The market pullback is providing Canadian investors with an opportunity to buy top TSX stocks at undervalued prices.
TD Bank
TD (TSX: TD)(NYSE: TD) trades near $84 per share at the time of writing compared to $109 earlier this year. The steep drop is the result of a change in view on how interest rate hikes will impact the banks.
At the beginning of 2022, investors saw Bank of Canada and U.S. Federal Reserve rate hikes as a net positive for TD and its peers. Banks typically generate better net interest margins in an environment of rising interest rates. The concerns that have emerged, however, focus on the risk of a recession caused by the rate hikes that are designed to cool off the economy and lower inflation.
If Canada and the U.S. go through a deep economic downturn the banks will see revenue decline. In the Canadian market, pundits are also sounding alarm bells on the housing market. TD’s own analysts are predicting a 33% drop in property sales in Q1 2023 compared to Q1 2022 and a 19% drop in prices.
TD faces some headwinds, but the sharp drop in the share price has likely accounted for most of the risk. Investors with a buy-and-hold strategy can take advantage of the pullback to pick up a 4.2% dividend yield and wait for the sector to recover.
TC Energy
TC Energy (TSX: TRP)(NYSE: TRP) trades near $66.50 at the time of writing compared to $74 in early June. The decline is a great opportunity to buy TRP stock on a dip and secure a solid 5.4% dividend yield.
Domestic and international demand for natural gas is expected to rise in the coming years, as utilities convert power plants from using coal and build new gas-fired facilities. The transition to wind, solar, and hydroelectric power will take time, and the unreliable nature of these power sources requires backup production to provide power when demand surges.
TC Energy operates 93,000 km of natural gas pipelines in Canada, the United States, and Mexico. The company has strategic assets in place or under construction to move natural gas from key production regions to liquified natural gas (LNG) facilities in the United States and Canada.
Barrick Gold
Barrick Gold (TSX: ABX)(NYSE: GOLD) is a contrarian pick. The gold miners are out of favour right now after a 10% decline in the price of gold in recent months, but the selloff in the sector looks overdone. Barrick Gold trades near $22.75 per share at the time of writing compared to the 2022 high around $33.50. The company raised the base dividend by 11% for 2022 to US$0.10 per quarter. The board gave investors a bonus dividend of another US$0.10 for Q1 according to the new payout plan that pays up to US$0.15 in extra quarterly distributions depending on the net cash position at the end of each three-month period.
Barrick Gold generates strong margins at the current gold price near US$1,800 and owns six of the top 10 mines on the planet. The price of gold could rebound in the second half of 2022, driven by safe-haven demand amid ongoing geopolitical uncertainty. Weakness in cryptocurrency markets could also shift funds to gold in the coming months.
The bottom line on top TSX stocks to buy now
TD Bank, TC Energy, and Barrick Gold are top companies in their respective industries and currently appear oversold. If you have some cash to put to work in a self-directed portfolio, these stocks deserve to be on your radar.
