The Toronto Stock Exchange had numerous pullbacks in 2023 due to successive and oversized rate hikes. Despite holding the key interest rate at 5% this month, Bank of Canada Governor Tiff Macklem said the central bank is ready to raise the policy rate if inflationary pressure persists.
Rising inflation and interest rates have caused many prices to drop. Canacol Energy (TSX:CNE) and Algonquin Power & Utilities (TSX:AQN) trades at bargain prices due to the elevated volatility. Still, the neglected stocks are well-positioned for a breakout and should surprise investors when they do soon.
Strong earnings
Canacol Energy is worth considering due to its impressive financial results in the first half of 2023. The $240.5 million firm is Colombia’s largest independent onshore conventional natural gas exploration and production company. It supplies around 20% of the country’s gas needs.
In the six months that ended June 30, 2023, net income rose 216% year over year to US$56.9 million, while revenue grew 9% to US$148.5 million versus the same period last year. In Q2 2023, net income reached US$39.9 million compared to the US$6.4 million net loss in Q2 2022.
Management strives to maintain a solid capital base to enable Canacol to provide flexibility in the future development of the business and maintain investor, creditor, and market confidence. The company proactively adjusts to changes in economic conditions and the risk characteristics of its underlying assets.
For the rest of 2023, Canacol Energy plans to drill up to 10 exploration and appraisal wells in a continuous program. The goal is to hit a 2P reserves replacement ratio of more than 200%. Near-term plans include the acquisition of a 3D seismic on the VIM-5 block (282 square kilometres) to expand its exploration prospect inventory.
Canacol’s gas pipeline project from Jobo to Medellin is progressing well. It should contribute 100 million standard cubic feet per day (MMcfpd) of new gas sales and increase the total to over 300 MMcfpd. Returning capital to shareholders is also a priority.
At $7.05 per share, the energy stock is down 22.73% year to date but pays an over-the-top 14.75% dividend (14.1% payout ratio). Market analysts maintain a bullish sentiment on Canacol Energy. Their 12-month average price target is $19.66 (+178.9%).
Focus on regulated utility business
Algonquin Power & Utilities recently announced a leadership change and completed a strategic review process. Chris Huskilson, the former Chief Executive of Emera, has been appointed the new interim CEO of this $4.8 billion renewable energy and utility company.
According to Huskilson, the company will pursue the sale of its renewable energy group after a thorough strategic review. The board’s Strategic Review Committee has determined that Algonquin can create more long-term value by focusing on the regulated utility business.
The regulated utility business is well-positioned for growth because of multiple modalities and diversified assets in attractive jurisdictions. Shareholders can also expect constructive regulated returns.
If you invest today, the share price is $6.94 (-17.86%), and the dividend yield is 8.56%. Market analysts’ 12-month average price target is $11.68 (+68.3%).
Potential multi-baggers
Canacol Energy and Algonquin Power & Utilities are underperforming in 2023, but the weakness is temporary. Based on market analysts’ one-year price forecasts, the dividend payers are potential multi-baggers.
