The 2020 market rally just kicked into overdrive and investors are wondering which hot stocks have the potential to soar even higher.
Let’s take a look at two stocks that are on a roll and could add another 100% by the end of the year.
Teck Resources (TSX:TECK.B)(NYSE:TECK) bottomed out around $8 per share in March. At the time of writing the stock trades at $15 per share. The 12-month high is just above $30.
Teck is best known as a producer of steel-making coal, copper, and zinc. It also has a stake in the Fort Hills oil sands facility.
The plunge in oil prices and a slump in the base metals combined to punish the stock in recent months. The coming economic recovery, however, could provide added strength to the recent tailwind.
Unprecedented monetary stimulus globally could propel the global economy into a strong growth phase heading into 2021. Fiscal programs designed to boost employment could create a surge in demand for the base metals. In addition, steel production could ramp up, driving metallurgical coal prices higher.
Cyclical commodity stocks tend to be volatile, but the rewards can be significant if you get the timing right.
Teck fell from $50 to $5 during the financial crisis. It then rallied above $40 in the following 12 months and eventually topped out at $60 in 2011. The price then slid for five years, bottoming out again below $5 in late 2015. The rally that followed saw the shares top $34 before the end of 2016.
While a repeat performance is not guaranteed this time around, the downside risk at this point is likely small compared to the upside potential.
The company spent $17.7 billion to buy out its 50% oil sands partner in 2017. The deal saddled Cenovus with debt, putting off investors as the company struggled to find buyers through the end of that year for non-core assets it hoped to sell to pay off a $3.5 billion bridge loan.
Ultimately, Cenovus managed to unload enough properties to cover the loan, but it also missed out on the oil rally that occurred through the end of 2017 and into the first half of 2018 due to unfavourable hedges put in place to protect cash flow while the company shopped the assets.
The crash in oil prices in 2020 added more pain. Cenovus plunged from $12 per share in February to a March low near $2. The stock is now back to $7 and could potentially retest the 12-month high near $14 if oil continues to recover. Six years ago Cenovus traded above $30.
West Texas Intermediate oil prices briefly turned negative on oversupply and storage fears in April. Now it’s back above US$39 per barrel. If the global economic recovery picks up steam through the end of the year, the rebound in oil demand could put shift the market to a position of tight supplies.
It wouldn’t be a surprise to see Cenovus become a takeover target in the next 6-12 months. Even after the big surge off the March low, the company still only has a market capitalization of $8.6 billion. If a serious suitor emerges, the stock could get an extra boost on a takeover premium.
The bottom line
Teck and Cenovus are on a roll and could deliver strong gains in the coming months on a steady improvement in global economic conditions.
If you have some cash on the sidelines and are interested in commodity stocks, these companies deserve to be on your radar.
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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 Andrew Walker owns shares of Teck Resources.