Oil prices were back on the rise today, with crude futures for November delivery (CLX23) breaking out to a new 13-month high above $94 per barrel in response to the latest U.S. inventories report. While the equities market has pulled back all September long, crude futures have surged about 12% so far this month.
Naturally, the breakout in oil prices has generated some renewed interest in the energy sector, as well - but there's a staggering variety of oil and gas stocks to choose from. You've got your pure-play E&Ps, midstream companies, service providers, and refiners… not to mention those integrated oil majors that dabble in a bit of everything. Whether you're a dedicated follower of Warren Buffett's portfolio picks or simply in search of the fattest yield, the energy sector offers something for just about every type of investor.
Here, though, we'll focus on one standout oil stock that won't break the bank (at under $10 a share), and offers a solid dividend combined with healthy growth potential. Plus, this Canadian commodity company is uniquely positioned to leverage higher oil prices. Here's what you need to know.
CPG vs. XLE
Meet Crescent Point Energy (CPG), a Canadian player operating primarily in the Western Canadian Sedimentary Basin, with a market cap of $4.32 billion.
CPG has been on a steady climb since its late-March lows, riding high on rebounding energy prices and its own well-received operational results. On a year-to-date basis, CPG is up 20.8% - comfortably outpacing the performance of the broader S&P 500 Energy Sector SPDR (XLE), which has added just 8.2%.
The outperformance here is no fluke, either. Over the past 52 weeks, CPG has clocked an impressive 51.4% gain, compared to 37% for XLE. And focusing in on the last three months, CPG has soared by 29.5%, leaving XLE in the dust at 17.6%.
Notably, CPG has a beta of 2.27, which means it dances to a livelier tune than the overall market. This can be a plus for risk-takers seeking higher returns. And for shorter-term traders, CPG's volatility can be a goldmine for capitalizing on price swings.
Crescent Point Energy's Best Assets
Next up, their portfolio is a gem. A whopping 90% of their production is oil and liquids, with the remaining 10% in natural gas. They operate in prime spots like Alberta and Saskatchewan's Bakken formation, and CPG recently made a strategic move by selling off its non-core assets in North Dakota for a cool $675 million.
And with oil prices popping, CPG also has a smart hedging game going: 50% of their oil production is locked in with hedges for the latter half of 2023. This strategy helps buffer CPG from weakness in energy prices when oil is lower - and lets the company leverage higher oil prices, like we're seeing now.
In fact, CPG is predicting excess cash flow in the neighborhood of $1 billion for next year if crude prices average around $80 per barrel.
“It’s extremely positive here on the [oil] outlook — not only for us, but the sector as a whole,” according to recent comments from Crescent Point CEO Craig Bryksa. “It’s leading into a very good market here in the fall and then into 2024.”
Analysts Are Unanimous: It's a Buy
One big green flag for Crescent Point Energy is the unanimous thumbs-up from analysts. I mean, we're talking 100% buy ratings here! Out of 12 analysts, 9 say it's a strong buy, and 3 give it a nod as a moderate buy.
And CPG has some serious upside potential, according to this group. Analysts have a mean price target of $10.98, which is a premium of nearly 32% to current levels.
Looking ahead, CPG is expected to report earnings growth of 12.12% for the current quarter, and forecasts for the next quarter are even more optimistic, with Wall Street penciling in 25% year-over-year improvement.
A Low-Priced Passive Income Pick
But here's the real kicker – dividends. CPG is generous to its shareholders with a fat 4.38% dividend yield, trumping the industry average of 3.47%. What's more, they've got a healthy dividend payout ratio of 26.55%, which means they're putting their earnings to work for you. They shell out a quarterly dividend of $0.074 per share, which adds up to an annual dividend rate of $0.36 - plus, investors got a special dividend with second-quarter results.
CPG boasts a net debt-to-adjusted funds flow ratio of just 1.1x as of June 30, 2023, comfortably below its target range of 1.2x to 1.4x. In simpler terms, this ratio tells us that the company can easily pay off its debts with the cash it generates from its operations. Furthermore, CPG's debt/equity ratio is a mere 0.15, indicating low leverage and significant financial flexibility.
Plus, CPG is priced attractively at current levels. With a forward P/E ratio of 6.16, they're trading at a discount to expected earnings growth. Their price/sales ratio is a solid 1.26, price/cash flow is 2.96, and price/book is 0.86 — all below industry averages.
Don’t Miss This Opportunity
In light of its healthy balance sheet, streamlined set of assets, and clever hedging strategy, CPG looks particularly well-positioned to capitalize on rising oil prices. This stock is like a hidden gem in the energy market, and the best part is, it's still priced under $10 per share.
With a thumbs-up from analysts, a solid dividend yield, and a portfolio-friendly valuation, don't miss your chance to scoop up this stock for continued outperformance.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
