As we are but a few weeks away from the holidays, it’s time for investors to do some shopping. As is typical this time of year, investors are scouring the isles looking for great deals.
With this in mind, here are three cheap stocks to consider adding to your Tax-Free Savings Account (TFSA). All three are cheap, and can yield considerable capital returns in 2020.
The best part? By holding them in your TFSA, you can grow these investments tax free and aren’t subject to the 50% capital gains tax.
Canadian Tire
Canada’s most respectable retailer has had a difficult year. Year to date, Canadian Tire Corporation (TSX: CTC.A) has only eked out a 3.65% gain.
The good news is that it has bounced off lows and is now trading near 52-week highs. Canadian Tire’s misfortunes began in May when it missed big on earnings expectations (-18.7%). There were concerns that the company was experiencing slower than expected growth.
It’s important to keep things into perspective, however. It was the only miss this year, and the company has enjoyed strong same-store sales in 2019. The future also looks bright, and analysts expect high, single-digit earnings growth over the next five years.
Likewise, 12 of the 13 analysts covering the company rate it a “buy” and have a one-year price target of $173.78 per share. This implies 14% upside from today’s price of $152.50 per share.
The company is trading at a cheap 10.65 times forward earnings, well below the company’s historical average of 14 times earnings.
Similarly, it’s trading below industry and historical averages on a price-to-sales, price-to-book and trailing 12-month price-to-earnings. No matter which way you slice it, 2020 is setting up to be a year in which Canadian Tire outperforms.
Canada Goose
I know what you’re thinking: How can a stock that’s trading at 39 times earnings be considered cheap? No other Canadian retail company is growing at a faster pace.
Expectations are for sales and earnings to growth by an average 20%+ annually over the next five years. Given this, Canada Goose Holdings (TSX: GOOS)(NYSE: GOOS) is trading at a cheap 24 times forward earnings and has a P/E to growth (PEG) ratio of only 1.24.
Typically, high-growth stocks trade at a PEG of 1.5 or above, indicating that the company’s share price isn’t keeping up with expected growth rates.
Analysts are also on board. They have a one-year price targe of $58.57, which implies 16% upside. It’s important to note that estimates have been revised downward because of the Hong Kong unrest.
This is a temporary macro setback and it is but one store that is currently impacted — a high-profile one, but still only one store.
Management has said that unrest will not impact its ability to reach 20% revenue growth and has maintained its guidance.
As one of the most heavily shorted stocks on the TSX, Canada Goose is also a prime candidate for a short-squeeze.
Considering the company is trading at a 45% discount to its 52-week high, there is the potential for a big move upwards once one-time headwinds subside.
Lundin Mining
Breaking away from retail, Lundin Mining (TSX: LUN) is one of the most attractively valued mining companies. It is engaged in the production of copper, gold, nickel and zinc .
The sector has a whole has enjoyed strong gains in 2019, yet Lundin Mining has slightly underperformed with gains of only 13%. This is why it is one of the best valued stocks in the sector.
Lundin is trading at a cheap 14.62 times forward earnings with an ultra low PEG ratio of 0.44. The company is guiding to strong production growth and total cash costs are on the decline.
Lundin is expected to growth earnings by 22% on average over the next five years. As such, the market isn’t properly recognizing this potential. The company is well covered, with 23 analysts’ recommendations, 21 of which are “buys.”
Copper and zinc prices are expected to remain stable in 2020, which is a good thing for Lundin shareholders as they can expect more reliable earnings.
Although not yet declared, the company announced it intends to boost the dividend by 33% in February, which will be a positive catalyst for the stock.
