste. It was one of the group’s most resilient companies with an annual equity loss of 31.16%. Only in the last session on the Toronto Stock Exchange, the stock has flown by 30%. The target price is 4 Canadian dollars, with Sector Perform rating. The company does not distribute dividends and the expected return is 19%.
- Enerflex: worldwide supplier of products and services for the global oil and gas production industry, it lost 58.04% in one year but now it has practically recovered all the losses resulting from the closure of its activities. The target price is 9 Canadian dollars, with a Buy rating. The dividend yield is 1.24%, with 0.08 cents per share. The expectation is 43% growth considering equity performance and coupon yield.
- Secure Energy Services: an energy services company that focuses on providing specialized services to oil companies operating in the sedimentary basin of western Canada. In the last year it has lost 67.72% but in June 2020 it performed a powerful rally going from a stock exchange listing of 1.23 to 2.25. The rating is positive with a target price of 3 Canadian dollars. The company distributes 3 cents of dividend per share and is the most interesting of the group in terms of expected total return: 140%!
- Precision Drilling: the largest drilling rig contractor in Canada, also providing rental and supply of oil fields. Over the past year, share prices have fallen by 46.28%, but since the beginning of June 2020 they have gone from 0.75 to 1.30. The target price is 1.25 Canadian dollars, with Outperform rating. If we consider that the company does not distribute dividends, the expected performance, which is 60%, is very interesting.
- CES Energy Solutions: leading company for technically advanced chemical solutions, has almost tripled its share value on the Toronto Stock Exchange, from the lows of March 27 in the midst of a pandemic crisis. This reduced the loss to 36.12% on an annual basis. The target price is 1.50 Canadian dollars, with a positive rating. CES Energy Solutions distributes dividends and the expected total return is 43%.