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Suncor is one of TD’s top picks among Canadian oil producers.Jeff McIntosh/The Canadian Press

Has Neil Young left the country? Good, because analysts at TD Securities have something nice to say about Canadian energy stocks that the anti-oil sands crusader might not appreciate: Compared to their U.S. peers, Canadian oil producers are looking like better buying opportunities.

The analysts acknowledge the U.S. energy sector has been winning the hearts and minds of investors in recent years, as domestic production ramps up and the country moves toward its long-term goal of energy independence.

"Although it is difficult to quantify, anecdotally we understand that many Canadian institutions have larger-than-historical proportions of their energy portfolios invested in U.S. entities," the analysts said in a note.

"Meanwhile, with the resource play opportunities that have emerged in the U.S. over the past several years, it is likely U.S. investors have invested domestically."

No wonder. Canadian energy producers have lagged their U.S. counterparts by about 15 percentage points since the start of 2012.

While the S&P/TSX energy sector has been moving up, its 10-per-cent gain didn't wow anyone last year, it is lagging the benchmark index this year and it is still about 30 per cent below its pre-financial crisis high.

By comparison, the S&P 500 energy sector is just 4-per-cent below its pre-financial crisis high and has surged about 37 per cent since mid-2012.

But the analysts at TD argue that there is a shift coming, and they outline four reasons for it:

1. Canadian stocks are cheaper

After trading at a significant premium to their U.S. peers in recent years – as measured by forward enterprise value to debt-adjusted cash flow – Canadian producers have been trading at a discount since last summer, partly due to a shift in investor interest.

"Such a valuation differential could be justifiable if the U.S. entities were forecast to provide superior production growth, are spending a lower proportion of their capital to achieve this growth, or have stronger balance sheets. However, we do not believe this to be the case," the analysts said. Which leads them to the next three points.

2. Production growth is in line with U.S. peers

Canadian intermediate producers are forecast to boost production this year by 10 per cent over last year, according to consensus estimates. U.S. production growth is only slightly better, at 12 per cent.

3. Canadian companies spend less for growth

That is, even though Canadian energy companies show similar production growth, they are spending a lower proportion of their cash flow on development. This suggests that they are more efficient.

4. Canadian companies have lower debt levels

They should end the year with an estimated average debt of 1.7 times trailing 12-month cash flow. For U.S. companies, debt will be substantially higher at 2.5 times cash flow. This gives Canadian companies significantly more financial flexibility.

Bonus reason: The loonie is down

The weaker Canadian dollar makes domestic stocks look more attractive to foreign investors, while Canadian investors can cash in on their U.S. gains and receive a nice currency boost.

TD's top picks among oil producers are Suncor Energy Inc., Crescent Point Energy Corp., Torc Oil & Gas Ltd., MEG Energy Corp., DeeThree Exploration Ltd. and Whitecap Resources Inc.

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