Volatility has continued to pick up in the market, driven by a number of forces. The Russian invasion of Ukraine, rising interest rates, and surging inflation are among the key factors investors are considering right now. Accordingly, the search for defensive options, such as commodities stocks, has picked up steam.
The great news is that there happen to be a number of top-notch Canadian commodities stocks to choose from. Near the top of my list right now are Canadian Natural Resources (TSX: CNQ)(NYSE: CNQ) and Teck Resources (TSX: TECK.B)(NYSE: TECK).
Here’s why.
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Top commodities stocks: Canadian Natural Resources
Canadian Natural Resources features among Western Canada’s biggest natural gas and oil producers. This company’s strong North American position is supplemented by offshore African and North Sea operations. Canadian Natural’s business segments include heavy oil, light and medium oil, natural gas liquids, natural gas, bitumen, and synthetic oil.
The company’s management team has committed to returning strong cash flow to shareholders via share buybacks and regular dividend hikes. For long-term investors, this is a great thing. Over time, I expect the company’s capital-return metrics to remain solid. Much of this has to do with the strength of Canadian Natural’s balance sheet, its operating leverage, and impressive energy prices.
This energy price environment may not be around forever. However, with investors looking for balance sheet strength, Canadian Natural is a great option to consider right now. Moreover, this company recently raised its dividend by 28%, signaling just how strong its cash flow has been of late.
Teck Resources
Teck Resources is a diversified miner with oil sands, coal, zinc, and copper operations in Peru, the U.S., Chile, and Canada. In terms of EBITDA contribution, this company’s primary commodity is metallurgical coal. Zinc and oil sands, along with copper, also contribute smaller amounts to Teck’s earnings. Besides several additional options for copper growth, this company’s strategy is portfolio rebalancing to low-carbon metals like copper.
Teck Resources is currently benefitting from solid steel-making demand. This has driven rising coal prices, which account for almost 47% of its revenues. Rumours in the air state that the management is looking forward to selling out a business stake to fund the company’s copper growth story. Personally, I think a lot of value could be unlocked if this takes place.
One of the planet’s biggest undeveloped copper resources, QB2, is now 77% complete. This puts Teck on track for initial production in the year’s second half.
Overall, both companies are great commodities stocks worth considering right now. For those looking for defensiveness in this inflationary environment, these are two stocks to dive deeper into.
