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Stock Strategist

Four Energy Stocks on Sale

These Canadian stocks aren't trading on long-term prospects.

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Summer isn't just a time for vacations, ice cream, and blockbuster escapism. While others are taking a siesta, savvy investors should be on the lookout for opportunities to snap up quality stocks at appropriate margins of safety. A swift drop in oil and natural-gas prices coupled with nervous equity markets have battered several Canadian energy stocks to prices well below our estimates of their long-term fair value.

First, a review of the latest happenings in Canadian oil and natural gas. Capital cost inflation continues to plague projects in northern Alberta; most recently,  Canadian Natural Resources (CNQ) announced another overrun at its Horizon oil sands project, and  Petro-Canada (PCZ) had to increase the cost estimate for its Edmonton refinery conversion project. Industrywide operating costs have risen in tandem with rising commodity prices, and while the recent drilling downturn provided a brief reprieve on drilling and services costs, signs point to renewed pressure this coming winter. Another grievance for producers are the delays that have become routine around the world.  Nexen's  (NXY) Ettrick development and  Talisman Energy's  (TLM) Rev subsea tieback are only the latest examples of such frustrations. 

Kish Patel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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