The last year has been quite good for North American stock markets. The TSX, for example, is up 16% in this time period. But not every stock has done well. Some have been left behind. Two of these stocks make it on my list of favourite stocks to buy right now.
Without further ado, let’s look into these stocks.
Cineplex stock is one of my top ideas
My first stock to buy right now is a very controversial one. Cineplex Inc. (TSX:CGX) is Canada’s leading movie exhibition company, with an approximately 80% market share. This has brought with it many advantages, but the reality is that the stock remains beaten down. Trading at a shocking six times this year’s expected earnings, Cineplex stock is as cheap as they come.
Cineplex will be reporting its fourth quarter and year end 2023 results on February 8th. The results will reflect disappointing box office revenue, as the effects of the writers’ strike linger. In the fourth quarter, box office revenue was $124 million, 68% of pre-pandemic levels of 2019.
Importantly, despite this disappointing box office performance, Cineplex is expected to post EPS of $1.36 for the year. This compares to EPS of $0.74 in 2019. In the company’s latest reported quarter (Q3/23), attendance was 90% of 2019 levels. Yet, Cineplex’s revenue was 113% of 2019 levels, and adjusted EBITDaL was 135% of 2019 levels. This, in a nutshell, embodies the strength of Cineplex’s new and improved business.
Finally, many investors are nervous about Cineplex’s debt-load, which is high. While this is something to keep an eye on, I don’t feel like it will be a problem for the company, as cash flows are rapidly increasing. This will translate into more debt repayments – in just the last two quarters, $55 million of debt was repaid. Furthermore, the sale of Player One Amusement Group for $155 million in cash will mean more debt repayments to come.
While some analyst target prices have been lowered recently, the fact remains that most target prices for Cineplex stock are $13-plus. This implies a return of at least 57%.
Suncor Energy: Another favourite
My other favourite stock to buy right now is Suncor Energy Inc. (TSX:SU). In the last five years, Suncor stock has done nothing – stuck below $44, the stock is basically flat. Yet, a lot has happened.
Firstly, the oil price today is $77. This compares to an average oil price of $57 in 2019. Secondly, over at Suncor, revenue increased 41% to $58.3 billion in the five years ended 2022. And the latest quarters have continued showing strong momentum. In fact, in the third quarter of 2023, Suncor reported EPS of $1.52, which was a full $0.16, or 12%, better than expected. Also, adjusted funds from operations came in at $3.6 billion, and operational improvements were boosting efficiencies.
In terms of valuation, Suncor stock remains grossly undervalued in my view – a function of persistently negative investor sentiment and expectations that are too low. Interestingly, analyst expectations for Suncor have been revised upward recently, as the company is exceeding expectations. For example, for the full year 2023, Suncor is expected to post EPS of $5.27. This compares to prior expectations for EPS of $5.01.
Suncor stock currently trades at 8.3 times this year’s expected earnings. Also, it trades at a mere 1.4 times book value despite the fact that Suncor’s return on equity, or ROE, is an impressive 20%.
