Rising inflation will continue to hamper richly valued stocks this year. Here are some undervalued TSX stocks to consider in 2022.
Tourmaline Oil
Since the pandemic, Canada’s leading natural gas stock Tourmaline Oil (TSX: TOU) has been a solid wealth creator for shareholders. It has returned 135% in the last 12 months and 460% since the infamous pandemic crash in March 2020. Interestingly, the stock still seems to have steam left for 2022.
The year 2021 marked one of the best years for natural gas since 2016, where the prices rose almost 48%. The trend will likely continue, driven by strong export demand and higher cooling demand.
Tourmaline Oil’s strategic acquisitions last year and capital discipline played out well, leading to such an outperformance. Higher gas prices and improving operational efficiencies will likely continue its growth streak this year as well.
Low-cost gas producer Tourmaline Oil forecast a free cash flow of $2.8 billion in 2022. That’s a massive increase from $1.5 billion in 2021. Importantly, such a healthy rise in free cash could fuel another special dividend, as it did last year.
Despite the sharp rise, TOU stock is trading eight times its earnings and looks way discounted. Tourmaline’s strong growth prospects at such an appealing valuation makes it an attractive bargain deal.
Tilray
Cannabis stocks had another depressing year in 2021, where they lost around 35% in the last 12 months. Very few stocks offer attractive growth prospects at the moment and Tilray (TSX: TLRY)(NASDAQ: TLRY) is one of them.
Tilray is forecast to grow its sales to US$4 billion by 2024 from US$672 million in the last 12 months. Although that looks like a steep target, legalization in the U.S. and expansion in Canada could drive Tilray towards that feat. Also, the company became stronger after its Aphria merger, increasing its geographical presence and the balance sheet strength.
Tilray has an almost 12% share in Canadian retail sales. TLRY stock has fallen 67% since its merger with Aphria. It is currently trading at an EV-to-sales multiple of six, marginally lower relative to peers.
The recent drop could be an opportunity for savvy investors considering Tilray’s strong growth prospects and discounted stock.
B2Gold
Gold stocks continued to dig deeper recently, with better economic growth projections and investors moving to risky assets. Canadian gold miner B2Gold (TSX: BTO)(NYSE:BTG) has been no exception and lost 8% last week. It has lost more than 33% in the last 12 months.
A weaker sentiment has largely weighed on gold mining stocks lately. A $5.2 billion B2Gold has seen a rise in production in the last few quarters and is forecast to produce a little above one million ounces of gold in 2021.
Its all-in sustaining cost has fallen from $1,101 per ounce in 2014 to $788 in 2020. That indicates a fall of 5% CAGR, while revenues have increased by 24% CAGR in the same period.
The all-in sustaining cost is an important metric for gold miners and reflects the full cost of gold production from current operations. The falling cost trend indicates improving operational efficiencies and potential profit margin expansion.
BTO stock is currently trading nine times its earnings and is a discounted stocks among peers. It could see a solid rally if markets turn volatile and risk appetite changes going forward. BTO is also an attractive pick to play the gold rally in the long term, given its fair correlation with the yellow metal prices.
