Yahoo Finance A Few Years From Now, You’ll Wish You Had Bought This Undervalued Stock
Written by Adam Othman at The Motley Fool Canada
A stock can be undervalued and discounted for a number of reasons and may remain that way for those or even a different set of reasons. Understanding both – i.e., the factors that triggered a stock’s undervalued state and the ones keeping a slumped stock down – is critical in making an informed buying decision.
However, even when you understand these factors, if a stock remains low for a relatively long period, it’s natural to be wary of it. However, in doing so, you may lose a significant opportunity that you may regret in the coming years. One stock that you might consider buying now instead of wishing that you should have bought it in the future is Parex Resources (TSX:PXT).
The company
Parex Resources is different from most Canadian energy stocks because, unlike the ones that operate locally or have a mixed portfolio of assets and operations, Parex operates almost exclusively in Colombia and is one of the largest independent energy companies in the country.
It has a massive land position (about 5.4 million net acres) and, on average, produces about 53,568 boe/d, which covers a significant segment of the country’s average consumption.
The company recently lowered its guidance to meet the consumption realities and trends in the country, and it was one of the factors that pushed the stock down a cliff.
However, the fundamental strengths remain the same while the outlook, apart from the production numbers, looks quite promising. The long-term capital reallocation plan of the company is reinvesting about two-thirds back in the business and distributing the rest to the investors. Thankfully, this strategy hasn’t yet resulted in a dividend cut.
The stock and valuation
The stock took a nosedive at the end of last year, and since then, it has fallen by about 52% (in less than a year). However, the stock is just turning the corner and has already risen by about 11% in the last 10 days.
The most significant impact of the slump was seen on the dividends. The yield surged up to 11.7%, primarily because of the slump but also because the company recently grew its dividends again, rather conservatively this time around. This may indicate a healthy long-term dividend growth approach.
Another positive consequence of the slump is its valuation. The p/e ratio is at merely 3.1, the price-to-book ratio is 0.5, and the EV/sales is also low at 0.8. The stock is both undervalued and heavily discounted and it’s turning bullish, so right now might be the perfect time to buy it and lock in this enticing yield.
Foolish takeaway
This energy stock can also help you leverage geographic diversity within the sector. As an energy company operating in an entirely different country, it may have its own challenges, but it may also be sheltered against the headwinds that rock local energy companies. Parex may keep delivering great returns, even if the companies back home are losing investors money.
The post A Few Years From Now, You’ll Wish You Had Bought This Undervalued Stock appeared first on The Motley Fool Canada.
Should you invest $1,000 in Parex Resources Inc right now?
Before you buy stock in Parex Resources Inc, consider this:
The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Parex Resources Inc wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.
Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,063.88!*
Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 30 percentage points since 2013*.
See the 10 stocks * Returns as of 10/8/24
More reading
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Parex Resources. The Motley Fool has a disclosure policy.
2024
