The new year is almost here and now is a good time to look ahead to which stocks could be great buys in 2021. As people begin to get vaccinated for COVID-19, there’s hope that next year could look a lot more normal than 2020 has been. And that means that businesses that have been struggling this past year due to the pandemic could become more attractive buys. Here are two of the better stocks on the TSX that could be good bets to bounce back in 2021.
Inter Pipeline (TSX:IPL) is down 46% this year, as 2020 has been an abysmal year for oil and gas stocks. The industry was already struggling with low oil prices before the pandemic hit. And when it did, they even turned negative for a brief period. The challenging situation led Inter Pipeline to slash its dividend by 72% in March.
The company’s CEO Christian Bayle said the move didn’t reflect a lack of confidence in the business but pointed to other factors for the move: “We are currently in a unique and very challenging business environment driven by the COVID-19 pandemic and oil supply conflict between OPEC+ member nations.”
Today, the price of West Texas Intermediate (WTI) sits at around US$48/barrel, which is slightly higher than where it was before the pandemic. And the positive for oil and gas investors is that this is amid lockdowns and not a whole lot of travel in the world. In 2021, it’s likely that the travel numbers will be stronger, which will push demand for oil, and that should lead to a stronger price for WTI (assuming no new supply issues come up).
And the company is still in good shape, reporting funds from operations of $196 million in its most recent quarter, which was down 4.1% from the prior-year period. If things recover enough in 2021, it wouldn’t be surprising for the company to try and bump its dividend back up. Buying the stock now while the outlook isn’t all that strong could make for a great move.
Another contrarian buy is RioCan Real Estate Investment Trust (TSX:REI.UN). The company announced earlier this month that it would be slashing its monthly distributions by 33% from $0.12 to $0.08. It’s awful news for dividend investors, but it’s not terribly surprising given the challenging nature of retail these days.
CEO Edward Sonshine stated in the news release announcing the cut that “a more conservative payout ratio is important in this undeniably challenging environment.” What’s surprising is that this move didn’t happen earlier, as with many retail businesses struggling amid the pandemic and it’s impressive that RioCan held out as long as it did.
However, the Canadian government is not looking to keep its emergency benefits going forever, and so there’s a big need to strengthen the economy and get more businesses out there and creating jobs for out-of-work Canadians. That’s why I’m optimistic that the government will do all that it can to try and stimulate growth, especially if COVID-19 isn’t as big of a concern in 2021. And that could help create more stability for retailers in RioCan’s portfolio and make for a better outlook for the stock.
Down more than 36% this year, RioCan is another appealing bet to make today, as it could see a big rally next year if the economy is able to make a strong recovery.
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