2 Canadian Stocks to Buy Before They Correct Upwards

Heading into year’s end, there are many great Canadian stocks that are still on sale. In this piece, we’ll have …

| More on:
Where to Invest?

Image source: Getty Images

Heading into year’s end, there are many great Canadian stocks that are still on sale. In this piece, we’ll have a look at two oversold names that may have a high chance of correcting to the upside over the next 18 months. Consider Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) and North West Company (TSX:NWC), two quality defensives with large dividend yields and a valuation that seems unsustainably low.

Algonquin Power & Utilities

Algonquin has been a major laggard, down over 15% year to date. COVID disruptions and uncertainties over the recently-acquired Kentucky Power have weighed, as did jitters over rising rates and a broader souring of the renewables trade that was so hot in the back half of 2020. A variety of factors have dragged shares of Algonquin lower, but the longer-term fundamentals still seem very much intact. I believe that all that changed is the price. The company still owns many prized assets in the states, including a rock-solid water utility, which is about as stable as cash flows get.

The renewable power production business can be quite capital-intensive, a major negative when interest rates are poised to rise at some point over the next several quarters. Still, Algonquin has a capable management team that can help the stock continue swimming forward, even if market waters get rougher or the current starts flowing head-on.

With a nearly 5% dividend yield, AQN stock is a solid buy in my books, especially if you’re of the belief that a rate-driven correction in growth stocks will occur over the next 12-18 months. The dividend and margin of safety can help your portfolio stay grounded as volatility makes a return.

At writing, the stock trades at 12.5 times trailing earnings, which isn’t at all expensive for the well-supported dividend that could continue growing in the face of higher rates.

North West Company

The North West Company is a lesser-known defensive dividend stock that many may be inclined to forget about. The mid-cap has a mere $1.7 billion market cap, with an attractive 4.3% dividend yield. For those unfamiliar with the name, it’s a grocery and discount retail play that served underserved communities within remote regions of northwestern North America.

Indeed, retail is a competitive game that’s hard to thrive in. North West’s niche is within remote communities, areas that may be less economical for big players and e-commerce disruptors. That’s why North West is one of the most compelling options for defensive investors who are looking to lower their portfolio’s beta. Like Algonquin, shares have underperformed the TSX Index year to date — a trend I don’t think is sustainable given the calibre of business and management.

The stock trades at 11.6 times trailing earnings, making the name a great compliment to a portfolio that’s lacking in defensives.

The bottom line

Algonquin and North West stock are value, dividend, and defensive plays all rolled into one. If the markets get choppy in the new year, both names look well-positioned to hold their own versus the averages. If I had to choose one, I’d have to go with Algonquin because the yield is simply too good to pass up at its depressed valuations.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends THE NORTH WEST COMPANY INC.

More on Investing

Hourglass projecting a dollar sign as shadow
Investing

New Investor? If You Do Nothing Else With Stocks, Learn This Lesson

Time is the most powerful thing on an investor's side. Here are two powerful ways to use it.

Read more »

lab worker inspects test tubes
Dividend Stocks

Warren Buffett’s Buying This Passive Income Stock

Berkshire began buying this chemical company earlier this year and hasn't stopped.

Read more »

Arrowings ascending on a chalkboard
Tech Stocks

Why I Think Nuvei Stock Has Market-Beating Potential

Given its growth initiatives, expanding addressable market, and attractive valuation, I believe Nuvei has the potential to outperform the broader…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Need Passive Income? Turn $5,000 Into $23.85 Every Month

If you're looking for passive income that comes in like a paycheque, this dividend stock provides that to you along…

Read more »

A worker drinks out of a mug in an office.
Metals and Mining Stocks

5 Things to Know About Nutrien Stock in December 2022

Trading at heavily depressed multiples, Nutrien stock is a great opportunity, as it delivers solid financial results and an optimistic…

Read more »

A shopper makes purchases from an online store.
Tech Stocks

Shopify Stock Rose 15% in November: Is it a Buy Today?

Shopify (TSX:SHOP) stock rallied 15% this month but is still down 69% year to date, so should investors worry that…

Read more »

Man holding magnifying glass over a document
Investing

The 3 Most Oversold TSX Stocks to Watch Before 2023

Many oversold stocks are merely victims of market circumstances and potentially profitable bargains when they seem downtrodden.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

A TFSA Contribution Room of $88,000 and 1 Dividend Aristocrat Can Make You $172,330 Richer

A high-yield Dividend Aristocrat in the energy sector is a suitable holding for Canadians with $88,000 available contribution rooms in…

Read more »