2 Cheap Stocks That Could Soar This Year

Cameco Corp (TSX:CCO)(NYSE:CCJ) and this other stock have been rising lately and could be headed even higher.

| More on:
Arrowings ascending on a chalkboard

Image source: Getty Images.

There are two stocks I’m watching closely that could have a lot of upside this year for very different reasons.

The first is Cameco Corp (TSX:CCO)(NYSE:CCJ), which has been kept down as a result of low uranium prices. However, in the past few months, we’ve seen the commodity start to rise in value as production cuts are finally showing evidence of having a positive impact on price. At less than US$22/lb at the start of 2018, the price for uranium reached over US$29/lb in November. Since the latter half of 2016, the commodity was struggling to make any progress and was often hovering around US$20/lb.

It’s been a long road, but it’s definitely a big improvement that could have a significant impact on the company’s long-term performance. In three of its past five quarters, Cameco has finished in the red even though its costs weren’t out of control.

The proof is in the gross margin, where in the trailing 12 months, Cameco’s cost of sales have been 84% of its top line. In 2015, before we saw uranium prices start to fall, cost of sales were around 75%. Although that still resulted in a slim gross margin, it helped the company stay out of the red. From 2013 to 2015, Cameco averaged a profit margin of 7.5%, so even a small change in gross profit could have a big impact on its bottom line.

Cameco’s management recently announced that it would be slashing its dividend and production in order to cut expenses even further. It’s an unfortunate situation, as commodity prices are out of the company’s control, so it’s left to try and minimize costs however it can. Now that prices are seeing some upward movement, there could be some big profits ahead for Cameco if low costs are accompanied with stronger revenues.

At a price-to-book (P/B) ratio of only 1.3, Cameco is a solid buy and a stock that could generate significant returns for investors if we continue to see uranium prices rise.

Another stock to watch is Enbridge Inc (TSX:ENB)(NYSE:ENB). The company could benefit from a different commodity price increasing in value: oil. Although West Texas Intermediate (WTI) prices have been dropping lately, we’ve seen the reverse happen for Western Canada Select (WCS). At barely over US$11/barrel just a few months ago, cuts by the Alberta government have already had a big impact with WCS recently reaching over US$44/barrel.

The gap between WCS and WTI has gotten a lot tighter. If that continues to be the case, it could mean a stronger oil and gas industry in Alberta. And more activity is going to mean a lot more business for Enbridge. Many oil and gas producers have cut back on capital spending as a result of bearish outlooks for the industry, but stronger prices could change that in a hurry.

At a P/B of 1.6, Enbridge is still a good value buy despite rising more than 14% in the past month. Investors also get a great dividend of 5.5% just from owning the stock.

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.

Fool contributor David Jagielski has no position in any of the stocks mentioned. Enbridge is a recommendation of Stock Advisor Canada.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »