Forget BCE (TSX:BCE)! These 2 Stocks Are a Far Better Value

BCE Inc. (TSX:BCE)(NYSE:BCE) may seem like a solid stock to own as we head into a recession, but here are two superior bets for value investors.

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Defensive dividend stocks like BCE (TSX:BCE)(NYSE:BCE) and its 6% yield are terrific buys during uncertain times like these, when dividends, in aggregate, grow suspect. After a sharp 25% bounce on the market rally off March lows, however, I think there’s little, if any, value left to be had in the name for those hungry for a bargain amid this critical turning point in the coronavirus crisis.

While BCE’s attractive 6%-yielding dividend is safe, I’m sure you’d agree that a 10% or so discount from pre-pandemic levels leaves a lot to be desired.

BCE stock: A great recession play at a not-so-great price

Moreover, BCE could easily surrender a huge chunk of the gains and fall right back to its March lows should the broader markets crash again, allowing investors a shot at scoring a near-8% yield from a blue-chip like BCE. But until the markets reverse again, I think you’d be best-served by looking elsewhere.

If you’re keen on buying today, have a look at two alternative stocks that offer a better value proposition now that the S&P 500 is in the dead-centre of its crash range, 20% off from the February peak and 20% above the March bottom.

Shaw Communications: A more compelling telecom than BCE

Sticking with the telecom theme, Shaw Communications (TSX:SJR.B)(NYSE:SJR), I believe, offers a far more compelling value that BCE. Shaw stock sports a 5.3%-yielding dividend, which is slightly lower than that of BCE.

In return for the 0.5% or so difference in yield that you’ll surrender by going with Shaw over BCE, you’ll stand to gain far better long-term growth prospects.

Shaw’s a more agile firm that’s playing the role of disruptor in the Canadian telecom scene. Wireless rates are going to fall under government-mandated pressure, and the way I see it, BCE has the most to lose as the largest behemoth in the Canadian telecom scene.

Moreover, Shaw has previously rid itself of stake in the low-return media business and with less depreciating assets to worry about, I believe Shaw is capable of not only greater growth over the years ahead, but also higher ROIC numbers over time.

While Shaw stock has since posted a partial recovery off the coronavirus crash, shares are still off nearly 30% from their 2015 highs. Given the more compelling growth runway, Shaw offers an opportunity to have your cake (a big yield) and eat it too (above-average growth).

Alimentation Couche-Tard: A growth king that’s all about creating value for shareholders

Most would say that Alimentation Couche-Tard (TSX:ATD.B) is in the business of making acquisitions. Given that M&A is no guarantee of value creation, however, a more accurate label for Couche-Tard is that it’s in the business of creating long-term value for shareholders — primarily through acquisitions, but also through organically.

You see, acquisitions tend to come at a premium, and if synergies don’t more than make up for the premium and the effort put in, value won’t be created for shareholders, it could stand to be destroyed.

Many acquisitive firms forget this when they go on the hunt for deals to impress short-term investors. Couche-Tard could care less about how traders view its stock. The company is going to put in all the due diligence to effectively eliminate the chance that value will be destroyed.

If things change and value creation can’t be assured, Couche-Tard is more than willing to walk away, as I noted in a prior piece.

That’s a major reason why Couche-Tard dropped its $5.6 billion bid for Caltex Australia on Monday. The circumstances have changed and the company probably sees a better use for its liquidity in a time where it’s hard to come by.

Sure, Couche-Tard spent big money on due diligence, but who knows? The already ailing Caltex could be in a much more dire state in a few months down the road, and Couche may be able to pay an even lower price than its latest shelved offer.

Couche not only has liquidity to survive the coronavirus onslaught, but also enough to take advantage of opportunities over what’s going to be a difficult next few months for convenience stores.

I applaud Couche’s walking away from Caltex amid these uncertain times, and think its stock is severely undervalued at an absurd 0.5 times sales and 3.2 times book.

Stay hungry. Stay Foolish.

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 Joey Frenette owns shares of ALIMENTATION COUCHE-TARD INC and SHAW COMMUNICATIONS INC., CL.B, NV. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC.

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