2 Top Canadian Value Stocks in January 2024

Here’s why undervalued TSX stocks such as Tourmaline Oil should beat the broader markets in 2024 and beyond.

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Despite the recent rally in equities, several Canadian stocks trade at a discount to their intrinsic value. These undervalued TSX stocks are well-positioned to derive outsized gains when investor sentiment improves further in the next 12 months due to interest rate hikes and lower inflation numbers.

Here are two top Canadian value stocks you can consider buying in January 2024.

Tourmaline Oil stock

Valued at $20.3 billion by market cap, Tourmaline Oil (TSX:TOU) is a crude oil and natural gas exploration and production company. It began operations in 2008 and has since embarked on a combination of strategic acquisitions, farm-ins, and land acquisitions in addition to its capital exploration and development program.

Tourmaline Oil is the largest natural gas producer and the fourth-largest gas processing midstream operator in Canada. It is armed with an extensive undeveloped land position with a large, multi-year drilling inventory of natural gas processing and transportation infrastructure in three core growth regions.

In the last 10 years, Tourmaline Oil has returned close to 90% after adjusting for dividends. It currently pays shareholders an annual dividend of $1.12 per share, translating to a yield of 1.88%. Moreover, the company pays investors a special dividend, which is tied to its cash flows.

In the last 12 months, it has paid total dividends of $6.55 per share, indicating a yield of almost 11%, which is quite tasty.

The company aims to invest $2.3 billion in capital expenditures in 2024, which should drive future cash flows and dividends higher. In the last five years, its base dividends have risen by 27% annually, while its payout ratio is quite sustainable at 61%.

With a free cash flow yield of 9%, Tourmaline Oil stock is priced at 9.4 times forward earnings, which is very cheap. Analysts remain bullish and expect the TSX energy stock to gain roughly 40% in the next 12 months.

Eldorado Gold stock

Valued at $3.5 billion by market cap, Eldorado Gold (TSX:ELD) is a mining company with a presence in Turkey, Canada, Greece, and Romania. It mines precious metals such as gold and silver in addition to lead and zinc.

Over the years, gold has been viewed as a store of value and a hedge against inflation, offering your equity portfolio with diversification.

Generally, gold prices gain pace when interest rates move lower, allowing mining companies to benefit from higher profit margins and cash flows.

Eldorado Gold increased gold production by 2% in the third quarter (Q3) to 121,030 ounces, while it sold 119,200 ounces at an average price of US$1,879. In the year-ago period, it sold 118,388 ounces at an average price per ounce of US$1,688.

The company’s cash operating costs also fell to US$698 per ounce, compared to US$803 per ounce due to lower treatment and refining costs. Its all-in sustaining costs stood at US$1,177 per ounce, down from US$1,259 per ounce in the prior-year quarter due to lower cash operating cost per ounce, offset by higher royalty expense.

Eldorado Gold is forecast to increase sales from $1.19 billion in 2022 to $1.52 billion in 2024. Comparatively, its adjusted earnings per share are forecasted to widen from $0.07 to $0.86 in this period. Priced at 20 times forward earnings, ELD stock is not too expensive, especially if gold prices remain elevated in the near term.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Tourmaline Oil. The Motley Fool has a disclosure policy.

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