Companies that are priced at low multiples and are expected to grow earnings at a high rate can provide exceptional returns. There are two companies that fit this description: Linamar Corporation (TSX:LNR) and Concordia Healthcare Corp. (TSX:CXR)(NASDAQ:CXRX).

The businesses

Linamar is a top global automotive supplier with operations in North America, Europe, and Asia, and it plans to expand into China, Brazil, and India for further growth.

Concordia has a presence in more than 100 countries. This year it anticipates to generate about 40% of revenue from the United States and 60% from other countries. It has a diversified portfolio of products, and none are expected to account for more than 10% of revenue. Most importantly, in the next three years it plans to launch up to 60 products, which should drive growth.

Cheap valuations compared to growth potential

Linamar is 33% below its 52-week high of $89 and now has a multiple under nine. However, it’s expected to grow its earnings per share (EPS) by 16% this year. From 2012 to 2015, it increased its EPS by 33-49% per year, so the 16% is not far-fetched.

From 2010 to present, its normal multiple has been 12.4. If it traded at a multiple of 11 in the future, it would be worth more than $80, an upside potential of 35%. If it traded at a multiple of 12, it would be worth more than $90, an upside potential of 59%.

Concordia is 65% below its 52-week high of $117 and is priced at about 6.2 times its earnings. However, it’s expected to grow its EPS by at least 12% in each of the next two years. If it traded at a multiple of 10 based on its 2015 earnings, it would be worth more than $60, implying an upside potential of about 50%. What if it traded at a multiple of 11? It’d be worth about $67, implying about 67% upside potential.

Why are they so cheap?

Actually, both companies have already experienced some bounce from recent lows. Linamar is about 18% higher from its recent low of $50, and Concordia is about 15% higher from its recent low of $34. However, they’re still cheap fundamentally.

Linamar’s peer, Magna International Inc., has also pulled back and recently experienced a bounce after it reported earnings and increased its dividend at the end of February. So, both Linamar and Magna may be cheap due to the cyclical nature of their auto parts businesses. Linamar will be announcing its fourth-quarter results on March 8.

Similarly, Concordia is a biotechnology company that has declined with the biotechnology industry. For instance, the iShares NASDAQ Biotechnology Index has fallen more than 36% from its 52-week high of US$400.

Conclusion

Value investing requires a lot of patience. It could take years for the market to realize the true value of these businesses. However, over time I believe undervalued businesses such as Linamar and Concordia should provide exceptional returns if the businesses continue to do well.

Concordia’s S&P credit rating is B (so it’s not investment grade) and its debt-to-cap ratio is 53%. Still, a small position may be warranted if you find the cheap valuation and its growth profile attractive.

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Fool contributor Kay Ng owns shares of LINAMAR CORP. Magna International is a recommendation of Stock Advisor Canada.