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Last year brought a big fall for the global stock markets followed by a recovery towards the year-end. But this recovery was lopsided toward tech stocks as the pandemic came as a boom to the cloud and internet companies. This year is all about the after-effects of the pandemic and the vaccination drive. The economic recovery will begin in 2022 as all sectors, online and offline, return to businesses. This is where the value is. Here are the top 10 Canadian value stocks that are trading at lower prices but hold the potential to grow when things return to normalcy.
Airlines and Travel stocks
Top 10 Canadian Value Stocks To Consider Buying Right Now
Airlines worldwide have gone through a rough patch as the pandemic nearly put a lock on their business. The pandemic, its variants, and then the slow vaccination tested all airlines to the core. Air Canada got a ~$6 billion bailout in April, and it is trying not to use the money unless necessary to avoid the 10% government stake in the airline.
It even walked out of its acquisition of international tour operator Transat A.T., putting the latter at the risk of bankruptcy. But a $700 million government bailout saved the tour operator and put it on track to operate as a standalone business.
The eight months of 2021 have been a roller coaster ride for Air Canada and Transat as the travel restrictions kept getting extended. The recovery will be tepid as it will take the rest of the year to see how the reopening impacts virus spread. But when the world is past the pandemic, hopefully in 2022, the pent-up air travel demand could see AC and Transat stocks ride the recovery rally.
Canada has the third-largest oil reserves. Hence, the Toronto Stock Exchange is skewed towards energy stocks. These stocks benefitted from an increase in oil demand and oil price. The suncor stock almost doubled while TC Energy stock surged 27% from the November 2020 to May 2021 recovery period.
However, energy stocks are in a bear run because of the tepid recovery and the growing environmental concerns. Suncor Energy took the hit for the carbon emissions from oil sands. TC Energy took the hit for the oil spill and other environmental issues around the Keystone XL Pipeline project. The outcome was TC Energy cancelled the decade-long project.
Suncor stock has dipped to its November 2020 levels because of tepid recovery. But it is set to benefit when the economy starts at full capacity in 2022. Although its five-year price-to-earnings growth (PEG) is -0.43, the stock has a strong earnings recovery ahead of it in 2022.
As for TC Energy, the stock has dipped 7% since the project cancellation to its 200-day moving average. Once another pipeline project comes online, it could recoup the losses of Keystone and drive the stock. This dip is an opportunity to lock in a 5.9% dividend yield for a lifetime, given the strong history of paying incremental dividends for over 20 years.
The pandemic also impacted the manufacturing sector as non-essential factories remained closed worldwide. The entire automotive supply chain took a hit as car sales dipped because of travel restrictions. As travel restrictions ease, the industry is grappling with a semiconductor chip shortage. Hence, the recovery rally stalled for automotive stocks.
Magna International‘s stock is down 20.5% after rising 117% during recovery. The automotive component supplier does not expect the chip shortage issue to resolve before 2022. But its long-term drivers are intact. Even Ballard Power Systems, which supplies hydrogen fuel cells for heavy-duty vehicles, is seeing a tepid recovery. There is uncertainty around China’s hydrogen and fuel cell policy. This is affecting Ballard Power’s revenue as the Asian country is its largest market.
But both the companies will benefit from the pent-up demand for clean automotive as the United States, China, and Europe look to reduce CO2 emission in 2030.
BlackBerry is another underdog in the automotive space. It provides an automotive software platform that helps to interact with the car in a safe environment. There are many ifs and buts with this tech stock. But its future growth lies in automotive communication till its platform sees wider acceptance in other embedded applications. As car sales surge, so will the demand for BlackBerry QNX and its upcoming IVY platform. Although its fundamentals are weak, the stock could prove to be a turnaround story if it taps its addressable market well.
Retail and restaurant stocks
The retail and restaurant industry saw a significant revenue dip during the pandemic as footfalls vanished last year. Even as the economy reopens, there are certain social distancing restrictions, like reduced dine-in capacity and restrictions on operating hours.
The pandemic opened a new avenue of omnichannel presence that allowed retailers and restaurants to serve their customers online. Although slow, the recovery is there. Retail REIT RioCan and Burger King and Tim Hortons parent Restaurant Brands International are among the beneficiaries.
RioCan earns rental revenue from retailers. The economic recovery is helping it improve the occupancy of the stores whose merchants vacated during the pandemic. Moreover, rising inflation is increasing the rent. The stock has dipped 5% in the last two months after surging 55% on the recovery rally. The stock could bounce back to its pre-pandemic level of $27.8 (a 22% upside) once there is a stable recovery in 2022. This is a good time to lock in a 4.39% dividend yield.
Restaurant Brands has recovered to its pre-pandemic level and is now on a growth trajectory. But there is significant potential as the restaurants are still operating in a restricted environment. Now it will benefit from an omnichannel presence that can help it serve more customers heading into 2022.
Future tech stocks
Crypto seems to be strengthening its roots in the current financial system. Some countries’ regulators are working out the opportunities the crypto can unleash. But any revolutionary thing takes time, and there are many hiccups in the process of widespread adoption.
Hive Blockchain mines cryptocurrencies like Bitcoin and Ethereum. As crypto adoption increases and BTC prices surge, Hive will benefit. In the last two crypto cycles, the stock surged over 1,000%, but its growth is normalizing. The company is also exploring other blockchain applications to diversify its revenue.
Buying ahead into the stable 2022 recovery can help you grab the value the recovery will bring.
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