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Canada is the world’s fourth-largest producer of natural gas and the sixth-largest exporter. Many private and publicly traded oil and gas companies call it home. Many of these companies are integrated oil and gas companies with extensive operations in upstream and downstream sectors. At the same time, some of them are solely focused on upstream oil and gas exploration and production.
A lot of these companies are engaged in natural gas production. Also known as the cleanest hydrocarbon, natural gas is not as clean as renewables. However, they have not been targeted as aggressively as fossil fuels by countries intending to reach net zero. But, like all energy companies, they are subject to price volatility.
After reaching rock bottom during the pandemic, natural gas prices started recovering significantly last year, and the recovery has not stopped this year either. Because of this rising price of natural gas, analysts have turned bullish on many natural gas stocks. Capitalizing on the increasing price of oil and natural gas, some stocks like Tourmaline and Ovintiv have demonstrated excellent potential and have turned into worthy buys for investors intending to dive into this risky yet lucrative industry.
Natural Gas Stocks To Buy
1. Tourmaline oil
Tourmaline Oil is the country’s largest natural gas company that actively explores, develops, and extracts items like crude oil and natural gas across the Western Canadian Sedimentary Basin region. The Tourmaline stock is one of the best-performing energy stocks on the TSX and is, therefore, a great buying option.
The company has been standing tall among its peers, creating massive wealth for its stakeholders. Driven by solid earnings growth, Tourmaline has gained about 211% in the last five years. Moreover, in the past year, it has provided a capital appreciation of more than 100% and about 85% this year. So, compared to the broader market, where most growth stocks are suffering due to a hell lot of deficiencies, the performance of this oil giant has been spectacular. Therefore the market believes this stock can outperform the industry in the coming times.
Moreover, Tourmaline is trying to improve financially as well. For the quarter ending June 30, 2022, its natural gas production levels have increased by 23% for the three-month and six-month periods on average. Besides, the company’s three-month sales took a massive 154% leap to $2.6 billion from $1 billion generated a year ago, and six-month revenue has seen a 123% increment compared to the same period a year ago.
However, despite the revenue increment, the three-month and six-month losses have increased to $203.9 million and $226.9 million, respectively, while in the previous year, it was only $60.0 million and $22.9 million. The company has stated because the average AECO prices were higher than the prices received from the hubs where the company sells its natural gas and that there was also a loss of physical contracts during the said period, such losses had to be incurred.
Natural gas prices are expected to increase due to the global energy shortage. As 80% of Tourmaline’s revenue comes from Natural gas, the company will get an immense opportunity to mitigate its losses. Moreover, its debt-to-equity ratio of 3.99 indicates it will provide perfect oil industry exposure to investors having lower risk appetites. Although its dividend yield of 1.16% might seem a bit lower compared to the standards of the utility industry, it is still sufficient considering the capital appreciation the company will provide.
Tourmaline stock closed at $80.32 on September 13, and the average analyst price for the stock is $94.58, a potential upside of almost 18%.
Ovintiv is one of the largest energy companies in the country. The natural gas producer is involved in the exploration, development, production, and marketing of natural gas, oil, and natural gas liquids in the Permian basin, Anadarko, and Montney shale, as well as upstream assets in the Bakken in North Dakota, the Uinta in Utah, the Horn River in British Columbia, and Wheatland in southern Alberta.
After turning around its operations that had caused its break-even prices to head much lower, it has reduced its debt levels and increased its free cash flow predictions. The company has accelerated shareholder returns to a large extent which makes it one of the most lucrative investment options in the present times. Ovintiv has gained close to 85% in the last year and about 50% this year, highly benefiting from the rising natural gas prices. The supply-demand mismatch in the energy industry has enabled this off-radar company to get a strong movement and recover substantially from the Covid-19 lows.
The financial position of Ovintiv is solid too. Its recent financials state that the company has generated 500 thousand barrels of oil equivalent per day and earned $1.36 billion and a Non-GAAP Cash Flow of $1.22 billion. However, its total cost per barrel increased to $16.71 per barrel due to higher commodity prices. The company has also redeemed its 2024 notes totaling $1 billion and reduced the total debt by $610 million during the quarter. By the end of this year, the company expects to achieve its $3 billion Net Debt target.
Moreover, the best thing about Ovintiv is other than capital appreciation, the company has also returned approximately $200 million to shareholders in the second quarter in the form of share buyback and base dividends. It further expects, in the third quarter, it will return about $389 million. The growing financials and the bullish movement in the price movement of natural gas indicate that the company will be able to keep up with this phenomenon even in the coming times.
Ovintiv stock closed at $68.07 on September 13, and the average analyst price for the stock is $86.24, a potential upside of 26.7%. The oil industry has enjoyed a bull run for the last two years, and it doesn’t seem like there are too many headwinds in the future that will pull it back down. The extreme volatility in this space seems to be favoring energy stocks.
Both the above-mentioned natural gas stocks have been performing exceptionally well these days, and their bullish run might also continue in the coming times, given the strong trend in the natural gas price levels. You can also check out our article on oil and gas stocks to buy for the long-term. However, make sure to do your research before actually putting in money.
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