While the broader markets are trading near all-time highs, several companies across multiple sectors are priced at a discount in December 2024. Here are two cheap TSX stocks you can buy to benefit from outsized gains in 2025 and beyond. Let’s dive deeper.
Headwater Exploration stock
Valued at a market cap of $1.6 billion, Headwater Exploration (TSX:HWX) is a junior resource company that is engaged in the exploration, development, and production of petroleum and natural gas in the Western Canadian Sedimentary Basin and onshore in New Brunswick.
Headwater has outlined a multi-year business strategy aiming to grow base production and maintain positive adjusted working capital for strategic opportunities. The company explained it would add incremental prospects through strategic land acquisitions and accretive acquisitions, both of which should translate into consistent dividend hikes.
Headwater aims to end 2024 with a record production of 20,250 barrels of oil equivalent per day (BoE/d), up from 7,393 BoE/day in 2021. It expects production to expand to 24,400 BoE/d by 2026.
Its production growth should help Headwater report a funds flow of $320 million in 2025 and a free cash flow of $95 million. This suggests the energy company will invest $225 million in capital expenditures.
Headwater stock has returned over 600% to shareholders in the past decade, easily beating the TSX index. Priced at 8.75 times forward earnings, the TSX stock trades at a cheap valuation, given its growth plans and a tasty dividend yield of 5.8%.
Analysts remain bullish on the dividend stock and expect it to surge 35% over the next 12 months, given consensus price target estimates. If we adjust for its dividend payout, cumulative returns should be closer to 40%.
Equinox Gold stock
Valued at $3.6 billion by market cap, Equinox Gold (TSX:EQX) operates, acquires, explores for, and develops mineral properties. It primarily explores gold and silver deposits with mines in Brazil, the U.S., Mexico, and Canada.
While gold prices have risen around 30% year to date, Equinox stock trades 55% below all-time highs, allowing you to buy a quality stock at a discount.
In the third quarter (Q3) of 2024, Equinox Gold realized US$2,461 per ounce on the 174,000 ounces sold for US$428 million, up from US$284.7 million in the year-ago period. The increase in sales was driven by higher production, elevated gold prices, and the Greenstone mine, which began production this year.
Its income from mine operations rose by US$76 million year over year to US$101 million due to higher sales. As Greenstone is in commercial production, Equinox expects to reduce its cash and all-in-sustaining cost metrics, which should drive earnings growth.
Analysts expect Equinox to end 2026 with an adjusted earnings per share of US$1.25, up from US$0.24 in 2024 and US$0.07 in 2023. Notably, it is forecast to report a free cash flow of US$535 million in 2025, compared to a free cash outflow of US$251 million in 2024.
So, priced at five times forward earnings, the TSX mining stock is relatively cheap, especially if gold prices continue to rally over the next 12 months. Analysts remain bullish and expect the undervalued TSX stock to gain 30% from current levels.
