Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

3 of the Best Canadian Value Stocks to Buy Before August

Published 2021-07-27, 12:44 p/m
3 of the Best Canadian Value Stocks to Buy Before August
NG
-
ALA
-

The TSX Index has had a strong run-up so far in 2021. Nonetheless, there is still attractive value in some Canadian energy stocks especially. The transition to renewables is perhaps taking longer than many would like or be willing to admit.

Yet, during the pandemic, many of Canada’s best energy businesses have strengthened their operations and lowered their cost structure. Likewise, capital allocation, debt reduction, and stable shareholder returns have become a prime focus.

As a result, I believe this industry still has legs to run. Canadian investors could do well to at least have some exposure to energy stocks (whether it be traditional or renewables) in their portfolio. Here are three of the best Canadian value stocks I would buy before August.

Suncor Energy: A top Canadian energy stock While I don’t love traditional energy producers, I am willing to make a few exceptions today. Suncor Energy (TSX:SU)(NYSE:SU) is well-known for its oil sands operations in Alberta. However, that only represents about 10% of its total operations. In fact, 50% of its cash flows come from refining and retail operations. The remainder comes from processing, logistics/infrastructure, and offshore oil production.

Suncor stock has failed to appreciate at the same rate as its energy peers. Consequently, I believe it presents a pretty attractive entry point. At today’s oil prices, the company is gushing free cash flow.

Rather than spending excess cash flows on increasing production, Suncor has focused on cleaning up its balance sheet, buying back shares, optimizing current operations, and diversifying into renewables.

The company pays a nice 3% dividend right now, but it could grow this year. Combine solid dividends with a ton of excess free cash flow, and this Canadian stock could have a nice turnaround from here.

Enbridge: The highest dividend on the TSX Enbridge (TSX:ENB)(NYSE:ENB) is another energy-related stock that just doesn’t seem to get the respect it deserves. It operates one of North America’s largest pipeline networks. It has diverse operations with over 40 different sources of cash flow. Many investors are concerned about the downside risks from issues related to its Line 5 dispute with Michigan. Yet, many don’t factor in any of the upside from the execution of its $17 billion capital plan.

This includes its Line 3 replacement project, which despite environmental protests, appears to be set for completion by the end of the year. That project alone could provide substantial upside in cash flows next year. While investors wait, they are compensated with a substantial 6.88% dividend. That will likely keep growing as it executes its diversifying capital plan.

AltaGas (TSX:ALA): A top Canadian value stock Another utility-like Canadian energy stock is AltaGas (TSX:ALA). Over the past few years, this company has been working out a very strong turnaround for investors. It divested non-core assets, simplified its business structure, and has been working to quickly reduce debt. Today, it is better positioned than ever.

Over half its cash flows are derived from a very solid natural gas utility business in the U.S. This business earns a stable baseline of cash flows. It also has a plan to significantly grow its rate base over the next few years. That should support solid dividend growth going forward.

Likewise, its midstream and export operations across Canada are enjoying a very strong recovery in 2021. Growing natural gas production and rising demand in Asia could all help produce a banner year. This Canadian stock remains undervalued, despite having an equal or better growth profile to many peers.

Given that it pays an attractive and growing 3.8% dividend, this energy stock should provide solid total returns in 2021 and beyond.

The post 3 of the Best Canadian Value Stocks to Buy Before August appeared first on The Motley Fool Canada.

Fool contributor Robin Brown owns shares of ENBRIDGE INC. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends ALTAGAS LTD.

This Article Was First Published on The Motley Fool

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.