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Canadian oil and gas stocks are setting up for a long-term boom.
It's true that 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%.
To blame is a lack of infrastructure. Without the 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, investing guru Warren 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.
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Taking Buffett's lead, here's a look at five of top Canadian oil and gas stocks that would profit from a Canadian energy boom…
A Close Look At Five Canadian Oil And Gas Stocks
*All financial data reported on April 29, 2014.
Gibson Energy Inc. (TSE:GEI)
This is one of the most interesting Canadian oil and gas stocks to watch. Investors who bought into the company last August, when it dipped below $22 a share, have seen a nice return. The stock plateaued around $29, but GEI pays out an average dividend yield of 4.1%.
Gibson is so promising because the company handles virtually every aspect of the production process. From processing, to transportation, to marketing, GEI oversees the entire process in an integrated fashion, making the company less vulnerable to market conditions. And since there are no suppliers or logistics companies to contract with, there are fewer cuts into profits.
Foreseeable stability and high annual dividend yields make Gibson Energy one of the best Canadian oil and gas stocks to tap into an eventual country-wide surge in the industry.
High Arctic Energy Services Inc. (TSE: HWO)
HWO is a cheap buy. The stock has risen steadily over the last year, increasing from $2 a share to just over $5 a share this month. HWO stock has outpaced the moving average by 200% for the past twelve months and the company pays out an annual dividend yield of 3.4%.
This recent growth trend makes High Arctic Energy a promising buy at a value cost.
TransCanada Corp. (NYSE: TRP)
With an annual dividend yield of 3.8%, TRP is a Canadian oil and gas stock that offers investors a steady income stream.
TransCanada stock recently flirted very closely with the moving average for the last fiscal quarter of last year, but it has outperformed that mark by more than $4 a share this year. The company has more than $32 billion in market capital, and its stock has surpassed last year's peak (after losing more than $7 a share between April and October of 2013).
Essential Energy Services Ltd. (TSE: ESN)
With an annual dividend yield of 4.1%, investors might be inclined to take a look at Essential Energy Services. ESN stock peaked at $3.18 per a share in 2013 before taking a slight dip. After a slow first fiscal quarter in 2014, shares have steadily increased through the month of April by 6.99%.
TerraVest Capital Inc. (TSE: TVK)
After holding steady at $3 a share from April to August in 2013, TerraVest shares spiked to nearly $7 a share in April of 2014. As of May 1, TVK stock was trading at $6.59 per share, up a whopping 43.57 year-to-date.
Plans to acquire fellow Canadian company Gestion Jerico Inc. are thought to be a driving force behind the rise. Between recent strong growth and a 6.2% annual dividend yield, TerraVest is a very promising option among Canadian oil and gas stocks.
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