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Energy stocks 2014:The North American oil and gas boom is setting the energy sector ablaze right now. A boom in supply, coupled with a projected 56% increase in the global consumption of oil and gas by 2040, means that some of the best investments are in energy.
But it's important to know which energy stocks give the best returns with the lowest risk.
Given the excitement and security of the North American oil and gas boom, some energy stocks are overvalued right now, trading a bit higher than they should.
That's why investors tune into the "Oracle of Omaha," Warren Buffett, using his strategy as a guide to finding value in energy stocks this year.
And Buffett has his eye on the Canadian oil and gas industry…
What Buffett Sees in Canadian Energy
Over the last five years, Canadian energy stocks have underperformed against their southern rivals. The S&P Oil & Gas Exploration and Production Select Index has risen approximately 150% since 2009, while Canada's S&P Capped Energy Index is up a modest 30%.
Why such a steep differential? Infrastructure.
Due to a lack of pipelines and rail cars to ship oil and gas out of the energy-rich areas of Central and Western Canada, a supply glut has forced producers to sell their fuels at a discount. Some companies are also taking on more debt to finance production expansion and storage facilities for fuels. As a result, companies' bottom lines are taking a hit.
But last June, Buffett made a statement about the potential of the Canadian oil and gas industry with his wallet. He purchased 18 million shares of Suncor Energy Inc. (NYSE: SU). Though he never explained why he made the purchase, it's evident that Buffett sees deep value in Canadian resource companies.
Canada's infrastructure problems are likely to be resolved in the coming years, including the passage of the Keystone Pipeline, which would move 830,000 barrels out of the region each day. Once companies are able to sell their product at a higher price, debt issues are likely to be resolved.
Buffett clearly sees deep value in the energy sector – and geopolitical factors, infrastructure problems, and economic uncertainty allow investors to look for value buys around the globe.
Taking Buffett's lead, here are three undervalued energy stocks to buy in 2014 that have massive long-term potential…