Adding cheap stocks to your self-directed portfolio can be an excellent strategy as a stock market investor. However, you should not invest in just any stock that has seen its share prices decline. Not every stock is a bargain after a decline. Some stocks have warranted downturns due to fundamental issues with the underlying company.
When looking at cheap stocks, it is important to evaluate them to see whether they have the potential to deliver returns in the long run. Whether it is due to the company being fundamentally solid or if there are favourable conditions on the horizon for their industry. One such sector is the energy industry.
Typically, people think of oil and gas companies when thinking of the top Canadian energy stocks. However, the future of the energy industry is green and renewable energy stocks might be the key to cheap energy exposure right now.
Algonquin Power & Utilities
Algonquin Power & Utilities (TSX: AQN) is not a typical renewable energy company because it also operates a versatile utility business.
The Oakville-headquartered $5.74 billion market capitalization company offers natural gas, electricity, and water utility services to over 1.2 million customers across North America. It also boasts several renewable energy assets, with a net 1.4-gigawatt (GW) power-generation capacity.
Recently, Algonquin Power has not been in the best shape. As of this writing, Algonquin stock trades for $8.29 per share, down by a massive 63.12% from its February 2021 high. Poor financial decisions and industry headwinds combined to the slump.
Algonquin stock has slashed dividends by 40%, sold off assets, and taken other cost-cutting measures to improve its financial health and manage debt more effectively. Trading at an attractive valuation, it might be a good pick for investors bullish on green energy.
Innergex Renewable Energy
Innergex Renewable Energy (TSX: INE) is a $2.12 billion market capitalization renewable energy company with a more focused approach toward the sector. Headquartered in Longueuil, Innergex Renewable develops, owns, and operates run-of-river hydroelectric facilities, solar farms, and wind energy farms across France, North America, and South America.
Since it started as a hydroelectric company in 1990, Innergex has come a long way and diversified into other renewable energy sources. Between all its assets, it boasts a 4.2 GW installed capacity to generate power. Financial obstacles have affected the company, particularly its debt structure. However, its revenue continues to grow quarter after quarter.
As of this writing, Innergex stock trades for $10.44 per share. Up by 15.23% year to date, it still trades for almost 70% below its January 2021 all-time high. With its recent earnings showing signs of stability for the company, it might be looking at better share prices sooner rather than later.
Foolish takeaway
Investing in stock with heavily discounted share prices can be risky if the underlying company falters further or other factors trigger a downturn. Of these two renewable energy stocks, Algonquin stock looks like a riskier investment due to the company’s struggle with its balance sheet. Innergex stock might be a better investment to consider adding to your self-directed portfolio.
