Topic: Energy Stocks

Investing in the top Canadian energy stocks can offer you gains, as well as a hedge against inflation

Buying the top Canadian energy stocks can strengthen your resource sector holdings if you follow this advice. Learn more in this article now.

Our advice is for most investors to maintain some exposure to the oil industry and the top Canadian energy stocks as part of the Resources segment of your portfolio.

Above all, though, when considering how to invest in oil stocks, resist the urge to go overboard, particularly in high-risk oil investments such as junior oils, futures, options and so on. They are as risky as ever, and they may especially fail to thrive in a slow oil recovery.


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Pick the top Canadian energy stocks by looking for these 3 key factors

#1 best attribute of the top Canadian energy stocks: Innovative new drilling and exploration techniques.

Oil exploration companies that continually improve their extraction techniques are more efficient and profitable for investors.

Many oil exploration companies have adopted a new standard for drilling. It is now commonplace to see multi-well pad drilling (or “octopus” drilling). This new drilling practice has been adopted by most major oil firms and is actively used by a number of companies we recommend, including Ovintiv and Imperial Oil.

Traditionally, oil exploration companies have needed a pad or land site for each well it drilled. However, multi-pad drilling lets producers drill as many as 50 wells from a single pad.

Here’s how the technology works: oil exploration companies set up a well pad and then install a multi-well rig. The drill from that rig then literally “crawls” on hydraulic tentacles to numerous drill locations within its range. When drilling at each location is completed, it takes just two hours for the rig to move to a new location. With traditional horizontal drilling methods, it takes about five days to move from pad to pad and start drilling a new well.

 #2 best attribute of the top Canadian energy stocks: Diversified drilling sites in multiple geographic locations where exploration has been successful in the past.

When you invest in any resource stock, you need to look at how long the company’s reserves are likely to last. Those with low reserves need to have consistent success in their exploration programs to maximize the production of the wells and the surrounding area. That success is far from guaranteed.

Good energy company stocks have a range of oil and gas development projects, but their strong base of production cuts the risk of relying on new developments alone.

#3 best attribute of the top Canadian energy stocks: They provide a hedge against inflation

The resource sector is subject to wide and unpredictable swings in the prices it gets for its products. In the rising phase of the business cycle, when business is booming, resource demand expands faster than resource supply, so resource prices shoot up. This balloons profits at resource companies. When the economy slumps, resource prices fall, and this drags down resource profits and stock prices.

In addition to rising and falling with the business cycle, however, resource stocks have a history of rising along with long-term inflationary trends. This gives them a rare ability: they provide a hedge against inflation.

Use our three-part Successful Investor approach to find the top Canadian energy stocks

  1. Invest mainly in well-established stocks with a history of revenues, earnings and dividends.
  2. Spread your money out among most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities).
  3. Downplay or avoid stocks in the broker/media limelight.

Bonus tip: Imperial Oil is an oil and gas winner 

Imperial Oil Ltd. is Canada’s third-largest publicly traded oil company, after Suncor (No. 1) and Canadian Natural Resources. U.S.-based ExxonMobil (New York symbol XOM) owns 69.6% of Imperial.

About 60% of the company’s production comes from its Alberta oil sands operations; they include its 25% stake in the Syncrude project. Imperial also has conventional oil and natural gas operations in the West and holds stakes in projects off the coast of Atlantic Canada.

The company hasy announced that it will spend $2.6 billion to develop its Aspen oil sands property in Alberta. When Aspen begins operating in 2022, it will produce 75,000 barrels a day. Future expansion could increase its daily output to 150,000 barrels a day.

Does the political stability of foreign countries factor into your oil investing?

Does oil investing feel too volatile for you or do you find that it is a good addition to your portfolio?

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