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One of the very few industries this year to bring in profits for investors was the energy sector. However, as crude oil has begun to lose momentum since June, energy stocks have also been trending downward. TSX energy equities have returned 50% in 2022, compared to a 15% decline in the TSX Composite Index. The recent decline in energy name prices may present a buying opportunity for investors. These two Canadian oil and gas equities appear primed for explosive growth.
Cenovus Energy Stocks
Cenovus Energy (TSX:CVE), Canada’s third-largest energy producer by market capitalization, has dropped 25% since June. However, given the stability of its balance sheet, the expansion of its free cash flow, and the recovery in oil prices, the price of CVE stock is projected to return to its all-time highs quickly.
The business is anticipated to devote more free cash to shareholder distributions in the second half of 2022. At the end of the second quarter of 2022, CVE’s net debt was precisely $7.5 billion. Investors should anticipate that 50% of its free cash flows will be used for dividends or share buybacks.
Despite its recent decline, CVE stock has gained 55% this year. The slide might have been kept in check thanks to the management’s strong buyback program. In the second quarter, Cenovus purchased shares for $1 billion.
Surprisingly, the global energy markets’ supply problems point to much higher oil prices. Market investors, however, are primarily focused on inflation and rate-hike scenarios that will probably cause a recession. The gap between supply and demand, which might push oil prices back to triple-digit levels in favor of energy producers, is more concerning.
Therefore, upstream firms like Cenovus are in an excellent position to experience rapid financial growth over the coming quarters. It might significantly increase shareholder value due to its swift debt repayments and possible dividend increases.
MEG Energy Stocks
One of the top-gainer mid-cap names is MEG Energy (TSX:MEG). Since June, it has dropped by 28%, but by 2022, it will have increased by 50%.
Since the epidemic, Canadian energy businesses have demonstrated excellent capital management, which has generated enormous profits for stockholders. Oil and gas businesses have achieved sound balance sheets by paying down debt rather than investing more money in expanding production. Additionally, they paid out dividends to shareholders and bought back shares with their extra income.
Nothing has changed with MEG. MEG purchased 7.2 million shares, or 2.4% of its outstanding stock, in the first half of 2022. Furthermore, as long as the stock trades at lower levels, we might witness further aggressive buybacks. The fact that a corporation buys its shares demonstrates management confidence in the company’s prospects and ability to generate returns.
MEG has an extensive reserve life and a solid asset base. Increased output benefits energy firms’ margins and earnings growth, incredibly when oil is priced near $100 per barrel.
The price of MEG stock is currently seven times its earnings following its fall. It appears undervalued and has the possibility of upward movement. MEG is one of the best bets among the energy stocks on the TSX because of its improved balance sheet and earnings visibility.
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