Stock Pick: Canadian Natural Resources (CNQ) keeps growing as oil falters

An established name with “best in class” management, say analysts


1-year trailing stock chart for Canadian Natural Resources (CNQ)

Energy sector performance has been up and down over the last year, but one company that’s seen its stock price perform consistently well is Calgary’s Canadian Natural Resources (TSX: CNQ).

Over the last 12 months, shares of this oil and gas producer have climbed by 22% – the S&P/TSX Capped Energy Index, meanwhile, is up just 4.5% over the same time period.

Garey Aitken, a portfolio manager with Franklin Bissett Investment Management, thinks that the company will continue to do well in the year ahead. It’s a “very influential” name with a “best in class” management team, he says.

While other companies have fallen on tough times, CNQ has continued growing its free cash flow and its production, in part, through acquisitions. In June 2013 it purchased Barrick Energy Inc., which boosted the company’s light oil reserves.

He points to the company’s history of dividend growth as another reason to buy. It’s upped its payout for 13 consecutive years and while the current 2.2% yield may not be as high as some other companies, it’s certainly moving in the right direction.

“I fully expect investors to benefit from that initial yield, growth in the dividend and capital appreciation as well,” he says.

Expect some volatility ahead—there are always good and bad times with commodity companies—but it has been able to grow earnings despite a sluggish sector. In Q3 2013, its earnings rose by about 224% over the same quarter the year before.

This company is for the long-term investor, says Aitken, but, if the analysts are right, then you should make a pretty penny on this stock this year. It’s currently trading at $37, but the average 12-month price target is $41, according to S&P Capital IQ.

“Whether commodity prices are going up or down, this is still a secular growth business that will drive strong total returns for the patient shareholder,” says Aitken.

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