Are Canadian Energy Stocks More Attractive Than US Stocks?

Financial accountability engine TipRanks recently extended its coverage of 5,000 US stocks with the addition of over 3,000 Canadian stocks. Not only can investors now see what top analysts are saying about Canadian stocks (including stock ratings and price targets) but interesting comparisons can also be drawn between the US and Canadian markets.

By looking at the average analyst 12-month price targets, we found an impressive upside potential of 23.4% for the 5 biggest Canadian energy stocks vs just 18% for the 5 biggest US energy stocks. This translates into a substantial 30% difference between the two countries.

Light at the end of the tunnel?

Energy companies all around the world have suffered recently as Brent crude oil prices dipped below the $50 mark. And the Canadian energy sector is no exemption. US rising inventory levels created a supply overload and at the same time Canada’s shift towards renewable energy (favored by Prime Minister Justin Trudeau) has resulted in an uncertain environment for traditional oil and gas companies. Headlines of Shell’s $7.25 billion asset sale to Canadian Natural and billion-dollar write downs of Canadian assets by ExxonMobil and ConocoPhillips have done nothing to improve fragile market sentiment.

However, 2017 could still turn out to be a better year for the Canadian energy sector than 2016. OPEC could vote to extend production cuts into the second half of the year which could offset rising US inventories. Secondly there is hope that oil prices will ultimately recover on consumption growth (OPEC expects demand to grow at 1.2 million barrels per day in 2017) and even if not, cost-cutting and innovation could result in viable projects even at oil prices of $US 40/B.

Indeed, Canada’s largest energy-focused private equity firm, ARC Financial, forecasts total revenue for 2017 to be C$32 billion higher than 2016. After tax, cash flow is expected to rise from only C$20.4 billion in 2016 to over C$45 billion in 2017, according to the firm’s December 20 report.

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