4 Mid-Cap Stocks From Oil & Gas Sector For Big Gains

Summary

  • Canada’s oil and gas sector wobbling under pandemic crisis and decline in oil prices
  • Oil and gas stocks are still recovering from the March shocks and trading way below pre-pandemic levels
  • With the market set to recover in the coming months, investors can seek out mid-cap stocks with high growth potential

Canada’s oil and gas industry has been reeling under the dual impact of reduced demands due to the pandemic and the Saudi Arabia-Russia oil price war. On one side, the nation came to a standstill after the federal government enforced lockdown in March. On the other side, the industry melted under pressure amid the battle for oil supremacy between Saudi and Russia.

An OPEC+ deal was subsequently reached in April. But seven Canadian oil and gas firms had already filed for bankruptcies by that time, data from Insolvency Insider shows. The overall drillers’ count may undergo a permanent contraction, says oilfield services firm Baker Hughes. The current fleet of 500 may shrink by 25 percent in the next year, it adds.

On the stock market, oil and gas stocks are still recovering from the double whammy, trading way below pre-pandemic levels.

The capped energy index on Toronto Stock Exchange recovered by nearly 79 percent since March 19, considerably higher than 40 percent gains made by the broader TSX index in the same time frame.

With the markets set to recover in the coming months, it’s an ideal time for investors to keep a hawk's eye view on future growth stocks.

Here’s a list of four mid-cap stocks from oil and gas industry:

Husky Energy (TSX: HSE)

Shares of Husky Energy have gained back nearly 80 percent since its March lows, significantly higher than the broader TSX index’s gain of 40 percent in the same time frame. The oilsands producer announced a quarterly dividend of C$ 0.0125 (payable on October 01) and has a current dividend yield of 1.106 percent.

Husky Energy second quarter results saw the impact of COVID-19 and volatile oil prices because of Saudi-Russian oil war. It posted net earnings loss of C$ 304 million. However, the company acted fast to reduce their capital spending, resulting in liquidity position of C$ 4.6 billion which includes C$ 3.9 billion in credit facilities and C$ 633 million cash.

The company aims to slash its green-house gas emissions (GHG) by 25 per cent within 2025 and also achieve net zero position by 2050. It also laid out gender diversity plan of incorporating 25 percent women in senior leadership roles.

Improving oil prices, slow resumption of supply chain and overall health of oil and gas sector will likely push integrated energy company’s shares to a growth phase soon.

ARC Resources Ltd. (TSX: ARX)

Share prices of ARC Resources dropped to a decade-low in March this year. The stocks have since started to recover, advancing nearly 25 percent in a month. Last week, ARC scrips were a part of the TSX market rally.

The management confirmed C$ 0.06 quarterly dividend per share but is currently trailing in 12-month payment to shareholders (total of C$ 0.52 per share).

Amid the virus-triggered lockdown measures and low commodity prices, ARC Resources budgeted its capital expenditures and adjusted short-cycle investment levels to generate C$ 150.2 million funds from operations in the second quarter. ARC also reducing its net debt by C$ 118.6 million and is targeting a capital budget of $300 million for 2020.

Amid dovish market and economic circumstances, analysts expect ARC to cut losses and expand revenues, making it a healthy midcap stock to collect while prices are still in single digits.

Ovintiv Inc. (TSX: OVV)

Shares of Ovintiv are up over 48 percent in three months and have been trading flat for a month. It is currently paying quarterly dividends of USD 0.09375 and dividend yield of 3.592 percent.

This North American company’s second quarter financial results shows an impact of COVID and decline in oil prices. The top-line declined year-on-year from USD 2,055 million to USD 726 million in the Q2 over disruption in oil production and service revenues. The group’s cash and cash equivalents at the end of the quarter is USD 39 million. The firm has a current liquidity of approximately USD 3.0 billion.

Despite the loss projections and decline in revenue, the company’s shares may pick with surge in oil prices.

Parex Resources Inc. (TSX: PXT)

In its first quarterly results, Parex posted a net loss of USD 3.8 million, down from a net income of USD 87.2 million previous quarter over reduction in deferred tax assets. Its top line plunged by 33 percent.

However, the firm was debt-free at the end of the first quarter with a cash position of USD 397.4 million, working capital of US 330.4 million and reserve credit facility of USD 200 million.

Parex’s stock price has gained by almost three percent in a month and six percent over three months.

With their debt-free and strong liquidity position, the company is well-positioned to weather current volatility in the markets.

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