It’s difficult to predict the best-performing stocks in a sector, let alone an entire market, especially when there are so many unknown variables in the equation. But we can make some informed predictions.
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An energy stock
The chances of the energy sector going or remaining powerfully bullish in 2025 are relatively low. TSX Energy Index has hovered around a baseline level in the last 10 or so months while the overall direction has been subtly downward. Right now, when geopolitical factors are stressing Canadian energy companies and oil prices in general (even though they are currently rising), choosing an energy stock as one of the most promising for the year may seem counterproductive, but Parex Resources (TSX: PXT) may do just that.
The first reason we can assume that is the stock’s brutal correction phase that it’s still struggling against. Parex Resources is trading at a massive 52% discount from its last peak. One reason for that was the company slashing its production outlook. The company has recently announced its outlook for 2025, and it looks both conservative and healthy.
There is a modest production output and a sizable amount allocated to exploration and development activities in Colombia, where the company operates.
Its price-to-earnings ratio has been consistently low, and at $13.7 per share, the stock is trading below most price estimates. Another promising aspect of the stock is insider confidence, as they have bought extensively in the last six months.
If you buy now and the stars align to make 2025 the year when Parex makes a full recovery, you will be locking in its mouth-watering 11.2% yield and may double your capital within the year.
A zero-emission bus manufacturing company
Even if you are into ESG (environmental, social, and governance) investing, electric vehicle (EV) manufacturers and supply-chain related companies (battery metals) might not seem like a very promising avenue. This is especially true for stocks like NFI Group (TSX: NFI), which is currently trading at a 68% discount from its five-year peak.
However, there is a significant chance that the company may start to turn things around. One reason is that one of NFI’s subsidiaries received a massive order (500 buses) from the United States. Another reason is that one of its competitors filed for bankruptcy, which may not bode well for the market in general, but it does free up more “business” for NFI Group.
Another promising thing about NFI is that it works with two competing technologies, EVs and hydrogen fuel-cell-based buses. If either sector hits a breakthrough (better battery or charging technology or cheaper hydrogen production and storage), the company might benefit.
Assuming the company receives more orders of similar or better magnitude as North American entities focus on local manufacturers following the change of leadership in the U.S., or if EVs experience better traction in 2025, the stock might rise rapidly.
Foolish takeaway
The two Canadian stocks are currently heavily discounted, and at least one of them is financially and operationally distressed. But if the right market circumstances are there, both stocks can explode. For Parex, buying now means taking advantage of more than just the stock’s discount; it means locking in a massive yield as well.
