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+430% YTD Return: 2 Energy Stocks You Can’t Afford to Miss

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Group of industrial workers in a refinery - oil processing equipment and machinery
Group of industrial workers in a refinery - oil processing equipment and machinery

Written by Christopher Liew, CFA at The Motley Fool Canada

Last year would have been a banner year for the Toronto Stock Exchange without the global pandemic. In 2021, no one expected the index to have an explosive start, but it did. We’re in the fourth quarter, and the year-to-date (YTD) gain is over 20%. Growth investors in particular are having a field day. The top 100 stocks have returns of at least 128%.

Most of the top performers are in the mining or energy sectors. However, if you base your selection on sector performance, the red-hot energy sector stands out. Its YTD return is 70.66% compared to the mining or basic materials sector’s 0.96%.

If you need to narrow down the individual prospects, Baytex Energy (TSX:BTE)(NYSE:BTE) and Crew Energy (TSX:CR) are the logical choices. The energy stocks trade at absurdly low prices, but you can’t miss out on them because the YTD return is between 430% and 450%. A $10,000 investment on December 31, 2020, is worth as high as $55,000 today.

Remarkable comeback

A share of Baytex Energy costs only $0.45 a year ago but has appreciated by 744.44% in 12 months. The $2.16 billion company considers itself as a top-tier oil producer in North America. It’s 28 years old and engages in the acquisition, development, and production of crude oil and natural gas. The operations are in the Western Canadian Sedimentary Basin and Eagle Ford in the United States.

Like most energy companies, Baytex suffered enormous losses in 2020. However, nearly all of them are staging comebacks this year due to the rebound in oil prices. Total petroleum and natural gas sales reached $827 million in the first half of 2021. It represents a 69% increase from the same period in 2020. Management reported a net income of $1 billion compared to a $2.63 billion net loss.

The bulk of income was in Q2 2021. Ed LaFehr, Baytex’s president and CEO, said, “During the second quarter, we delivered strong operating results and substantial free cash flow. Our free cash flow profile continues to improve, resulting in accelerated debt reduction.” Management expects to generate over $350 million in free cash flow in 2021.

Record adjusted funds flow

Crew Energy is a small-cap stock that boasts outrageous returns. The current share price of $2.97 is 607.1% higher than a year ago, while the YTD gain is 430.4%. Market analysts recommend a buy rating and forecast a return potential of between 32.7% and 102% in the next 12 months.

The $460.33 million light oil and natural gas producer operates in the Montney resource, in northeast B.C. Like Baytex, Crew Energy’s financial performance this year has vastly improved from last year. In the first half of 2021, sales growth (petroleum and natural gas) was 144.6% compared to the same period last year.

Net income went down 89.9% to $21.78 million from $ 216.7 million in the first six months of 2020. In Q2 2021, Crew’s adjusted funds flow increased by a whopping 451%. Its president and CEO Dale Shwed said the immediate plan is to increase production and reduce unit costs to expand margins. The result should be sustainable value for all stakeholders.

Outsized returns

Baytex Energy and Crew Energy could end 2021 with outsized returns. Oil prices are near multi-year highs, so their stock prices could soar sky high.

The post +430% YTD Return: 2 Energy Stocks You Can’t Afford to Miss appeared first on The Motley Fool Canada.

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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

2021

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