2 Contrarian Picks for a TFSA Portfolio Today

Here’s why Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) and TransAlta Corporation (TSX:TA)(NYSE:TAC) might deserve a closer look.

| More on:

Canadians are searching for attractive stocks to put in their TFSA portfolios.

The strategy makes sense, as any income or capital gains generated inside the TFSA are yours to keep.

This is especially attractive for contrarian investors who might be considering a position in unloved stocks that have the potential to deliver some impressive upside in the coming years.

Let’s take a look at two stocks that have not participated in the stock market rally over the past year.

Baytex Energy Corp. (TSX:BTE)(NYSE:BTE)

A year ago, Baytex traded for close to $6 per share. At the time of writing, investors can pick it up for $4.25.

The stock has drifted higher in recent months, but the gains have been less than one would anticipate, given the strong move in oil.

WTI oil is now at US$66 per barrel, up from US$43 in June. A year ago, it was US$53 per barrel, so you can see why investors might be thinking Baytex has some catching up to do.

The company still carries significant debt, but it has held on to most of its assets through the downturn. As a result, the potential for long-term growth could be attractive. In fact, Baytex has estimated its net asset value to be above $9 per share at oil prices that are significantly below current levels.

TransAlta Corporation (TSX:TA)(NYSE:TAC)

TransAlta was hit by a nasty combination of high debt, falling power prices, and negative sentiment towards coal-fired power plants.

As a result, the stock fell from above $20 per share to $4, and management had to trim the dividend several times.

Over the past year or so, the situation has improved, but investors are still not fully convinced.

A deal with Alberta cleared up uncertainty around TransAlta’s future in the province. The company is receiving payments of about $37.4 million per year through 2030 to assist with the transition from coal to natural gas.

Debt is being paid down, and while power prices remain weak, a recovery in the energy sector in the province could help things along.

The existing dividend should be safe and currently provides a yield of 2.3%.

At the time of writing, the stock trades for $7 per share, giving the company a market capitalization of roughly $2 billion. TransAlta’s ownership stake in TransAlta Renewables Inc. (TSX:RNW) is worth $2.05 billion, so investors are pretty much getting the assets that have not been dropped down into RNW for free.

The bottom line

Potential deals are out there, despite the strong overall performance of the market. We just have to do some digging to find them.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

think thought consider
Stock Market

Billionaires Are Selling Apple Stock and Picking up This TSX Stock Instead

Billionaires like Warren Buffett continue to trim stakes in Apple stock, with others picking up this long-term stock instead.

Read more »

ways to boost income
Dividend Stocks

1 Excellent TSX Dividend Stock, Down 25%, to Buy and Hold for the Long Term

Down 25% from all-time highs, Tourmaline Oil is a TSX dividend stock that offers you a tasty yield of 5%…

Read more »

canadian energy oil
Energy Stocks

Is Baytex Energy Stock a Good Buy?

Baytex just hit a 12-month low. Is the stock now oversold?

Read more »

Start line on the highway
Dividend Stocks

1 Incredibly Cheap Canadian Dividend-Growth Stock to Buy Now and Hold for Decades

CN Rail (TSX:CNR) stock is incredibly cheap, but should investors join insiders by buying the dip?

Read more »

bulb idea thinking
Dividend Stocks

Down 13%, This Magnificent Dividend Stock Is a Screaming Buy

Sometimes, a moderately discounted, safe dividend stock is better than heavily discounted stock, offering an unsustainably high yield.

Read more »

a man relaxes with his feet on a pile of books
Investing

Outlook for Sun Life Financial Stock in 2025

Sun Life is up 25% this year. Are more gains on the way?

Read more »

Canadian Dollars bills
Dividend Stocks

Invest $15,000 in This Dividend Stock, Create $5,710.08 in Passive Income

This dividend stock is the perfect option if you're an investor looking for growth, as well as passive income through…

Read more »

woman looks out at horizon
Stocks for Beginners

Here’s How Much Canadians at 35 Need to Retire

If you want to create enough cash on hand to retire, then consider an ETF in one of the safest…

Read more »