RRSP investors are searching for top Canadian stocks to add to their self-directed portfolios. The TSX Index is at an all-time high, but some undervalued stocks are still available in the market today.
Barrick Gold
Barrick Gold (TSX:ABX)(NYSE:GOLD) owns five of the top 10 gold mines on the planet and has another under development that will join the list. The company worked hard in recent years to shore up the balance sheet after a flurry of expensive acquisitions during the last gold and copper rally saddled the firm with heavy debt.
A rebound in the price of gold and successful sales of non-core assets enabled Barrick Gold to go from US$13 billion in debt to zero net debt today. This means the company has excess cash to return to investors. The board already tripled the dividend over the past three years and declared a special US$750 million return of capital for investors in 2021. The special payment works out to US$0.42 per share. The annualized dividend provided another US$0.36. Combined, the yield on the current share price is about 3.3%.
The price of gold recently hit US$1,900 after falling below US$1,700 in March. Falling bond yields and a crypto crash combined with seasonal strength in the gold market could push the gold price back above US$2,000 per ounce in the coming months. Barrick Gold stock trades for about $28 per share on the TSX Index at the time of writing compared to $40 last August when gold hit US$2,080.
Volatility should be expected, but Barrick Gold stock looks cheap right now. The company generates significant free cash flow and offers an attractive payout.
Suncor
Suncor (TSX:SU)(NYSE:SU) is primarily known for its oil sands operations, but the company also has refineries and retail locations. The integrated nature of the business normally provides Suncor with a hedge against falling oil prices. In the past, when global supplies rose and pushed prices lower, the refineries benefitted from cheap crude oil feedstock. The retail operations, which include some 1,500 Petro-Canada outlets, tend to see more visitors when gasoline prices drop as a result of the lower oil price.
The pandemic hit all three business units, as oil prices plunged due to a drop in fuel demand rather than a surge in supply. Now that major economies are reopening, demand for fuel is on the rise. The IEA expects gasoline demand to essentially recover to 2019 levels by the end of the year. Jet fuel demand will take longer to bounce back, but will eventually recover.
Suncor stock trades near $30 per share compared to $44 before the pandemic. At the time of writing, West Texas Intermediate oil is US$68 per barrel, well above the pre-pandemic price. Suncor is generating good profits on the production side of the business right now and the downstream operations should catch up in the coming months.
The stock already doubled off 2020 low, but more upside should be on the way. A busy summer driving season is about to kick into gear in the United States.
The bottom line
Barrick Gold and Suncor are leaders in their respective industries. The stocks appear undervalued today in an otherwise expensive market. If you have some cash to put to work in your RRSP, these stocks deserve to be on your buy list.
