Top Energy Stocks to Watch: Eric Nuttall’s July 2024 Selections

Discover Eric Nuttall's top energy stock picks for July 2024, focusing on companies poised for significant returns.

Editorial Team (ET)May 13, 2025

Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, has shared his top energy stock picks for July 10, 2024. With a focus on energy stocks, Nuttall's selections include Baytex Energy, Nuvista Energy, and Precision Drilling. This article delves into his market outlook and the rationale behind these top picks, highlighting their potential for investors.

Market Outlook

With oil trading firmly over US$80 West Texas Intermediate (WTI) and the S&P/TSX Capped Energy Index matching the Nasdaq's performance and quadrupling the broader TSX year-to-date, it’s perplexing that sentiment towards the energy sector remains so challenged. Despite the strong performance of energy stocks, investors remain cautious.

Investors are currently morose even though stocks are performing well. It’s time for a reality check. Energy companies are generating record free cash flow at current prices, actively buying back stock, and increasingly returning more of their free cash flow back to investors.

At the current oil price, several companies are set to return over 90% of their current market cap back to investors in the form of buybacks and dividends over the next five years. It’s challenging to find another sector offering such compelling returns while also providing free optionality on higher prices in the years ahead for both oil and natural gas.

Focus on Canadian Oil Companies

Given the delta between improving oil prices and energy equities, the best opportunities lie in Canadian oil companies with decades' worth of stay-flat inventory. These companies are trading at 11-14% free cash flow yields and are set to return 100% of free cash flow back to investors.

As the challenges facing U.S. shale companies become more apparent, it is expected that Canadian oil companies will trade at a premium to their U.S. peers, especially with a potential change in government late next year.

Eric Nuttall's Top Picks

Baytex Energy (BTE TSX)

Baytex Energy is positioned to return 95% of its current market cap back to investors through share buybacks and dividends over the next five years, despite having an estimated 13 years of stay-flat inventory.

Financial Performance and Strategy

Generating $765 million of free cash flow.
Returning half of it back to shareholders in the second half of this year.
Set to retire 10% of its shares outstanding in the next six months.
Despite poor performance over the past year, the stock offers a 29% free cash flow yield and a 2.4 times trading multiple, which are sharply disconnected from its fair value.

Nuvista Energy (NVA TSX)

Nuvista Energy plans to grow production from 85,000 barrels of oil equivalent per day (boe/d) to 120,000 boe/d over the next several years, and then maintain flat production for 20-25 years.

Financial Performance and Strategy

Returning 75% of its free cash flow now, expected to increase to 100% in a few years.
Annual shareholder returns are projected to increase from 11% to over 20%.
Trading at three times EV/CF despite having decades' worth of inventory.
Fair value today should be five times EV/CF = 10% FCF yield = $22.50 target price = > 60% potential upside.

Precision Drilling (PD TSX)

Precision Drilling is rapidly harvesting free cash flow, paying down debt, and returning over 30% of its free cash flow back to shareholders despite sluggish oilfield service activity levels currently.

Financial Performance and Strategy

Bullish on an increase in natural gas and oil activity in 2025.
The stock trades at a 23% / 26% 2024/2025 free cash flow yield.
Given non-depleting assets, a 13% free cash flow yield approximates fair value = five times EBITDA = $191 target price = 107% potential upside.

Conclusion

Eric Nuttall’s top picks for July 10, 2024, focus on energy stocks that promise significant returns for investors. Baytex Energy, Nuvista Energy, and Precision Drilling stand out due to their strong free cash flow, strategic buybacks, and dividends. As the energy market continues to evolve, these stocks offer compelling opportunities for investors looking to capitalize on the sector's potential.

Bloomberg

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