On Wednesday, the Labor Department announced that the March consumer price index (CPI) rose 5% compared to its economists’ estimate of 5.1%. It was the lowest since May 2021. The declining CPI indicates that the Federal Reserve’s monetary tightening initiatives are delivering desired results. As signs of inflation appease and the job market cools down, the equity markets are witnessing healthy buying, with the S&P/TSX Composite Index rising 2.3% since the beginning of this month.
Amid improving investor sentiments, here are two top stocks you can buy right now to earn superior returns.
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Algonquin Power & Utilities
Algonquin Power & Utilities (TSX: AQN) owns and operates regulated utility assets serving around one million customers. It also has substantial exposure to renewable energy. Since the company operates in a capital-intensive business, the rising interest rates have hurt its financials, thus dragging its stock price down. It currently trades over 40% lower than its 52-week high.
However, AQN’s management has adopted several initiatives, such as lowering its capital intensity, optimizing its asset base through asset sales, and slashing its quarterly dividend by 40% to deleverage its balance sheet amid rising interest rates.
Meanwhile, it plans to make a capital investment of US$3.6 billion this year, with around US$3.3 billion in low-risk utility assets and the remaining in renewable energy assets. These investments include the ongoing acquisition of Kentucky Power for US$2.7 billion. The deadline for the completion of the deal would be around April 26. If the deal breaks down, it will free up the capital for AQN to fund its other organic growth opportunities. So, the company’s outlook looks healthy.
Despite slashing its quarterly dividend, it currently pays a quarterly dividend of US$0.1085/share, with its yield for the next 12 months at 4.92%. Also, AQN stock trades at an attractive valuation, with its NTM (next 12 months) price-to-earnings multiple at 15.1. Considering its improving financial position, healthy growth prospects, high dividend yield, and attractive valuation, AQN would be an excellent buy right now.
Suncor Energy
Earlier this month, OPEC (Organization of the Petroleum Exporting Countries) and its allies announced they would lower oil production by 1.2 million barrels per day from May. Along with earlier announced production cuts, these new cuts would reduce overall oil production by 3.7 million barrels per day, which forms around 3.7% of global demand. So, the recent production cut announcement has driven oil prices higher, with Brent crude trading at US$86.71, representing an 8% rise since the announcement of new production cuts.
Meanwhile, analysts are bullish on oil and expect Brent crude to cross US$95/barrel this year. Higher oil prices could boost the financials of oil-producing companies. So, I have selected Suncor Energy (TSX: SU) as my second pick. Its production could also increase this year, with the midpoint of the company’s production guidance representing a 1.6% increase from its previous year. Also, supported by solid cash flows in 2022, the company repaid around $3.2 billion of its debt, which could lower its interest expenses this year. Besides, the company is working on selling its assets in the United Kingdom as part of its asset optimization initiative. The transaction could generate $1.2 billion, strengthening its balance sheet.
Further, Suncor Energy also pays a quarterly dividend with its yield for the next 12 months at 4.77%. Given its healthy outlook, high yield, and attractive NTM price-to-earnings multiple of 7.3, Suncor Energy would be another excellent buy right now.
