Underpriced and Overlooked: 2 Canadian Stocks Ready to Rally

Investors should consider buying TransAlta and Crew Energy on temporary weakness. Both companies have visible growth potential and expect the stocks to rise to their true worth or actual values.

| More on:

Several factors affect the stock market’s behaviour, causing it to go up and down every time. Inflation, monetary policy, and investors’ confidence are the prevailing headwinds lately. Regarding the third factor, investors misread the market sometimes and overlook some stocks.

For example, TransAlta (TSX:TA) and Crew Energy (TSX:CR) have been on downtrends lately. The independent power producer (IPP) and oil & natural gas producer are good investment options but are underpriced. Both stocks are excellent plays for their depressed price and inevitable rebound.

Positioned for future success

Utility companies are sensitive to interest rates but are safe havens when the market gets tough. TransAlta operates power-generation facilities such as wind (33), hydroelectric (25), gas (17), and coal (1). The $2.88 billion IPP caters to customers and end-users in Canada, the U.S., and Australia.

TranAlta’s energy assets have a combined capacity of 6,400 megawatts (MW). It has a development pipeline of advanced and early-stage projects, not to mention a host of prospects. The diversified portfolio’s stable and growing contracted base assures strong free cash follow generation.

Acquiring TransAlta Renewables in October 2023 positioned the company for future success. According to its president and chief executive officer (CEO), John Kousinioris, the acquisition represents a key milestone. “The combined company will unify our assets, capital, and capabilities to enhance cash flow predictability while enhancing our ability to realize future growth,” said Kousinioris.

In November 2023, TransAlta entered a definitive agreement to acquire utility contractor Heartland Generation from Energy Capital Partners for US$658 million. The transaction should close in the first quarter (Q1) of 2024.

Management’s clean electricity growth plan to 2028 should also attract more ESG (environmental, social, and governance) investors. The $3.5 billion growth capex could deliver up to 1.75 gigawatts (GW) of clean electricity in 2024 and $350 million in new annual earnings before interest, taxes, depreciation, and amortization (EBITDA). It includes a development pipeline of five GW and 10 GW in 2025 and 2028.

TransAlta plans to develop wind and solar projects from scratch, and most of this new generation will be organic growth. Kousinioris added in an interview that the company is also open to growth through mergers and acquisitions if the right opportunity comes along.

TransAlta plans to end coal generation in the U.S. by 2025, reduce greenhouse gas (GHG) emissions by 75% by 2026, and be net zero by 2045. At $9.31 per share (-15.52% year to date, the utility stock pays a decent 2.49% dividend.

Growth oriented

Crew Energy would be ranked anywhere from 20 to 25 if the TSX30 List, the flagship program for growth stocks, were to come out today. At $3.82 per share, CR’s overall return in three years is 371.6% (67.62% CAGR). But as of this writing, the energy stock is down 15.86% year to date.

The $589.9 million growth-oriented oil and natural gas producer operates in the vast Montney resource in northeast British Columbia. Management said Crew Energy’s competitive advantage is the significant future growth in production base in a world-class resource. Market analysts’ average price target for CR is $7.57%, a 98% upside in one year.

Strong buys

Investors should consider buying TransAlta and Crew Energy on temporary weakness. The undervalued stocks have visible growth potential, and both should rise to their true worth or actual values soon.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

dividend stocks are a good way to earn passive income
Dividend Stocks

This 4.2% Monthly Payer Is the Income Investor’s Dream Stock

Are you looking for a growing stream of monthly dividends and strong capital returns ahead? This Canadian stock could be…

Read more »

happy woman throws cash
Dividend Stocks

I’m Going All-In Because This Stock Never Lets Me Down

Given its solid financial performance, consistent returns, and high growth prospects, this Canadian stock is ideal for long-term investors.

Read more »

dividend growth for passive income
Dividend Stocks

I’d Put My Entire TFSA Into This 7 Percent Monthly-Paying Dividend Stock

Here's why TFSA investors should consider gaining exposure to this high-yield monthly dividend stock right now.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

A 7.6% Dividend Stock Paying Cash Every Single Month

Whitecap's mesmerizing dividend is safe for now, but what would it take for it to cut it?

Read more »

Concept of rent, search, purchase real estate, REIT
Dividend Stocks

A Perfect 7.9% Dividend Stock Paying Out Cash Every Single Month

If you're looking for cash immediately, this stock certainly is one to watch.

Read more »

Hourglass projecting a dollar sign as shadow
Dividend Stocks

The 4.2% Monthly Payer That Could Fund Your Retirement

This TSX-listed holding company pays monthly dividends and is unlike any other.

Read more »

dividends can compound over time
Dividend Stocks

Contrarian Investors: 1 Discounted TSX Dividend Stock to Consider Now

The top Canadian dividend-growth stock might be oversold right now.

Read more »

Piggy bank on a flying rocket
Dividend Stocks

The 4% Monthly Dividend That Beats Any Savings Account

Want an investment that can beat any savings account? This monthly dividend payer boasts high yields and stellar growth potential.

Read more »