When it comes to the stocks of quality businesses, it can be tough to spot value at times. We may claim that the markets are overvalued and that the lack of clear opportunities is a sign that we’re way overdue for a correction or a crash.
Under frothy market conditions, there may be some element of truth to this way of thinking, but more often than not, there are real opportunities that exist; they’re just hiding in the TSX, where the average investor may not be looking. Moreover, “overcovered” blue-chip names you hear about constantly may not have much to offer in the way of long-term value, as a vast majority of investors may be buying the name — not just on weakness, but whenever they find they’ve got excess capital that needs to be put to work.
As Mad Money host Jim Cramer always says before every show, “There’s always a bull market somewhere.” So, the question isn’t whether or not there are opportunities out there; it’s whether or not investors are able and willing to go on the hunt for these opportunities, which may be hiding in plain sight!
Without further ado, here are two overlooked and undercovered stocks that deserve your attention, as their underlying businesses are firing on all cylinders and will likely offer a substantial amount of alpha over the next five years and beyond.
Above-average growth and recession resilience are what you’re getting with this rock-solid company. As the largest (and only) death industry play available on the TSX, the name should have a hefty scarcity premium attached to it, but that hasn’t really been the case with shares trading at a modest 23.7 times forward earnings.
Over the past five years, the stock has more than tripled, and when you consider the M&A opportunity that’s on the horizon, there’s no question that the stock could easily continue on its current trajectory for many years to come.
Park Lawn is indeed a growth-by-acquisition story that could end up playing out very well as it moves to consolidate the fragmented death industry. The most remarkable part of Park Lawn is the fact that it’s been growing while keeping its debt levels on the floor. The company is underleveraged and may not be growing to its full potential. Management could undoubtedly raise debt to fuel a greater ROE for investors as opportunities come along, and if this ends up playing out, Park Lawn could certainly go parabolic.
Further, given the recession-proof nature of the death industry, investors should expect stability in cash flows come the next economic downturn. Deaths are going to continue to happen, regardless of the state of the economy. One could argue that business for Park Lawn would stand to increase as times get tough, as morbid and depressing as that sounds.
TFI International (TSX:TFII)
TFI is another boring, low-tech firm that’s profoundly profitable. The stock has more than doubled over the last three years, and as I’m sure you’ve heard, we’re experiencing a shortage in trucking services. As Canada’s largest LTL (less than truckload) transport and logistics firm, TFI has the opportunity to meet the sky-high demands that’ll probably continue to surge as the economy strengthens.
As I’ve mentioned in a prior piece, TFI had been plagued with operational inefficiencies in the recent past, but these issues have since been fixed, and then some. TFI’s operating margin has now bounced back, just in time for the coming boom in demand for its services.
Investors interested in profiting from a further strengthening of the North American economy will do very well with TFI at the core of their portfolios, as it’ll likely keep on truckin’, generously rewarding shareholders with dividend hikes and capital gains along the way.
Foolish takeaway
Both Park Lawn and TFI are wonderful businesses that have been overlooked by the general public. You probably won’t hear about either of these names on mainstream financial television shows as few investors may have heard of either name.
I’d buy both stocks here and now, as both businesses have the wind at their tail and valuations that look very modest.
Stay hungry. Stay Foolish.
