2 Top TSX Stocks With Strong Balance Sheets and Tempting Valuations

Two TSX stocks with solid fundamentals.

| More on:

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When investing for a longer term, fundamentals matter more than anything else. Returns are mainly driven by the earnings quality, balance sheet strength, and stock’s valuation. While news or events drive stocks in the short term, fundamentals prevail in the long term. So, here are two such TSX stocks with solid fundamentals.  

Canadian Natural Resources

Canada’s biggest crude oil producer Canadian Natural Resources (TSX:CNQ) is one compelling name in the TSX energy space. Its long-life, low-decline prolific reserves facilitate stellar cash flow growth in the current historically high-price environment. Its diversified product mix of heavy and light oil, along with natural gas, plays well for its top-line growth.

Created with Highcharts 11.4.3Canadian Natural Resources PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

CNQ has repaid billions of dollars in debt since the pandemic. Its leverage ratio has improved from close to 4x in 2020 to 0.5x at the end of Q4 2022. Manageable debt and a solid liquidity position speak for its balance sheet strength. The company will likely see higher profitability this year due to lower interest expenses.

Many companies suspended dividends during the pandemic crash as cash retention became vital. However, CNQ was among the very few that kept its dividends growing. CNQ has increased shareholder payouts for the last 23 consecutive years thanks to its superior balance sheet and earnings growth visibility. The stock currently yields 4.6%, higher than the broader market average.

CNQ stock has returned 5% in the last 12 months and 350% in the last three years. It is currently trading seven times its 2023 free cash flows and 10 times its earnings. That’s a tad rich valuation compared to peers.

However, given its superior balance sheet, earnings growth prospects, and dominating market position, CNQ warrants a premium valuation. Despite its stretched multiple, it will likely continue to trade strong and outperform peers. So, a top energy company with a low-debt burden with a hoard of cash for shareholder returns is a worthy investment opportunity.

North West Company

Selling groceries in remote villages of Northern Canada and Alaska seems like a boring business. And that’s what the North West Company (TSX:NWC) has been doing for decades. However, this boring business has created decent shareholder wealth for years.

NWC stock has returned 15% since last year, notably standing tall in bear markets. In the last five years, it has returned 12% compounded annually, including dividends. It currently offers a dividend yield of 4%.

North West Company has seen its earnings grow by 14% compounded annually in the same period. Margin stability and stable free cash flow growth drove shareholder value all these years. The company currently has $400 million in debt, about 37% of its total capital. Its leverage ratio comes to around 1.3x, much lower than the industry average.  

NWC stock is currently trading 15x earnings and looks discounted. Retailers in Canada trade at a higher multiple, indicating NWC’s relatively discounted valuation. However, a defensive nature and mediocre growth prospects justify the stock’s subdued valuation.

Should you invest $1,000 in Canadian Natural Resources right now?

Before you buy stock in Canadian Natural Resources, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Canadian Natural Resources wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

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.

The Motley Fool recommends Canadian Natural Resources and North West. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

exchange traded funds
Dividend Stocks

Looking for Market Defence? Canadian Dividend ETFs Are a One-Stop Solution

These two BMO ETFs feature above-average dividends and a defensive portfolio

Read more »

Hourglass and stock price chart
Dividend Stocks

Stock Market Correction? These 2 Canadian Dividend Stocks Are a Steal

Dividend stocks can be a saviour, but can also lead to large portfolio gains when bought during stock market corrections.

Read more »

A bull and bear face off.
Dividend Stocks

U.S. Tech Stocks Are in Correction Territory… History Says This Happens Next

Canadian stocks like Alimentation Couche-Tard Inc (TSX:ATD) are currently better positioned than U.S. tech.

Read more »

Man in fedora smiles into camera
Dividend Stocks

Retirees: Is Fortis Stock a Risky Buy?

Fortis (TSX:FTS) is often regarded as a great long-term holding for income-seeking investors. But is this stock now a risky…

Read more »

a person watches a downward arrow crash through the floor
Dividend Stocks

Buy the Dip: 3 TSX Stocks Trading at Bargain Prices Today

These three TSX stocks might be near 52-week lows, but don't let that stop you from making a long-term investment.

Read more »

Caution, careful
Dividend Stocks

Sell-Off Alert: Why These TSX Blue-Chip Stocks Look Undervalued Now

These TSX stocks look mighty valuable right now, and come with outlooks that make each prime for the picking.

Read more »

dividends can compound over time
Dividend Stocks

Want a 6% Yield? 3 TSX Stocks to Buy Today

These TSX stocks offer yield of over 6% and are well-positioned to sustain their payouts and maintain consistent dividend payments.

Read more »

clock time
Dividend Stocks

10 Years From Now, You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks 

A decade from now, these 2 dividend stocks could give you strong returns through dividends or capital appreciation, or both.

Read more »