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With growth taking a backseat to the value and reopening plays, beaten-down Canadian energy stocks have become the new momentum stocks. As the green energy bubbles continue to burst, I think many top Canadian fossil fuel stocks will finally have their moment to shine. In this piece, we’ll have a look at two top plays that may be worth buying on the back of recent strength in oil prices.
So, in order from least risky to riskiest, consider the following:
Suncor Energy
Suncor Energy(TSX:SU)(NYSE:SU) was tough to hold through last year’s vicious selling. The stock crumbled over 64% before bouncing back modestly. Despite the recent bounce in WTI (West Texas Intermediate) prices, the stock remains down over 36% from its pre-pandemic 2020 high.
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Tax-Free Savings Account (TFSA) investors are searching for top Canadian stocks that still appear undervalued in an overbought market.
Why Suncor stock looks cheap to buy today
Suncor(TSX:SU)(NYSE:SU) is Canada’s largest integrated energy company. Oil production is the largest part of the business, but Suncor also has refineries and retail operations. The different divisions along the value chain historically provided Suncor with a nice hedge against low oil prices. The refineries and gas stations often benefit when oil prices drop.
During the pandemic, however, all three groups took a hit. The price of oil tanked due to falling fuel demand, rather than as a result of oversupply. Global lockdowns and travel restrictions have kept commuters at home and airplanes grounded. Demand for gasoline and jet fuel fell off a cliff.
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There aren’t too many Canadian stocks trading cheap in the current investing environment that are worth a buy today.
It’s not just about finding stocks that are trading at less value than they used to be. Often beginner investors will see charts of poorly performing stocks and look to buy the dip.
That can certainly work sometimes, as evidenced by most stocks recovering after the total market selloff last February and March. However, if that business can’t ever recover, that will never be a good investment.
So although we want to buy stocks cheaply, it’s important to make sure they are actually trading undervalue.
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The Canadian economy continues to recover from the pandemic, leaving opportunities galore for investors. Some of the best dividends stock to buy today are valuations still considered a bargain. While there might still be some short-term volatility, these stocks offer significant growth in both share price and dividends in the years to come.
If you’re going to go the long-term route, then I would consider looking into industries going through a recovery themselves. This could be the growing tech industry, the expansion of clean energy, or simply going old school with oil and gas stocks.