Despite the TSX Composite Index and other major stock indices bouncing back in a big way of late, bargain hunting investors don’t have to fret. There are still many ridiculously cheap value stocks that haven’t recovered.
This is great news for the scores of investors who are lamenting the fact they’ve missed the bottom. They see the index bounce back and think every stock has gone up. Many have, but in reality, a few especially strong stocks are driving markets higher.
These names are usually in the technology sector, but there have been other sources of strength like grocers and packaged food manufacturers. Gold has also been a good performer here in Canada.
Let’s take a closer look at three value stocks that haven’t really participated in the rally, dirt-cheap securities that represent excellent value today.
COVID-19 has hit seniors living facilities especially hard, as older Canadians are much more vulnerable to the virus. In this new reality, it’s little wonder why many of Canada’s senior living stocks are down significantly.
Extendicare (TSX:EXE) shares, for instance, are down nearly 25% over the last three months. While the stock has rallied somewhat over the last couple weeks, the company still represents a compelling opportunity for value investors.
Remember, earnings from Canada’s largest owner and operator of long-term care facilities should be pretty steady. Demand for these facilities will remain strong.
Extendicare is also in the home health care business and owns seniors apartments, with the latter composing just a small part of the overall business. In other words, this company should bounce back relatively soon.
In 2019, a weaker year for the company, Extendicare earned $0.59 per share in adjusted funds from operations (AFFO). Shares currently trade at around $6.50 each, putting the company at just 11 times trailing AFFO, a very reasonable valuation. And investors are currently paid a $0.04 per share monthly dividend, which is good enough for a 7.1% yield.
H&R REIT (TSX:HR.UN) was another stock that was experiencing a little weakness before COVID-19 hit the economy. Now investors are especially concerned that H&R’s tenants won’t be able to pay their rent.
The company owns an impressive array of real estate in both Canada and the United States. Assets include 41 million square feet of office, retail, industrial, and residential space, buildings that collectively are worth nearly $15 billion.
Despite exposure to the Calgary office market — a place investors are feeling especially bearish about today — H&R has reported strong rent collection so far in April, telling investors that it has collected 83% of rents due April — certainly more than I expected.
The company has also raised more than $500 million in new debt financing, cash it sticks in the bank for the time being before spending it on acquisitions.
Many investors think H&R’s 14% dividend yield is unsustainable, but if we can recover quickly, the company can maintain the payout. Even if it does get cut, investors who get in today should be able to lock in an excellent long-term income source.
The company is one of North America’s largest transportation and logistics companies, moving product for everyone from small manufacturers to e-commerce giants. TFI has several different divisions specializing in small loads and large loads too, with operations across North America. It even owns assets in Mexico.
Shares are also dirt-cheap right now, thanks to investor worries about the state of the overall economy. The stock currently trades hands at $37.78. In 2019, the company earned $3.94 per share in net earnings, putting shares at less than 10 times trailing earnings.
The company has also grown the bottom line by more than 15% annually over the last 20 years, which makes the trailing valuation even more impressive.
The bottom line
If you’re looking for dirt-cheap value stocks, check out Extendicare, H&R REIT, and TFI International. All three of these high-quality companies are currently on sale.
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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 Nelson Smith owns shares of EXTENDICARE INC and H&R REAL ESTATE INV TRUST.