- The incoming Trump administration may favor fossil fuel companies through deregulation, impacting energy stocks.
- Under-the-Radar companies like Suncor, Cenovus, and TotalEnergies present growth potential with operational expansions and undervaluation.
- Crude oil volatility remains a critical factor for energy stock performance, influenced by global conflicts and U.S. policy changes.
A second Trump administration is likely to affect most, if not all, corners of the stock market, there are few areas expected to be impacted as significantly as the energy sector.
Green energy stocks, which had benefited from the Inflation Reduction Act of 2022, experienced a decline immediately following the U.S. election. By contrast, many traditional energy companies have risen in the same timeframe.
The energy sector is heavily influenced by the political landscape, and some investors are optimistic that a loosening of regulations will benefit fossil fuel companies in particular. Major players like Exxon Mobil (NYSE:XOM) and ConocoPhillips (NYSE:COP) are well-positioned in this space, thanks to their extensive infrastructure and established operations.
If oil and gas stocks do get a boost heading into the new year, it may present an opportunity for lesser-known and under-the-radar firms. Three such companies to keep an eye on include Suncor Energy (NYSE:SU), Cenovus Energy (TSX:CVE), and TotalEnergies SE (NYSE:TTE).
1. Suncor Energy: Earnings Beat, Debt Control, Dividend Payout
Suncor is relatively unknown in the United States, except to investors who focus on energy stocks. However, it is the second-largest energy company in Canada, where it develops petroleum basins nationwide. With a market capitalization of $51 billion, Suncor is less than half the size of ConocoPhillips and under 1/10th the size of Exxon Mobil. Still, Suncor's stock is up by nearly a quarter in the last year, far outpacing the growth of these two larger firms.
The company had a strong third quarter, solidly beating analyst predictions with earnings of $1.08 per share and the latest in a series of quarterly earnings surprises. Despite the fact that earnings did decline slightly on a year-over-year basis, Suncor's announcement that its operational streamlining process has been a success more quickly than anticipated gave the company's stock a boost. Suncor intends to return all excess cash to shareholders following the achievement of its debt target.
Six out of eight analysts Suncor have rated it a Buy, and the consensus price target of $56.40 is nearly 40% above current price levels. If Suncor can maintain its operations and remain disciplined about debt management, investors could reap rewards both in stock appreciation and dividends.
2. Cenovus Energy: Key Operational Expansion
Another Canadian company, Cenovus has a diverse set of both downstream and upstream operations that has helped it to stand out among smaller energy firms. Cenovus is in the final stages of completing a key pipeline connection between a processing facility at Christina Lake in western Canada and Narrows Lake, a nearby operation. When the project is completed—likely in mid-2025—it could add as much as 30,000 bbls/d in production capacity.
Cenovus also has a number of new well pads that have either recently come online or are expected to become operational in the coming quarters. Together, these new projects should keep the company's production levels increasing. Cenovus has also been successful at limiting costs as it expands, which is especially crucial for a smaller energy firm.
Analysts expect shares of Cenovus to nearly double to $30 a piece. Even still, the firm's total market value would remain just a fraction of the major companies mentioned above, making this a great example of an under-the-radar company worth watching in the energy sector.
3. TotalEnergies: Undervalued and Possible Bargain Share Price
TotalEnergies is a French energy firm with operations that are broad in scope and geographic area. A key benefit to this breadth is the company's prospects for expanding both its traditional oil exploration and production as well as areas including renewables and liquefied natural gas.
With a forward P/E ratio of 7.7 and a price-to-sales ratio of 0.7, TotalEnergies is likely undervalued in the market. Analyst views of the company's prospects support this assessment, as the firm has a price target of nearly $79, a 29.4% potential upside. TotalEnergies' shares are also down more than 8% in the last year, presenting a potential opportunity to buy before a turnaround begins.
Investors Should Be Mindful of Oil Prices
A major factor in the performance of oil and gas companies is the price of crude oil itself, which is typically highly variable. With Russia's ongoing invasion of Ukraine, increasing turmoil in the Middle East, and other unknowns about the policies of the new U.S. administration all at play, it's particularly difficult to gauge how the price of oil may move. Investors should beware that a drop in oil prices could make any of these firms a much less attractive prospect.