Written by Vineet Kulkarni at The Motley Fool Canada
While broader markets struggle to find direction amid recession fears, TSX energy stocks have been riding high since last year. Although lower oil prices brought in some weakness in the last few weeks, oil and gas names will likely soon skyrocket on a blockbuster Q2 show. Canadian energy names have, on average, gained 50% this year. But some small-cap stocks have more than doubled in the same period.
Here are three of them. Let’s see if they still offer handsome growth prospects or if we have missed the bus.
Vermilion Energy (TSX:VET)(NYSE:VET) stock has returned 98% in 2022 and is comfortably trading at its three-year highs. More importantly, the Canadian energy stock could have more upside due to its large Europe exposure.
Vermilion operates oil and gas assets in North America, Europe, and Australia. Notably, natural gas prices in Europe have soared by a jaw-dropping 700% only in 2022. Europe’s heavy dependence on Russia for natural gas and economic sanctions have led to such a massive increase in gas prices.
Canadian energy names have already been rallying due to higher oil and gas prices. However, VET’s outperformance is quite remarkable, as it is among the very few that have operations in Europe.
Gas prices in Europe do not seem to ease anytime soon. So, driven by a strong price environment, solid earnings growth potential, and undervalued stock, VET stock will likely continue to trade higher.
Along with energy producers, oilfield services stock Precision Drilling (TSX:PD) dropped 15% amid the recent pullback. However, despite that, the stock is sitting at a 100% gain for the year.
Precision Drilling is a $1.2 billion oilfield services company that provides a fleet of contract drilling rigs, well service, camps, and rental equipment. Amid the higher price background, energy producers have upped their production and capex. Thus, it means more business opportunities for contract drillers like PD.
Though Precision Drilling has seen handsome revenue growth in the last few quarters, it’s a loss-making venture at the moment. It has been repaying debt aggressively, which has been the theme across the sector. However, unstable profitability and its huge exposure to oil and gas prices make it a relatively risky bet.
Till May 2022, Athabasca Oil (TSX:ATH) stock tripled since the start of the year. However, the recent weakness did not spare nearly anyone in the energy sector. Despite the recent pullback, ATH stock is trading higher, returning 98% this year.
Athabasca is a $1.4 billion thermal and light oil production company. In the recently reported quarter, the company reported earnings of $47 million, marking a strong recovery from a loss in Q2 2021.
Athabasca has been deploying a larger portion of its free cash flows to the repayment of debt. Thus, a strong liquidity position and low leverage have put it on a solid footing. In addition, ATH stock could continue to trade higher given the undervalued stock, higher oil prices, and improving balance sheet.
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The Motley Fool recommends VERMILION ENERGY INC. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned