Value stocks are a great way to get rich and stay rich. From Warren Buffett to Seth Klarman, value investors have shown that their strategies can produce market-beating results for decades at a time.
In a bull market, value stocks can be hard to find. Over the past few years, many classic value stocks have actually become quite expensive.
If you want to find high-upside value stocks with low-risk profiles, you need to dig deep. We did the digging for you and found three value stocks with exciting futures.
Trust the story
On the surface, Boardwalk REIT (TSX: BEI.UN) doesn’t seem that impressive. Over the last five years, shares have lost 25% of their value. The dividend is just 2.5%, significantly less than most of its peers. The stock’s recent underperformance has forced the market to apply a dirt cheap valuation to the company. That’s a mistake.
Boardwalk converted to its current REIT structure in 2004. Over the next 15 years, shareholders experienced annual returns of more than 10%, handily beating the market with less volatility. Sure, shares have underperformed in recent years, but over the long-term, this company has a proven track record of producing double-digit returns.
Over the last 15 years, it was possible to generate annual returns of 15% or more with Boardwalk stock. The trick is simple: use a buy-and-hold strategy, purchasing more shares during times of weakness. Now trading at a significant discount to its net asset value of $62 per share, this is the exact time to double-down on this high quality stock.
Grab this discount
Africa Oil Corp (TSX:AOI) isn’t a company many investors have heard of, but you likely know some of its partners: Exxon Mobil, Chevron, and CNOOC.
Rather than operating its own projects, Africa Oil has taken the “portfolio approach” — owning minority interests in several opportunities across multiple geographies. For example, the company has a 35% interest in Africa Energy, a 25% interest in Impact Oil & Gas, and a 19% interest in Eco-Atlantic Oil & Gas.
The main investors for most of its projects are multi-billion dollar oil giants such as the ones listed above. As the largest investors in each project, these giants are also in charge of operations. That’s a huge advantage given these companies are well-known as some of the most efficient capital allocators in the business.
The current value of Africa Oil’s assets, some of which are publicly traded, is currently $190 million. The company also has $485 million in net cash, resulting in a net asset value of $675 million. The current market cap is just $575 million, representing a quick 17% in upside. The discount may not last for long, however.
Take a chance
Sometimes great value investments require a bit of risk. The potential payoff could make that extra risk an easy bet. That’s the case with SNC-Lavalin Group Inc (TSX:SNC).
This stock is either worth significantly more or significantly less than the current trading price. From 1995 to 2018, shares increased in price by more than 2,000%. This company knows how to grow and deliver value to shareholders. But since the start of 2019, shares have fallen by 60%.
What happened?
Earlier this year, the company took a big one-time loss on a major project. It was also caught up in a political scandal. Most likely, conditions will return to business as usual. On a normalized basis, shares look to have 50-100% upside.
There’s uncertainty to the political situation, but more likely than not, a settlement will be reached, imposing a limited one-time cost.
For patient investors willing to wait out the controversy, SNC-Lavalin is the ideal turnaround pick.
