Bargain Alert: 2 Cheap Stocks for RRSP Investors in 2021

RRSP investors still have some hidden gems to buy in the TSX Index. Here’s why these stocks might be interesting picks right now.

| More on:
analyze data

Image source: Getty Images

RRSP season is just around the corner. Where should self-directed investors put their retirement funds in 2021?

Is TransAlta stock a good buy for RRSP investors?

TransAlta (TSX: TA)(NYSE:TAC) is power utility based in Alberta. The stock had a rough run over most of the past decade as falling electricity prices, high debt, and negative investor sentiment toward coal-fired power generation all combined to impact the company. TransAlta went from $37 per share in 2008 to $4 in early 2016.

RRSP investors who had the courage to buy at the low are already sitting on nice gains and more upside should be on the way. TransAlta’s debt is now under control and power prices are on the rise. The company is also four years ahead of schedule on its program to convert the coal plants to natural gas.

Value investors say the stock is a great deal. TransAlta owns 60% of TransAlta Renewables (TSX:RNW), so it has significant green-energy assets. At the time of writing the RNW stake is worth about $3.6 billion, but TransAlta’s market cap is just $3 billion.

TransAlta raised the dividend by 6% in 2020 and more increases should be on the way, supported by higher free cash flow.

The stock appears cheap at $10.75 per share. A surge to $20 wouldn’t be a surprise in the next year if a takeover bid emerges.

Why Power Corporation stock has big upside potential

Power Corp (TSX:POW) is a holding company with assets primarily focused on the Canadian insurance and wealth management industries. A quick look at the organizational chart that makes up the assets shows some interesting growth opportunities for RRSP investors.

Power Corp owns 100% of Power Financial, which it took private last year. Power Financial owns majority interests in Great-West Lifeco and IGM Financial.

Through the various subsidiaries, Power Corp also controls a 70% equity interest in fintech firm Wealthsimple. This is one to watch as Wealthsimple’s implied valuation hit $1.4 billion after its recent fundraising round.

In addition, Power Corp owns a 44% interest in the Lion Electric Company, a maker of electric commercial vehicles. Power Corp’s Power Sustainable Capital will control about 31% of Lion Electric when it goes public on the NYSE through a recently announced SPAC merger. Assuming Lion Electric holds its implied market capitalization of US$1.9 billion, Power Corp’s stake is roughly US$590 million, or about CAD $750 million.

So, the Wealthsimple and Lion Electric positions are valued at nearly $1.75 billion. It wouldn’t be a surprise to see this double or triple in the next couple of years.

Power Corp has a total market capitalization of just under $19 billion at the time of writing. It’s 67% ownership of GWO is worth about that much, so you effectively get all the other bits for free.

Power Corp trades near $30 per share and the dividend provides a 6% yield. RRSP investors get paid well even if the stock price doesn’t move. That said, the stock could easily hit $40 if the Lion Electric stake soars on the NYSE or if Wealthsimple goes public and attracts a much higher valuation.

The bottom line on RRSP investing

While the market is short on deals right now, TransAlta and Power Corp look cheap and could deliver big gains for RRPS investors in the next few years.

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.

More on Investing

Question marks in a pile
Tech Stocks

Should Canadians Be Worried About the Snapchat Stock Plunge?

Social media stocks lost US$180 billion in value on Tuesday, as shares of Snapchat (NYSE:SNAP) stock dropped by 41%, below…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Stocks for Beginners

Got $3,000? 3 Top TSX Stocks to Buy Today

Looking for growth along with dividends? Here are three top TSX stocks.

Read more »

sad concerned deep in thought
Stocks for Beginners

Inflation Have You Scared? Why You Should Invest Anyway

Inflation can be scary, but don't let it get in the way of your long-term goals. By figuring out what…

Read more »

edit Person using calculator next to charts and graphs
Stocks for Beginners

2 Cheap Canadian Stocks (Under $5) to Buy Today

Despite the recent market weakness, long-term investors can buy these two cheap Canadian stocks today to get solid returns in…

Read more »

TIMER SAYING TIME FOR ACTION
Stocks for Beginners

TSX Still Down 9%: Why New Investors Should Buy Now!

New investors should pounce on the opportunity to buy long-term holds like these blue-chip companies while they're still down by…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Stocks to Hold for a Reliable Source of Passive Income

Are you looking for a way to produce a reliable source of passive income? Hold these three stocks!

Read more »

Wealth management companies could be good long-term investments.
Bank Stocks

With a 6 Percent Yield, Time to Buy Cheap Shares of IGM Financial?

The wealth management company had record earnings, but the shares are trading at a one-year low.

Read more »

worry concern
Dividend Stocks

3 Stocks to Buy if You Are Worried About a Recession

There are a lot of safe investments that can help your portfolio remain afloat during a recession and the market…

Read more »