Even though oil prices have plummeted, you can still make money on Canadian energy stocks.
“A weaker Canadian dollar has helped mitigate some of the exposures Canadian oil companies have experienced,” says Colum McKinley, vice-president of Canadian Equities at CIBC Asset Management. He manages the Renaissance Canadian Core Value Fund.
West Texas Intermediate (WTI) pricing is currently around US$50, he adds. But with the loonie around US$0.80, Canadian oil companies are getting about $62.50 per barrel.
So, you need to look at companies’ cost structures before investing, says McKinley. “In a weaker oil environment you benefit from owning businesses that sell commodities in U.S. dollars, [but] have costs primarily in Canadian dollars. Detailed analysis on individual companies can help you understand how costs are affected” when oil prices fall.
Over the last several months, he’s found management teams have also benefited from prioritizing balance sheet strength over production growth, which had greater emphasis a year ago. “They’re aggressively addressing infrastructure and costs to ensure they can generate stronger cash flow and have higher earnings in weaker oil price environment[s].”
And, “that’s actually very healthy over the long term for energy companies.”