2 TSX Stocks to Rally on High Inflation Through 2021

Seize the opportunity by taking a position in these two TSX stocks that look poised for more upside in the second half of 2021.

| More on:

High inflation has made basic materials like lumber, gold, and silver more costly. Here are two TSX stocks that could rally higher with this inflationary scenario through 2021.

Stella-Jones

Stella-Jones (TSX:SJ) is a leading producer and marketer of pressure-treated wood products. It supplies electrical utilities and telecom companies with utility poles and railroad operators with railway ties and timbers in North America.

The company also manufactures and distributes residential lumber and accessories to retailers for outdoor applications as well as industrial products for construction and marine applications.

The lumber and wood production company reported strong first-quarter results on May 3 with year-over-year (YOY) sales growth of 23% to $623 million, EBITDA growth of 57% to $99 million, and net income and earnings per share doubling, respectively, to $56 million and $0.85. Notably, its EBITDA margin expanded from 12.4% to 15.9% versus Q1 2020.

Its inventories increased 8% to $1.17 billion at the end of Q1 2021 versus Q1 2020. Management explained the increase as “the seasonal build-up … ahead of peak demand in the second and third quarters as well as the higher cost of residential lumber inventory given the rise in the market price of lumber…”

This suggests that the stock could continue to deliver good results over the next six months or so, especially after the recent pullback. Specifically, the growth stock declined about 14% from its recent high of $54.

The 50-day simple moving average, which is at about $45.28 at writing, should act as the first line of support. However, a bounce from the lower 200-day simple moving average at about $42.21 per share would be even stronger. So, the $42-46 level could be a good range to accumulate shares.

In any case, analysts think the stock can appreciate close to 30% from current levels. Moreover, Stella-Jones is a Canadian Dividend Aristocrat with 16 consecutive years of dividend increases. Its three-, five-, and 10-year dividend-growth rates are 10.9%, 13.4%, and 20.2%, respectively.

When it reported its impressive Q1 results last month, it increased its dividend by 20%, which signified the start of a strong year. Its 2021 payout ratio is estimated to be about 18%.

Wheaton Precious Metals

Gold and silver are a store of value and hedge against inflation. Wheaton Precious Metals (TSX:WPM)(NYSE:WPM) is a better investment than gold and silver. It is a precious metals streaming company with a high-quality portfolio of long-life, low-cost assets. Approximately 90% of its production comes from mines operating in the lowest half of their cost curve.

Its business model offers investors commodity price leverage and exploration upside but with lower risk than traditional mining companies. The cost per ounce is predetermined contractually and paid upon delivery. Therefore, the streamer has predictable costs and is protected from inflationary cost pressures.

Wheaton Precious Metals delivers amongst the highest cash operating margins in the mining industry, allowing it to pay a dividend while growing through accretive acquisitions. Consequently, the precious metals stock has consistently outperformed gold and silver as well as other mining investments.

As gold and silver prices have gone up since 2019, WPM was able to increase its dividend by 29% YOY on a trailing 12-month basis. Currently, it yields almost 1.2%. Moreover, analysts think an upside of about 26% is possible over the next 12 months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of Wheaton Precious Metals.

More on Dividend Stocks

Paper Canadian currency of various denominations
Dividend Stocks

Should You Buy the 3 Highest-Paying Dividend Stocks in Canada?

A few dividend stocks saw a sharp correction in November, increasing their yields. Are they a buy for high dividends?

Read more »

money while you sleep
Dividend Stocks

Buy These 2 High-Yield Dividend Stocks Today and Sleep Soundly for a Decade

These stocks pay attractive dividends that should continue to grow.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

$15,000 Windfall? This Dividend Stock Is the Perfect Buy for Monthly Passive Income

If you get a windfall, after debt investing should be your next top option to create even more passive income!

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

3 Canadian Dividend Stocks for Worry-Free Income

These Canadian stocks have consistently paid dividends, generating a worry-free passive income for investors.

Read more »

people relax on mountain ledge
Dividend Stocks

Invest $10,000 in This Dividend Stock for a Potential $4,781.70 in Total Returns

A dividend stock doesn't have to be risky, or without growth. And in the case of this one, the growth…

Read more »

ETF chart stocks
Dividend Stocks

2 Top TSX ETFs to Buy and Hold in a TFSA Forever

Don't get crazy. Just think simple growth with these two ETFs that are perfect in any TFSA.

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Use Your TFSA to Earn $900 Per Month in Tax-Free Income

This covered call ETF plus a TFSA could be your ticket to high tax-free passive income.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Turn a $15,000 TFSA Into $171,000

$15,000 may not seem like a lot, but over time that amount can balloon into serious cash.

Read more »