What to Buy: Baytex Energy Corp (TSX: BTE, NYSE: BTE)

Why to Buy Now: After hitting a 52-week high in mid-June, shares of Baytex have fallen in sympathy with the price of oil, and are now down nearly 14 percent since the aforementioned high. In fact, according to market technicians, Baytex shares entered oversold territory earlier this week.

Baytex is hardly alone in this respect, as many of its industry peers have suffered declines of equal or greater magnitude over that same period.

The Calgary-based energy exploration and production (E&P) company has historically operated mostly in Western Canada’s oil sands region, but in February it secured a substantial stake in Texas’ prolific Eagle Ford Shale formation through its CAD2.8 billion acquisition of Aurora Oil & Gas Ltd.

Baytex produces oil, natural gas and natural gas liquids (NGLs), but it’s primarily an oil company, with 86 percent of production derived from crude oil and liquids. And management expects the company’s foothold in the Eagle Ford to account for roughly one-third of production.

In the long term, Baytex’s rising production and management’s disciplined approach to capital allocation should deliver enduring growth.

Indeed, Baytex boasts firmly bullish analyst sentiment, at 18 “buys,” three “holds,” and one “sell.” The consensus 12-month target price is CAD53.13, which suggests potential appreciation of 23.1 percent above the current share price.

Bullish sentiment in the financial sector extends beyond the analyst community: Institutions have increased their holdings of the stock by 26.4 percent over the past six months, bringing their total holdings to 57.2 percent of shares outstanding.

In the near term, however, there’s considerable uncertainty as to the future direction of oil prices due to a number of factors ranging from the supply-demand balance to geopolitical tensions in certain oil-producing regions to the surging US dollar.

But while the price of oil could continue to decline in the near term and take E&P stocks even lower, we’re betting that the commodity now trades near a long-term base of support.

Fortunately, we don’t have to sweat calling the precise bottom for oil or the E&P sector because Baytex offers an ample payout. With a monthly dividend of CAD0.24, or CAD2.88 annualized, for a forward yield of 6.7 percent, we’re content to bide our time until the inevitable reversal.

Baytex had a conservative payout ratio of 63 percent of funds from operations for the six-month period ended June 30. And the firm has grown its dividend by 6.7 percent annually over the trailing five-year period.

Baytex Energy Corp is a buy below USD46.