Summary

• The global oil and gas industry took a big hit due to the commodity price crisis and pandemic crisis this year.
  
  
• Stocks of energy companies such as Suncor Energy (TSX:SU) and Enbridge (TSX:ENB) remain popular among investors.
  
  
• Suncor stocks witnessed a surge in demand following Warren Buffet’s investment in the company in August.
• Global oil demand could fall by nearly 9.5 million barrels a day this year, predicts the OPEC.

The global oil and gas sector continues to reel under the impact of volatile commodity prices and reduction in demand due to the pandemic crisis. The S&P/TSX Energy Index has declined nearly 54 per cent year-to-date (YTD) and down nearly 15 per cent month-to-date. However, some energy stocks like Suncor Energy Inc (TSX:SU) and Enbridge Inc (TSX:ENB) have rebounded since their March lows and are slowly inching towards their pre-pandemic levels.

A recent report by the Organization of the Petroleum Exporting Countries (OPEC) predicted that the global oil demand could fall by nearly 9.5 million barrels/per day this year, a much steeper fall than earlier predicted. Despite this, the popularity of energy stocks like Suncor and Enbridge remains high among Canadian investors. Let us find out why.

Suncor Energy Inc (TSX:SU)
Current Share Price: C$ 16.89

Suncor Energy Inc, like the rest of the global oil and gas companies, suffered a double whammy this year with the commodity price crisis and pandemic-triggered fall in demand and production. Its stock price saw a 60 per cent year-to-date (YTD) decline and plunged as low as C$ 15.07 during the market crash in March. In the last six months, Suncor scrips registered slight improvement with a five per cent increase in value.

Irrespective of its stock price movement this year, Suncor has been an investors’ favorite. Currently, it ranks high among stocks with the largest trade volumes across TSX and TSXV platforms. In the last 10 days, Suncor recorded an average trading volume of 14.4 million.

(Data Source: Suncor Energy / Image Credit: Kalkine Group)

Suncor’s surge in demand among investors came closely after Warren Buffett’s investment announcement in the energy company. In August, the American billionaire investor’s company Berkshire Hathaway acquired a 1.3 per cent stake in Suncor Energy.

One of Canada’s largest energy companies, Suncor Energy suffered after-tax hydrocarbon inventory losses worth C$ 397 million in its second quarter ending 30 June 2020. It incurred a loss of C$ 614 million in net earnings in the latest quarter. The company reported that its funds from operations was C$ 488 million in Q2 2020, a substantial decrease from C$ 3 billion in Q2 2019. It had a total debt of over C$ 21 billion and cash and cash equivalents of C$ 1.8 billion at the end of June 2020.

In the wake of the coronavirus pandemic crisis, Suncor Energy Inc reduced its quarterly dividends to C$ 0.21 in the second quarter. Its current dividend yield is 4.97 per cent.

With a market cap of C$ 25.7 billion, Suncor Energy has a price-to-book (P/B) ratio of 43.70, price-to-book ratio of 0.71 and a price-to-cash flow (P/CF) ratio of 5.6, as per data on the TSX.

Enbridge Inc (TSX:ENB)
Current Stock Price: C$ 39.97

Enbridge Inc has been popular on the TSX for a while now. The energy company currently ranks high among stocks with heavy trading activity as well as high dividend yields. In the last 10 days, Enbridge Inc recorded an average trading volume of 5.8 million.

Despite a 22 per cent year-to-date decline in its share price value, Enbridge’s stock has been steadily climbing after dropping to C$ 34.09 in March. In the last six months, the shares have gained back nearly 18 per cent.

A natural gas distribution company with the largest pipeline network running across North America, Enbridge did not face a massive fall in demand during the pandemic. This provided the company with a cash flow steady enough to expand its pipeline network through the troubling times.

The impact of the coronavirus pandemic, however, reflected in Enbridge’s second quarter report (ending 30 June). The company secured an operating revenue of C$ 7.9 billion, a substantial decrease from C$ 13.2 billion in Q2 2019. Its cash and cash equivalents and restricted cash at the end of June 2020 was C$ 497 million.

The C$ 80 billion company supplies a quarter of North America’s crude oil and one-fifth the United States’ natural gas. It pays a quarterly dividend of C$ 0.81, and currently yields 8.11 per cent, as per the TSX data. Enbridge Inc also has a current price-to-earn ratio of 42.5, a price-to-book ratio of 1.38 and price-to-cash flow ratio of 8.20. Its current return on equity is 3.18 per cent.