The recent broader market turmoil has brought some TSX stocks to their annual lows. While some might continue to trade weak, few will likely recover.
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Vermilion Energy
TSX midcap energy stocks trended higher this year, despite oil prices heading lower. However, Vermilion Energy (TSX: VET) stock has been notably weak since mid-2022. It has lost more than 50% since its 52-week high in November.
Vermilion’s international operations have been the main cause for its fall recently. Its European production was a crucial growth driver, doubling its stock in 2022. However, those operations are now exposed to higher windfall taxes, expected to notably dent its profitability.
Moreover, tumbling natural gas prices have weighed on it this year. Gas has dropped 80% in the last few months due to warmer weather and oversupply. While Vermilion’s half of the revenues come from gas production, the recent drop was evident.
After its recent drop, VET stock is one of the most undervalued stocks among its peers. It is trading at a free cash flow yield of 30% after accounting for windfall taxes. So, if gas prices recover in the second half of 2023, we might see some recovery in Vermilion stock. It will release fourth-quarter (Q4) 2022 earnings on March 8. How the management sees the surplus tax issue unfolding will be a key driver for its stock.
Northland Power
Independent power producer Northland Power (TSX: NPI) has had a terrible start to 2023. It is currently trading at its 52-week lows and has lost 27% since September last year.
An $8 billion Northland Power operates a clean energy portfolio spread across North America, Europe, and Asia. Higher costs and supply chain issues have remarkably weighed on its operations since last year. For 2022, it reported a net income of $827 million on total revenues of $2.4 billion. Revenues increased 27%, while net income more than tripled last year compared to 2021.
Independent power producers are relatively riskier bets than traditional utilities because of their unstable earnings. Given rising interest rates, Northland Power might continue to trade weak at least for the next few quarters. The stock pays monthly dividends and currently yields 3.6%.
TELUS
Canada’s one of the leading telecom stocks TELUS (TSX: T) has tumbled 22% since last April. It is currently trading at $27, close to its 52-week lows. Since last year, higher inflation and steep rate hikes have weighed on telecom stocks.
TELUS posted a net profit of $1.7 billion on total revenues of $18.4 billion in 2022. Compared to 2021, that was an increase of 7% in revenues and 1% in profits.
Canadian telecom industry is dominated by three players, with each catering to around 10 million wireless subscribers. Players are aggressively expanding amid the 5G rollout by raising their capital expenditure or expanding their geographical presence.
TELUS management expects free cash flows of $2 billion this year, indicating a nice 56% growth year over year. It also expects annual revenue growth of around 12% in 2023.
TELUS stock could be a decent pick amid its ongoing weak patch. Telecom as a sector will likely see recovery once the policy-tightening cycle eases, probably in the second half of 2023. T stock also looks well placed on the dividend front, yielding 5%.
