If you’re looking for cheap stocks, you’ll be hard pressed to find better picks than Toronto-Dominion Bank (TSX: TD)(NYSE: TD) and Suncor Energy (TSX: SU)(NYSE: SU). Both of these stock trade at less than 15 times forward earnings and even lower multiples to sales. Not only that, but they both have strong growth prospects for the coming 12-month period. Given these facts, you might want to invest in both. If you have to choose just one of them, read on, because I’m going to look at the case for investing in TD and Suncor, so you can determine which is a better buy.
The case for TD Bank
The case for investing in TD rests on its relatively low-risk status. TD Bank is, like most Canadian banks, well capitalized and able to meet its obligations. With a 13.1% CET1 ratio, it has more capital relative to assets than regulations require. This means that TD Bank is financially sound. It is not vulnerable to any major disasters like the financial crisis that sunk U.S. banks in 2008 and 2009.
On top of that, interest rates are rising this year. Both the Bank of Canada and the Federal Reserve have announced their intent to raise lending rates. TD Bank may be able to pass the cost of higher interest rates on to its customers, and make some money in the process. This is in contrast to most other industries, for which higher interest rates merely mean higher financing costs.
The case for Suncor Energy
The case for Suncor Energy rests on its strong prospects in the current economic environment. Thanks to a combination of supply chain issues, pent-up demand, and geopolitical problems, oil futures have reached their highest levels in seven years. This is a positive for oil and gas companies like Suncor, which make more money the higher the price of oil goes.
In Suncor energy’s most recent quarter, it delivered solid results. Adjusted funds from operations (AFFO), cash from operations, and net income were all up compared to the same period in 2020. Net income, in fact, swung from a loss to a profit. As long as the price of oil remains strong, then Suncor will keep putting out solid earnings, and its stock price will probably keep rising.
Foolish takeaway: I’m holding both
As we’ve seen, there are plenty of reasons to invest in either Suncor Energy or TD Bank. They both have their strengths and weaknesses. TD is less dependent on commodity prices, but also has no commodity-related upside. Suncor has the potential to gain if oil prices keep rising but also downside potential in the opposite scenario. Together, they’d make great additions to a value-oriented income portfolio. So, I hold both.
