Today’s market rally might be the most hated bull market ever.
The TSX Composite has recovered nearly 5,000 points off the bottom, which was set at just over 11,100 during intra-day trading on March 23. That’s a rally of more than 40% in fewer than three months.
U.S. stock markets have also delivered a similar V-shaped recovery as they bounce off their lows. In fact, after the S&P 500 rallied on Friday, it officially was up year to date.
Many investors can’t wrap their heads around the disconnect between the markets and the overall economy. Millions of Canadians are still out of work. Large parts of the economy are still shut down. And second-quarter GDP should be down significantly. The market action doesn’t jive with reality at all.
The solution for jittery investors worried about the sustainability of this market rally could be to load up on stocks that are still quite cheap. This allows them to participate in any potential upside while still protecting their cash against loss. After all, cheaper stocks should weather a decline better.
Let’s take a closer look at three such stocks, companies that haven’t really participated in the market rally.
Like many other REITs, Cominar REIT (TSX:CUF.UN) is still cheap on worries about the health of the economy.
Cominar is Quebec’s largest commercial landlord with a portfolio spanning 328 properties and more than 36 million square feet of gross leasable area. More than 40% of the portfolio is in industrial space, with office space and retail space splitting the difference.
Quebec’s economy is slowly reopening, as COVID-19 cases continue to trend downwards. That’s a good sign for Cominar, which has struggled to collect some rents during the pandemic. Shares are still down approximately 33% over the last three months.
The good news is, Cominar has a solid balance sheet and a low dividend-payout ratio, ensuring the company can easily stay solvent during this crisis. Investors can buy this cheap stock and then sit back, relax, and collect their 8.8% dividend yield while waiting for the company to continue its recovery.
Not surprisingly, Boston Pizza (TSX:BPF.UN) shares were crushed, as COVID-19 forced dine-in restaurants across the country to close. The chain quickly pivoted to a focus on delivery and take-out sales, but consumers largely chose to go to fast-food places instead.
Still, the recovery could very well be swift for Canada’s fast casual dining leader. Canadians are flush with cash after receiving stimulus money without many places to spend it. Many haven’t dined out in months. That pent-up demand should ensure healthy numbers as folks are finally allowed to go and eat again. Remember, Boston Pizza is a behemoth in the space with more than $1.1 billion in sales in 2019.
We must also remember that Boston Pizza shares are quite cheap compared to the chain’s earnings potential. The company earned $1.31 per unit in distributable cash last year. Shares currently trade hands at $8.50 each. Yes, 2020’s numbers will be abysmal. But the company should recover nicely in 2021.
Fiera Capital (TSX:FSZ) has been a growth-by-acquisition machine over the last few years, buying up nearly a dozen different small wealth managers. Despite significantly growing assets under management, earnings lagged as management failed to successfully integrate these acquisitions. Investors weren’t happy and the share price struggled.
Then COVID-19 happened and it threw the entire investment world into chaos. Naturally, that wasn’t good for an investment manager.
But Fiera has recovered nicely with the markets. At $10 each, shares are still cheap compared to the company’s earnings potential. Fiera earned $1.34 per share in adjusted earnings in 2019. That gives us a trailing price-to-earnings ratio of just 7.5 times. And remember, Fiera trades at a low valuation, despite earning excellent margins. Wealth management is a good business to invest in.
And like with Cominar, Fiera shareholders get treated to a succulent dividend while they wait. The current dividend yield is 8.4%.
The bottom line
The market rally hasn’t lifted all boats. Cominar, Boston Pizza, and Fiera Capital are all still very cheap right now. They’re the perfect stocks to buy if you’re a little nervous about the near term, since their cheapness will help protect against downside risk.