As long-term investors, we are always on the lookout for stocks that are undervalued and can provide consistent growth for our portfolios, and the ongoing weakness in the market has created a plethora of opportunities. I scoured the market and selected three very attractive options from different industries, so let’s take a closer look to see if one of them would fit your portfolio’s needs.
1. Dollarama Inc.
Dollarama Inc. (TSX:DOL) is the largest owner and operator of dollar stores in Canada with over 1,000 stores across all 10 provinces.
At today’s levels, its stock trades at just 24.9 times fiscal 2016’s estimated earnings per share of $2.92 and only 22.4 times fiscal 2017’s estimated earnings per share of $3.24, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 41.9.
With its five-year average multiple, its estimated 18.5% long-term earnings growth rate, and the increased volatility in the market in mind, I think Dollarama’s stock could consistently command a fair multiple of at least 30, which would place its shares upwards of $97 by the conclusion of fiscal 2017, representing upside of over 33% from current levels.
In addition, the company pays a quarterly dividend of $0.09 per share, or $0.36 per share annually, which gives its stock a 0.5% yield.
2. Manitoba Telecom Services Inc.
Manitoba Telecom Services Inc. (TSX:MBT) is one of the leading providers of information and communication technology services in Canada.
At today’s levels, its stock trades at just 27.1 times fiscal 2015’s estimated earnings per share of $1.10 and only 21.6 times fiscal 2016’s estimated earnings per share of $1.38, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 72.5.
With its five-year average multiple, its estimated 25.5% earnings growth rate in fiscal 2016, and the increased volatility in the market in mind, I think Manitoba’s stock could consistently trade at a fair multiple of at least 26.5, which would place its shares upwards of $36 by the conclusion of fiscal 2016, representing upside of over 20% from current levels.
Also, the company pays a quarterly dividend $0.325 per share, or $1.30 per share annually, which gives its stock a bountiful 4.4% yield.
3. Progressive Waste Solutions Ltd.
Progressive Waste Solutions Ltd. (TSX:BIN)(NYSE:BIN) is one of the leading providers of non-hazardous solid waste collection, recycling, and disposal services to commercial, industrial, municipal, and residential customers in the United States and Canada.
At today’s levels, its stock trades at just 19.8 times fiscal 2015’s estimated earnings per share of US$1.20 and only 18.8 times fiscal 2016’s estimated earnings per share of US$1.26, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 26.5.
With its five-year average multiple, its estimated 2.4% long-term earnings growth rate, and the increased volatility in the market in mind, I think Progressive’s stock could consistently trade at a fair multiple of at least 25, which would place its shares upwards of $31 by the conclusion of fiscal 2016, representing upside of over 30% from today’s levels.
Investors must also make two notes.
First, the company pays a quarterly dividend of $0.17 per share, or $0.68 per share annually, which gives its stock a 2% yield.
Second, on January 4 Progressive announced that its board of directors “commenced a review of strategic alternatives with the objective of enhancing shareholder value,” which is a fancy way of saying that they are exploring a sale of the company.
Which of these value plays belong in your portfolio?
Dollarama, Manitoba Telecom Services, and Progressive Waste Solutions are three of the top value plays in their respective industries, and all have the added benefit of dividends. Foolish investors should strongly consider initiating positions in at least one of them today.
