Stocks that move contrary to their sector are rarer compared to stocks that move contrary to the broader market. While TC Energy (TSX:TRP) generally doesn’t fall under this category, it’s certainly a contrarian pick right now. The energy sector has been in a bear market phase since mid-October, whereas TC Energy has been going up since early October and has climbed almost 15% since then.
However, it’s not the only one to do so, and the pipeline giant Enbridge has offered a similar performance. Besides, there are three reasons to consider TC Energy now, while it’s in its still discounted state.
Image source: Getty Images
Three reasons to consider the stock
A relatively “timeless” reason to consider TC Energy is its business model. It’s a pipeline company, which shields it from the economic conditions and price fluctuations that upstream and downstream companies are vulnerable to.
Even as a pipeline company, it stands out for its natural gas-focused business. It controls a significantly larger natural gas pipeline network than its oil pipeline assets, and it’s divesting even that, making it a pure-play natural gas transporter.
As the cleanest fossil fuel, natural gas may experience a much slower demand slump compared to oil, which makes TC Energy a good long-term holding.
Another reason to consider TC Energy is its dividends. Its solid dividend history is an ever-present reason to buy this stock, but in its current discounted state, the magnified yield has emerged as another compelling reason to buy the company. At 7.1%, it’s one of the most generous Dividend Aristocrats in Canada right now.
Lastly, a relatively temporary reason to consider TC Energy is the recovery-fueled capital appreciation potential it offers. The stock is still 30% down from its post-pandemic peak. Reclaiming that peak alone would lead to a decent amount of capital appreciation, and it may become the start of a long-term bullish phase.
The future
It’s difficult to predict how far the current growth phase will continue. Despite its current contrarian performance against the sector, it’s not immune to major economic and market forces that can trigger sector-wide slumps.
This happened in 2014 when the stock fell with the rest of the sector, but while most other energy companies had to wait for the post-pandemic boom to recover, it recovered in just a little over two years.
Foolish takeaway
TC Energy is a powerful dividend stock, especially now when it’s offering a juicy yield thanks to its discounted valuation.
But it can also prove to be a decent growth stock if you hold on to it for the long term. It’s one of the few energy stocks in Canada that didn’t experience an abnormal upward surge in the post-pandemic market, which might prevent it from an upcoming correction.
