The massive run-up in stocks following the March selloff, despite the virus in the background and high valuations, is leading many to believe that the stock market could crash in 2021. While we could witness a small pullback here and there, especially in stocks that have gone through the roof in 2020, but an uptick in economic recovery and distribution of the coronavirus vaccine could act as strong support for the stock market.
Many TSX stocks are still trading down in 2020 and could recover fast, as the demand starts to ramp up following the vaccine’s rollout. So, if you are planning to invest in stocks, these value bets have a strong potential to outperform the broader markets in 2021.
The energy space looks attractive
Despite the strong buying in its stock over the past month, Enbridge (TSX: ENB)(NYSE: ENB) trades lower than its pre-pandemic levels and offers good value. Enbridge stock took a hit, as the COVID-19 pandemic sapped energy demand. The company witnessed a decline in its mainline throughput, which impacted its stock.
However, Enbridge continued to impress with its resiliency and diversified sources of its cash flows. In case you do not know, Enbridge has over 40 different sources of cash flows with strong contractual arrangements that deliver resilient cash flows.
Notably, the company ramped up its annual dividend for the 26th consecutive year, which is impressive and reflects the strength of its core business. While the company could continue to boost its shareholders’ returns through higher dividend payments in 2021, improvement in economic activity and recovery in energy demand could lead to a significant appreciation in Enbridge’s stock price.
So, if you are looking for a value stock with solid growth prospects, consider buying Enbridge stock at the current levels.
Besides Enbridge, I see immense value in Suncor Energy (TSX: SU)(NYSE: SU). Like Enbridge, Suncor has witnessed a sharp recovery in the recent past. However, it’s still down over 41% year to date and offers excellent value. With improving energy demand, Suncor could register strong sequential improvement and deliver strong returns in 2021.
Suncor Energy’s forward EV/sales ratio is well below its historical average. Meanwhile, its long-life assets, integrated business model, cost-reduction measures, improving demand, and stabilizing crude prices provide a solid base for outsized growth.
Bet on this airline stock
If you are looking for stocks offering a great discount, Air Canada (TSX: AC) should be on your list. While travel restrictions weighed heavily on Air Canada and eroded significant value, I believe the vaccine distribution in 2021 could act as a strong catalyst for airline stocks and accelerate the pace of recovery.
Air Canada reported a sharp sequential improvement in its net cash burn rate. Its strong cost-cutting measures acted as a much-needed cushion. However, I believe it’s the return of flyers that could give a massive boost to its stock.
Air Canada has marked a solid recovery on the positive vaccine news. However, it’s still down about 46% in 2020 and offers a good entry point.
