The Canadian stock market is trading near all-time highs, but there are still opportunities for self-directed RRSP investors to add top-quality stocks at reasonable prices.
Let’s take a look at two industry giants that might be interesting RRSP picks right now.
Being big has its benefits in the Canadian energy patch, especially when you also have a solid balance sheet. Suncor takes advantage of weak times in the market to scoop up struggling competitors and add strategic assets and resources at cheap prices. When oil rebounds, the company enjoys the spoils from the acquisitions, as revenue and cash flow push higher.
The secret to the company’s success lies in its diversified revenue stream. Suncor’s largest operations are the oil sands and offshore oil production facilities, but the company also owns four large refineries and has about 1,500 Petro-Canada retail locations. The downstream assets provide an nice revenue hedge when oil prices dip.
Suncor is able to secure WTI or Brent pricing for the majority of its production due to its favourable access to existing pipelines and the use of oil-by-rail shipping. With Keystone XL slowly moving forward and the potential completion of Trans Mountain, the opportunity for production and revenue expansion could be significant in the coming years.
Oil prices are at a level where Suncor can generate solid cash flow and any major supply disruption in the Middle East could send oil prices soaring.
The stock is up about 20% since August and more gains could be on the way through the end of 2020. In the meantime, investors can pick up a 3.8% dividend yield.
Barrick Gold (TSX:ABX)(NYSE:GOLD) just sent out a message that it expects to report 2019 gold production of 5.5 million ounces, which is right at the top of its guidance for the year. The company also says its copper production results are higher than previously expected.
The average market price for gold was US$1,481 per ounce in Q4 2019. The rally that occurred through the summer months took a bit of a breather in the fall but has picked up a new tailwind to begin 2020. At the time of writing, gold trades at US$1,550 per ounce.
Based on Barrick’s 2019 production, every sustained US$100 per ounce increase in the price of the precious metal translates into an annualized cash flow gain of US$550 million, assuming all other metrics remain equal. That’s a significant boost to the bottom line, and larger increases in the gold price could be on the way.
Global bond yields are drifting into negative territory with major economic powers, such as Germany and Japan, already in that situation. If the trend continues, gold should see strong demand from institutional investors and large fund managers who would otherwise store cash in government debt. Gold doesn’t provide any yield, but that becomes an attractive option when the alternative choice is to pay a country to borrow your money.
Investors could see Barrick Gold raises its dividend in 2020 and the market might not be appreciating the miner’s potential to generate truckloads of free cash flow. The stock trades at $23.50 per share compared to $26.50 in late August when gold traded close to this level.
It wouldn’t be a surprise to see the share price drift toward $30 before the end of 2020 if gold holds its recent gains.
The bottom line
Suncor and Barrick Gold are leaders in their respective industries and appear attractively priced right now.
If you are looking for top stocks to add to your RRSP in 2020, these companies deserve to be on your radar.
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Fool contributor Andrew Walker owns shares of Barrick Gold.