Achieve 20% Returns With 2 Stocks in 2020

Adding Metro Inc and Kinross Gold Corporation to your TFSA and RRSP portfolio in 2020 is a good move.

| More on:
Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept

Image source: Getty Images

What does a grocery conglomerate and a gold producer have in common? Nothing — unless you count the fact they could both yield double digit returns.

The companies I am referring to are Kinross (TSX:K)(NYSE:KGC) and Metro (TSX:MRU).

Kinross Gold Corporation

Kinross is engaged in gold mining and related activities, which includes the exploration and acquisition of gold-bearing properties, extraction and processing of gold-containing ore and reclamation of gold mining properties. Production and exploration are carried out principally in Canada, the United States, Russia, Brazil Chile, Ghana and Mauritania.

Gold has had a bad reputation for the better part of the decade, with a decline in prices from the high US$1800 an ounce in late 2011, to the trough of US$1100 in late 2015.

That said, gold prices are recovering with the latest price of US$1600 an ounce. As gold prices increase, investors in Kinross stand to benefit.

The reason why I like Kinross is its valuation. Using a precedent transaction model, that determines the value of companies based on past acquisitions of companies in the same industry, I determined that Kinross has an intrinsic value of $14.33 compared to its current share price of $5.90.

Kinross stands out to me among the other gold producers because it has very little debt relative to its revenues and is increasingly efficient, with the cost of revenue declining from $4.1 billion in fiscal 2014 to $2.6 billion in fiscal 2018.

Metro Inc.

Metro is a leading grocery and drugstore company in Canada with stores in Quebec and Ontario. Its banners include Metro, Food Basics, Adonis, Metro Pharmacy, Drug Basics and the recently acquired Jean Coutu.

The company acquired Jean Coutu in May 2018 for $4.5 billion for a combination of cash and Metro shares. The combined entity is expected to achieve revenues of $16 billion.

Based on this acquisition, I believe Metro has an intrinsic value of $148.51 per share, which is a premium to the $54.36 per share at the time of writing.

From a qualitative point of view, this increases Metro’s competitiveness, putting the company on par with Loblaw, which owns Shoppers’ Drug Mart.

The acquisitions also allows Metro and Jean-Coutu to cross-sell products, which will increase revenues. Loblaw successfully uses this strategy with its President’s Choice label. Canadians can find President’s Choice branded ready-to-eat meals and shelf products in Shoppers Drug Mart locations across the country.

Foolish takeaway

It’s been said that gold is a hedge against a declining market and consumer staples are recession-proof, which is largely true. As the Dow Jones Industrial Average reaches new heights, there’s an underlying sentiment of fear that can’t be ignored. TFSA and RRSP investors looking for solid companies to buy and hold should consider Kinross and Metro.

As a reputable gold producer, Kinross was founded in 1993 and engages in both silver and gold production. My calculations using a precedent transaction model determine that Kinross is substantially undervalued compared to its peers.

As a grocery conglomerate, Metro is a stable choice that could deliver stellar returns. With the recent acquisition of Jean-Coutu, Metro has increased its footprint in Canada, allowing it to go head-to-head with Loblaw.

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 Chen Liu has no position in any of the stocks mentioned.

More on Metals and Mining Stocks

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

First Quantum Minerals: A Copper-Clad Investment Opportunity?

Here are some key factors why First Quantum Minerals could be a great TSX stock to buy in 2023 and…

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Wednesday, May 24

TSX investors will focus on Canadian bank earnings, U.S. debt ceiling talks progress, and Fed’s meeting minutes today.

Read more »

Gold bars
Metals and Mining Stocks

Franco-Nevada Stock: A Golden Opportunity for Precious Metal Investors?

Franco-Nevada is a top TSX stock that has surged 1,000% in the last 15 years. But is it a good…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

Cameco’s Nuclear Renaissance: How Uranium Could Power Your Portfolio

Cameco is a popular Canadian stock for uranium exposure. Here's how I'd take it to the next level.

Read more »

Profit dial turned up to maximum
Metals and Mining Stocks

3 Stocks That Can Supercharge Your TFSA in 2023

Maximize your TFSA growth in 2023 with three high-potential stocks. Unleash the power of tax-free investing and accelerate your wealth.

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

TFSA: Investing in These 3 Mining Stocks Unlocks Real Benefits

TSX investors can stash their TFSA portfolio with quality mining stocks such as Lithium Americas and Barrick Gold right now.

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Friday, May 19

Besides Canadian retail sales, U.S. debt ceiling negotiations and Fed chair Jerome Powell’s comments will remain on TSX investors’ radar…

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Energy Stocks

Better Buy: Cameco Stock or NexGen Energy Stock?

Cameco stock may outperform as NexGen Energy stock falls short on supply contract portfolios, industry experience, revenue and cash flow…

Read more »