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Investors view the financial sector as S&P/TSX Composite Index a heavyweight because it is home to the major Canadian banks. However, outside of energy, the basic materials sector is outperforming lenders, insurers and asset managers by a mile so far in 2022.
Commodity stocks, especially oil and metal stocks, have become safe-haven assets amid stalled global economic growth and rising interest rates. Some of the top picks right now include Vermilion Energy (TSX: VET)(NYSE: VET) and Turquoise Hill Resources (TSX:TRQ)(NYSE:TRQ). Their stock price has risen enormously in one year and could explode again this year.
Vermilion Energy sank into the abyss at the height of the global pandemic. From $20 at the end of 2019, the stock price fell 88% to $2.39 on March 18, 2020. In addition to losing 72% for the year, the oil and gas producer $4.7 billion gas had to cut its dividends twice during the month before stopping payments altogether. in mid-April 2020.
Management cited changing trading conditions and ultra-low commodity prices for the drastic action. However, in 2021, the trend has reversed with the reopening of borders and the lifting of travel restrictions. Oil prices began to rise when demand exceeded supply.
Vermilion made an incredible comeback last year and rewarded investors with an overall return of 180%. Net income in 2021 reached $1.1 billion, compared to a net loss of $1.5 billion in 2020. Total sales (oil and natural gas) increased 86% year over year . The highlight of the year was the 304% increase in free cash flow to $545 million over the prior year.
Strong financial and operating results enabled the company to reduce its debt by $365 million. At the end of 2021, the ratio of net debt to rolling funds flows is less than 50% compared to the beginning of the year. Fast forward to Q2 2022, and Vermilion Energy is still a winning stock.
At $28.22 per share, the year-to-date price return and year-to-date gain are 235.99% and 81.48%, respectively. On March 4, 2022, Vermilion Energy announced the return of quarterly dividends (0.21% per annum) effective April 18, 2022.
According to management, it will assess the return of capital to shareholders this year. It could be a quarterly dividend increase, stock buybacks, a special dividend, or any combination of these. Market analysts covering Vermilion forecast price appreciation between 16% and 88% in 12 months.
Turquoise Hill has risen from obscurity and deserves to be on investors’ buy list in April. Like Vermilion, this mining stock is booming in 2022 with its 80% year-to-date gain. This $7.61 billion international mining company owns a significant mineral resource property in Mongolia. It operates and develops Oyu Tolgoi, a copper-gold mine.
Despite the fallout from the pandemic in 2021, revenue and net income increased by 82.8% and 37.7%, respectively, compared to 2020. Gold (181%) posted the largest year-over-year revenue percentage increase, followed by copper (51.1%). %) and silver (17.8%).
Steve Thibeault, interim CEO of Turquoise Hill, said Oyu Tolgoi is now a high-grade underground mine. Management expects the company to become one of the world’s fastest growing major copper producers.
Greg Taylor, Chief Investment Officer at Purpose Investments, said the outperformance of resource sectors is good news for the TSX. Vermilion Energy and Turquoise Hill are commodity stocks you can buy in an instant.