With the S&P/TSX Composite Index up almost 9% year to date, Canadian stocks are undoubtedly enjoying a solid run in 2021. We have seen everything from financials to cyclicals see strong momentum since November 2020. Many Canadian stocks are now trading above their highs set just before the coronavirus crash in March last year.
When you consider some of the market excess, particularly in the U.S., value-orientated investors might start to feel a little skittish. If you are looking for a stable balance of income, growth, and a fair price, here are two Canadian value stocks you could look at today.
Enbridge: A top Canadian value stock
Enbridge (TSX:ENB)(NSYE:ENB) is an intriguing Canadian value stock. It has had a decent run in 2021, but I still think there could be upside for this stock. Enbridge has faced some serious challenges as of late. The segment of its Line 5 pipeline crossing the Great Lakes has been ordered to shut down by Michigan’s governor. Likewise, its Line 3 replacement project (its largest capital project to-date) has continued to face environmental/legal opposition. This could further delay construction completion.
Yet, overall, this company has a diversified operational mix. It has more than 40 different sources of cash flow. Its current assets produce a very predictable cash flow stream. It transports nearly 25% of North America’s oil and 20% of natural gas consumed in the United States. This means its pipelines are really essential for the stable operation of North America’s economy.
This Canadian stock acts like toll road for the energy industry. In addition, Enbridge is now utilizing excess cash flows to branch out into sustainable energy projects like hydrogen, renewable natural gas, carbon capture, and renewable power. While I am concerned about this stock’s near-term challenges, I believe, especially with recent backing of the Canadian federal government, a positive solution will prevail.
Fortunately, you get paid a very attractive income stream while you wait to find out. On the upside, this business could see a great recovery in pipeline demand should oil prices sustainably remain strong.
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Alimentation Couche-Tard: A leading Canadian retailer
Alimentation Couche-Tard (TSX:ATD.A)(TSX:ATD.B) is another Canadian stock that value investors might want to take a look at. This stock has floundered ever since the company failed to get regulatory approval to acquire French grocer, Carrefour. I think largely the market did not understand why a convenience store would be acquiring a grocer. As result, short-sighted investors have lost faith in management’s capacity to continue its growth-by-acquisition strategy.
I think they are forgetting that this Canadian stock has accreted an EBITDA CAGR of 22% since 2011. The company has a proven track-record of integrating acquisitions and unlocking synergistic value. While it has struck out recently, I still don’t think it is done.
Right now, the company has a solid balance sheet with almost $10 billion of excess liquidity. This Canadian company obviously believes its stock is cheap. As of late, it has been aggressively buying back stock. Since November 2020, it has repurchased more than 28 million shares (around $900 million worth).
Likewise, this company is investing in organic growth initiatives. It has made in-roads into cannabis retailing, it is increasing food product offerings and is piloting an electric vehicle convenience store model in countries like Norway. Combine many of these factors, and I still don’t see why this Canadian stock trades at such a discount today.
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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 Robin Brown owns shares of ENBRIDGE INC. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC and Enbridge.