There is seemingly a ton of value to be found in the Canadian energy sector at this point in time, given a number of headwinds that continue to hamper valuations across the board.
A continued price discount for Western Canadian Select (WCS) heavy oil relative to U.S. West Texas Intermediate (WTI) and global Brent oil varietals has affected the profitability in Canada’s oil patch in recent years. Pipeline constraints, and the inability of oil producers to move oil from Western Canada to global markets has not helped reduce this discount.
In this light, it can be hard to argue that an investment in any Canadian oil producer is warranted at this point in time. I would argue that there are specific companies which produce oil efficiently that could be viewed as excellent value picks for the next five to ten years, but I am of the camp that believes that a sustained long-term rally in the price of oil is not sustainable 20-30 years from now, given the rise of technologies aimed at providing power in a renewable fashion.
One such pick for investors interested in exposure to Canada’s energy sector is Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ), a company with diversified operations (not solely reliant on oil sands as its only business) and a very good balance sheet relative to many of its peers in this space.
Many analysts have buy recommendations for Canadian Natural Resources, with some believing the company’s current share price is significantly undervaluing the cash flows of the company’s underlying business.
The share price of CNQ has largely traded sideways over the past five years, but has potential to break out, should oil prices continue to trend higher in the near to medium term.
Invest wisely, my friends.
