The market rally in 2021 has pushed many of the Toronto Stock Exchange’s top stocks to new all-time highs. Investors are now wondering which major stocks might still be undervalued and which would be good to buy for the economic recovery expected in 2022.
TD (TSX: TD) (NYSE: TD) is trading near $ 84 a share at the time of writing from the 2021 high of around $ 89. The pullback looks like a good opportunity to buy TD as we approach next year.
Persistent inflation could be the theme in 2022, and experts are starting to predict interest rate hikes in the United States and Canada over the next 12 months. Bond markets are already reacting, with yields on 10-year US Treasuries climbing 1.5%.
A sharp rise in interest rates could lead to an increase in defaults, but rising interest rates tend to be net positive for banks, as they can generate higher net interest margins and earn money. better returns on the cash they need to hold to cover deposits and protect against loans. losses.
TD ended Q3 2021 with a CET1 ratio of over 14%. It’s likely an excessive capital position at this point in the pandemic, and investors should see some of the funds coming to them in the form of higher dividends and share buybacks next year. Investors who buy TD now can earn a dividend yield of 3.75%.
Canadian natural resources
Canadian natural resources (TSX: CNQ) (NYSE: CNQ) is a leader in the Canadian energy sector with extensive resources and production facilities spanning the entire hydrocarbon industry. The company is well known for its oil sands operations, but it also produces offshore oil, conventional light and heavy oil, natural gas and natural gas liquids.
WTI oil is now above US $ 75 a barrel. Brent crude has just passed US $ 80 and natural gas prices are at seven-year highs. A rebound in fuel demand combined with limited production growth is likely to keep oil and natural gas prices high until at least 2022.
This company was already generating significant profits at the start of the year, and the continued rise in oil and gas prices will result in even higher free cash flow. CNRL uses the excess cash to buy back stocks and reduce debt. The board increased the dividend by 11% for 2021, and another big payout hike is expected to be underway in 2022.
The stock has rebounded nicely from 2020 lows but still looks cheap. Investors who buy CNQ shares at the current price close to $ 45 can get a strong dividend yield of 4% and wait for the next increase in distributions. It wouldn’t be surprising to see CNRL raise the dividend by 20% in the first quarter of next year.
Energy stocks also tend to be good bets for investors concerned about persistently inflation.
The result of the most important actions for 2022
TD and Canadian Natural Resources are leaders in their respective industries. Both companies have a long track record of dividend growth and could announce significant payout increases in 2022. Stocks look reasonable at current prices and should deliver strong long-term returns.
If you’ve got the cash to put to work, these top two TSX stocks are probably worth making your buy list by 2022.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content.
The Motley Fool has no position in any of the stocks mentioned. Foolish contributor Andrew Walker owns shares of Canadian Natural Resources and TD Bank.