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Stocks with high valuations have performed poorly this year. Inflationary pressures and rising interest rates have pushed many stocks that are high-growth down by 40-70% between now and 2022. This trend is likely to continue, even though inflation remains unaffected and rate hikes are imminent. TSX stocks that have reasonable valuations might continue to perform well in the current situation.
These two Canadian names could continue to be top performers.
The natural gas prices have nearly doubled in the past year. Birchcliff Energy (TSX:BIR) stock. Despite this steep rise in stock prices, BIR stock trades at six times its earnings. This is a huge discount when compared to the historical average and its peers.
Birchcliff enjoyed a strong earnings recovery and free flow growth following the pandemic. Birchcliff Energy posted a net income in Q1 2022 of $127million, a 450% increase over the previous year. The company also aggressively repaid its outstanding debt and paid dividends to shareholders this year.
Birchcliff will announce its second quarter earnings on August 17. Most likely, the company will report record earnings growth due to record gas prices. We will be watching closely to see if it increases dividends.
Thanks to the rallying oil prices, energy producers have made huge gains in recent quarters. They will likely stay higher because of rising demand and tight supply, largely due to tensions in Europe.
BIR, one of the natural gas producer stocks, could change its course despite recent weakness. Birchcliff’s strong dividend and earnings growth prospects, coupled with rallying gas prices, place it on a solid footing.
Canada’s leading crop nutrient company Nutrien The current stock price of (TSX.NTR:NYSE:NTR), is attractive, especially after the recent correction. The stock is currently trading at $102. It has lost 40% since April. Recent NTR stock losses were due to lower fertilizer prices and fears of recession.
However, the growing demand-supply imbalance in Europe and ongoing tensions could lead to fertilizer prices rising. Nutrien could be one of few players that can meet the increased global potash demand. It has the capacity to increase production by a significant amount.
This will be a boon for Nutrien’s earnings in the coming quarters. Nutrien has seen a significant increase in its earnings in recent quarters. However, Nutrien’s strong earnings growth prospects have not yet priced in its stock price. NTR currently trades at 10 times earnings and seems discounted. Based on its excellent quarterly performance and potential rally in fertilizer price, the stock could move in a different direction.
Even though NTR stock looks undervalued and offers appealing strong growth prospects, it could be a risky bet for conservative investors given the business’s cyclicality.