The Canadian stock market bounced back sharply from its March lows with most of the stocks recouping the majority of their losses. In case you haven’t participated in the recovery rally, there are a few TSX stocks that continue to trade a discount even with the recent rebound in their prices.
Shares of Pembina Pipeline (TSX:PPL)(NYSE:PBA) are down 28% year to date. Moreover, it is trading at a discount of 36% from its 52-week high of $53.80. The significant decline in Pembina stock followed the lower demand for the crude oil it transports.
However, investors should note that Pembina has diverse revenue streams, and its business is highly contracted with a little direct commodity exposure. Pembina’s long-term, fee-based contracts are backed by take-or-pay and cost-of-service arrangements that help in generating predictable cash flows. The company generates strong fee-based cash flows that are sufficient to cover its payouts.
The energy infrastructure company is a Dividend Aristocrat and has paid $4.5 billion in dividends in the last five years. Meanwhile, its dividends have grown at 6.5% annually during the same period. Currently, Pembina pays a monthly dividend of $0.21, which is safe and likely to increase in the coming years. The decline in Pembina’s stock has driven its yield higher to 7.3% and makes it an attractive investment option for growth and steady income.
AltaGas (TSX:ALA) stock is down over 17% so far this year. Meanwhile, it is trading at a discount of 28% from its 52-week high of $22.74. The company’s midstream operations often lead investors to misjudge it as an energy company. However, AltaGas runs a diversified business with its regulated utility business accounting for about 75% of its overall revenues.
Investors should note that AltaGas’s utility business provides both stability and growth and are backed by the fixed distribution charges and decoupled rate structures in its biggest markets. The company’s utility rate base is growing at a brisk pace. Meanwhile, management expects it to increase by 8-10% annually in the coming years, which is encouraging.
Besides generating predictable cash flows, AltaGas remains well positioned to benefit from its high-growth midstream operations. The company’s Ridley Island Propane Export Terminal presents enormous growth opportunities and is likely to accelerate its growth in the coming years.
AltaGas also offers monthly dividends of $0.08. Meanwhile, the pullback in its stock has driven its yield higher to 5.9%.
The company should deliver high growth in the coming years. Meanwhile, its resilient business and high forward yield make it an attractive buying option at a discount.
Also, it trades cheap on the valuation front. Its stock is trading at a next 12-month EV-to-EBITDA of 5.4, well below the industry average of 9.5. Its forward price-to-cash flow ratio of 3.7 is significantly lower than the industry average of 14.1.
The pandemic has negatively impacted its printing business, which accounts for almost half of its revenues. While the company could witness challenges in the near term, reopening of the economy should help the company’s recovery process. Investors should note that its packaging products business (which accounts for about 50% of its revenues) is witnessing a surge in order uptake and should continue to support its cash flows.
The Transcontinental stock offers a forward yield of 6.1%, and investors should not miss the opportunity to buy this TSX stock while it is still low.