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.
