Just released: 5 top stocks to buy in August [PREMIUM PICKS]

Premium -contents of Motley Fool Stock Advisor Canada

Here are five foolish shares that we think are smart today and will shine in the future.

Oil is in the name, but Tourmaline oil (TSX: Tou) is much more about natural gas and natural gas fluids. So it is not always in synchronization with its oil -containing peers in the energy match, and it is more tied to the swings of the natural gas market.

Natural gas is currently in the Goldrums and Tourmaline is mainly due to the grace of investors because of the production extension plan that it recently announced to take advantage of export opportunities on the west coast. It is an expensive plan, but Tourmaline, which has a sparkling balance, can afford it and the long -term benefits seem worth the costs and difficulty.

Tourmaline’s plan calls for production to rise to 850,000 in quotes (vessels oil equivalent per day) by 2031 from the current production level of 640,000. The costs of the expansion are the capital expenses from $ 2.6 to $ 2.9 billion a year from now to 2031. When completed, maintenance capital expenditure is expected to be around $ 2.5 billion annually.

The free cash flow within the framework of the expansion program is also expected to rise from $ 755 million this year to almost $ 3 billion in 2031. Under the expansion program, the debt of $ 2.1 billion at the end of the year 2025 and a $ 5.9 billion cash surplus would be at the end. That of course does not include special dividends, which seems unlikely, since the company currently has a long history of paying special dividends and only $ 1.6 billion in debts today.

Here is the best part: all these assumptions are based on current strip prices until 2026 and then US $ 3 AECO natural gas prices and $ 65 oil from there. In other words, there is no assumption that prices will improve the next five years or afterwards.

I think that’s a conservative plan. I think that is exactly how a five -year plan should be built. Recent history says that there is probably a period (or maybe two) of higher prices, but that the price will probably fall back to this level. So if you look at the total period and then, Tourmaline probably seems to generate more cash flow at a certain point. We just don’t know when.

The current market capitalization of Tourmaline is $ 22.8 billion, so that it places almost 30 times the expected free cash flow of this year, about 14 times the average free cash flow of the last four years, and 7.6 times the projected 2031 free cash flow.

For me, it seems that investors are or two results overweight in the coming year and ignore that Tourmaline is the gold star company in the industry and the long -term case current generation from the plan. Investors also ignore the possibility of higher energy prices at an indefinite period in the future. I am more than happy to take the other side of that bet.