3 Value Stocks to Buy This Summer

Want to add under-priced stocks to your portfolio? Now is the time to purchase value stocks like Manulife Financial (TSX:MFC)(NYSE:MFC) and Chemtrade Logistics Income Fund (TSX:CHE.UN).

| More on:
Value for money

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

It’s always a good time to buy value stocks. That’s because buying a company for less than it’s worth is typically a winning bet.

As stock markets surge, however, it can be difficult to find truly under-priced stocks. We’ve done the work for you by uncovering three promising investments that look cheap with plenty of upside.

Start big

At $46 billion, Manulife Financial (TSX:MFC)(NYSE:MFC) is solidly in large-cap territory, but that doesn’t prevent it from becoming a bargain now and then.

Over the past 12 months, shares have lagged the S&P/TSX Composite Index by around 7%. That’s bumped the dividend up to 4.2% while pushing the valuation down to just 9 times trailing earnings.

Today, the stock is cheaper than many of its large financial peers while also sporting a higher dividend. Royal Bank of Canada, for example, trades at 12 times trailing earnings with a 3.9% dividend.

Looking ahead, expectations are incredibly low. Despite averaging 11% in annual sale growth over the last five years, analysts expect flat growth over the next few years.

You won’t get rich overnight with Manulife, but buying cheap, reliable stocks with low expectations like this one often proves a market-beating strategy.

Go small

Chemtrade Logistics Income Fund (TSX:CHE.UN) isn’t a stock many investors know, which is likely the reason shares are so cheap.

The stock trades at the same price it did back in 2001, but the annual 10% dividend has led to reliable results that consistently outperform the market.

Since the start of 2018, shares have been cut in half, pushing the dividend yield up to 13.3%. While the payout may seem aggressive, keep in mind that Chemtrade has paid the same $0.10 per share monthly dividend for more than a decade. It’s never reduced or eliminated the payout.

While the market has overreacted due to a surprise loss, the underlying businesses are still generating plenty of cash to support the dividend. This year, management expects to produce $335 million to $375 million in EBITDA. The dividend only costs the company around $110 million per year.

The share price reached current levels in 2006, 2007, and 2009. In every scenario, buying shares would have resulted in 10% annual gains for more than a decade. This latest opportunity looks no different.

Boom or bust

Value stocks are often characterized as low-risk, especially compared to hyper-growth companies, but there are still plenty of ways to find opportunities with massive upside. Maxar Technologies Inc (TSX:MAXR)(NYSE:MAXR) is a perfect example.

In 2017, Maxar was worth more than $3 billion. Today, it’s valued at just $360 million. What happened?

The company states that it specializes in manufacturing “communication,earth observation, radar, and on-orbit servicing satellites.” In a nutshell, it makes high-tech space stuff.

Judging by the rise of SpaceX and Blue Origin, not to mention renewed interest in NASA, this is a great business to be in.

The problem hasn’t been the company’s ability to garner new contracts, but rather its accounting practices. Several notable investors recently charged the company with cooking the books in order to mask weak fundamentals.

The story is still playing out and the market remains in wait-and-see mode. One thing is certain, though: Maxar stock is either worth significantly more or significantly less than its current market price.

This is a non-traditional value stock with plenty of downside, but if accounting concerns subside, shares should have multi-bagger potential.

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 Ryan Vanzo has no position in any stocks mentioned. Maxar Technologies is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Canadian stocks are rising
Dividend Stocks

3 Ways to Invest in Canadian Real Estate Under $20

Real estate can be a great way to make passive income, but you certainly don't have to invest a lot…

Read more »

grow dividends
Dividend Stocks

TFSA Wealth: 2 Oversold Canadian Stocks for a Retirement Fund

These top TSX divided stocks look attractive today for TFSA investors.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Create $1,487 in Passive Income From a Top TSX Dividend and Growth Stock

This top growth stock on the TSX today could bring in almost $1,500 in passive income and triple your investment…

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Dividend Stocks

Renters Will Rise in Number vs. Homebuyers in 2022

The greater majority of Canadian renters doubts their ability to purchase a home in 2022 due to surging inflation and…

Read more »

Man holding magnifying glass over a document
Dividend Stocks

West Fraser Stock: A Sneaky Growth Stock No One Talks About

West Fraser (TSX:WFG)(NYSE:WFG) stock has been a sneaky growth stock when it comes to its dividend.

Read more »

Dividend Stocks

Inflation Investing: 2 Top TSX Dividend Stocks to Buy Now

TFSA income investors can get dividend yields of better than 6% to help offset the impacts of high inflation.

Read more »

Canadian Dollars
Dividend Stocks

Got $1,000? Invest it in Real Estate

If you've got an extra $1,000, you should check out cheap REITs like Allied Properties (TSX:AP.UN) for juicy income.

Read more »

Community homes
Dividend Stocks

Real Estate: 2 Top Dividend Aristocrats to Own Today

The recent correction in the real estate sector has made several real estate stocks like these two attractive to income-seeking…

Read more »