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Why AltaGas Ltd (TSX:ALA) Could Double in Price!

AltaGas Ltd (TSX:ALA) is an underrated stock that could be one of the top performers on the TSX this year. Already up more than 30% to start the year, AltaGas is still trading below its book value and looks like a bargain buy for investors today.

Although some investors might not be happy that the company spun off its Canadian utilities business, the funds helped AltaGas to strengthen its balance sheet and focus on its core activities. These are moves that will make the stock a more appealing investment, which will hopefully add some stability as well.  With its subsidiary WGL now giving AltaGas a big presence in the U.S., there are significant long-term growth opportunities for AltaGas to continue to rise in value.

Strong Q1 results a welcome sign for investors

The company released its first-quarter results earlier this month, which were very impressive. Although it won’t be helpful to compare from the prior year given all the changes that AltaGas has undergone, the company recorded a strong profit of $826 million — more than what the company has been able to achieve over the course of an entire year. However, those results were inflated by gains on dispositions, with nearly $700 million being added to other income this past quarter.

If we look at just the operating results, AltaGas still recorded $289 million in income from its operations, higher than any of the previous four quarters. And with an operating margin of more than 15%, it’s a high percentage of sales.

If AltaGas can continue producing these types of numbers, it’ll only be a matter of time before the stock starts to take off. What’s perhaps even more exciting is that these results will likely get even better as the company continues to grow. And it’s not just the US.; in Canada, the company is also banking on its Ridley Island Propane Export Terminal to unlock value as it looks to expand its midstream services in Western Canada.

What’s going to be key to the company’s growth is its cash position. And in Q1, for the first time in three quarters, AltaGas recorded positive free cash flow and also generated cash from its operations totalling $427 million. If those trends continue, then the company will have no problem keeping its debt under control and being able to fund more growth opportunities.

Bottom line

I don’t see it as a stretch to see this stock doubling in value over the next year. At a market cap of just over $5 billion, with many opportunities for growth and improved financials, this stock that should have a lot of appeal with investors. And let’s not forget, a big part of its business is utilities, which can provide a lot of long-term stability for the company as well.

The worst may finally be over for AltaGas and investors may want to pick up the stock before it takes off.

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Fool contributor David Jagielski has no position in any of the stocks mentioned.

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