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Although the markets are trading near record highs, some TSX stocks are still trading well below their fair value. Here are three Canadian stocks that could outperform next year.
Canada’s largest oil sands producer Suncor Energy (TSX: SU) (NYSE: SU) significantly underperformed its peers in 2021. Despite rising dividends and a massive recovery in earnings, SU stock returned 50% in 2021, compared to an average of 85% of his peers.
However, 2022 could turn the tide, as valuation plays a crucial role. In addition, the higher contribution of Suncor’s downstream operations during reopenings is expected to result in higher profits. Rising oil and gas prices could also significantly increase its free cash flow growth through 2022.
SU stock currently returns 5.6%, higher than its peers. The superior growth in free cash flow in 2021 has enabled the company to double payments to shareholders and to repay a significant portion of long-term debt. Whether that will allow another generous dividend increase in 2022 remains to be seen.
If oil and gas prices stay higher next year, energy giants like Suncor could see their profits rise and create more shareholder value.
Financial Intact (TSX: IFC) is the leading property and casualty insurance company in Canada, with a 21% market share. Although it lags the markets and only returned 10% in 2021, the stock Intact has notably outperformed in the longer term.
Intact has achieved superior financial growth, beating its peers over the past decade. Its revenues have increased by 12% CAGR and profits have increased by a nice 14% CAGR over the past 10 years. Its five-year average return on equity is 11.3%.
With an already dominant market share in Canada, Intact Financial now has an extensive presence in the United Kingdom and Ireland through the acquisition of RSA. Its in-house claims expertise and scale have led to its above average financial growth for all these years. Of the $ 20 billion in annual premiums generated by Intact, 66% comes from Canada, 25% from the UK and Ireland, and the rest from the US.
Intact has increased its dividends every year since 2004 and is currently earning 2.3%. If you are looking for stable, low-risk returns over a long period of time, Intact might be a good choice.
Revenge shopping and travel could lead to increased discretionary spending by consumers in full reopenings next year. And one of the beneficiaries of this trend could be the recreational vehicle manufacturer. BRP (TSX: DOO) (NASDAQ: DOOO).
Can-Am and Sea-Doo maker BRP has already seen encouraging growth in demand as travel restrictions eased somewhat in recent quarters. In addition, its recent Sea-Doo Switch launch has already generated a lot of interest among customers. The company expects Switch can be a game-changer in the fast-growing pontoon segment.
BRP management expects normalized earnings growth of 67% to 81% for fiscal 2022 compared to 2021. The stock is currently trading 11 times its earnings and appears undervalued from the historical average. Also, such steep growth at the discounted valuation looks like a good deal.
BRP operates in a niche power sports vehicle market in more than 130 countries. It has returned 350% over the past five years, notably beating the markets at large.