Finding value in today’s otherwise overvalued market isn’t an easy task. However, there are a few options long-term investors have available to them today that fit this criterion.
On the TSX, these two stocks are among the best in terms of providing investors with excellent value in this existing market. Indeed, these companies have tremendous catalyst today, and are poised to continue providing cash flow growth to long-term investors.
Accordingly, let’s dive in.
Well, energy prices have provided a nice boost for this company focused on oil sands production in Western Canada. Rising oil prices have pegged WTI crude near US$70 per barrel of late. For investors in Suncor, this is a big deal.
Indeed, Suncor’s breakeven cost per barrel around US$35 WTI provides investors with a nice margin of safety right now. The company’s margins, cash flows, fundamentals, and balance sheet all look better than the have in years. Indeed, one year ago, no one would have anticipated this would be the case.
However, for those who believe this commodity bull market isn’t over, there’s still value to be had in energy plays like Suncor. That’s because this company’s future cash flows are being discounted at a higher rate due to the previous volatility we’ve seen in commodity markets. Indeed, if commodity prices remain firm, Suncor could see a significant revolution higher. For those bullish on the commodities space right now, as I am, this provides a nice entry point for medium-term gains on the horizon.
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Kirkland Lake Gold
Long-term investors always need to focus on capital preservation and diversification as key portfolio management criteria. Canadian gold miner Kirkland Lake Gold (TSX:KL)(NYSE:KL) provides both in spades.
This company’s outsized exposure to the price of gold is inherently defensive. However, the upside Kirkland Lake provides in a rising gold price environment is impressive. Like Suncor, Kirkland Lake’s margins are best in class. Currently, the company is making approximately US$1,000 on every ounce of gold produced. When one considers the fact that Kirkland Lake is expanding production and has a rock-solid balance sheet, the value argument with this stock becomes clear.
I’m projecting Kirkland Lake is trading at less than 10 times future free cash flows, an insanely cheap valuation today. Given the state of the current market, investors may want to add some gold exposure here. It may be one of the most undervalued sectors today relative to its long-term cash flow potential. And Kirkland Lake is one of the best miners among its peers for those looking to do so.
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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 Chris MacDonald has no position in any of the stocks mentioned.