The Motley Fool

Value Investors: These 2 TSX Stocks Are Absurdly Cheap Right Now

Image source: Getty Images

The equity markets have staged a strong recovery after bottoming out in March 2020. The S&P 500 Index is trading 4.5% below its all-time high, while the NASDAQ has reclaimed record highs. This V-shaped recovery has surprised investors and analysts.

However, there are several stocks that are still trading considerably lower than their intrinsic price, making them attractive to value investors. Here we look at two TSX giants that are a must-buy at the current price.

Bank of Nova Scotia has a dividend yield of 6.4%

Shares of Canada’s financial services giant, Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) are trading at $55.98, which is 27% below its 52-week high. This pullback has increased its dividend yield to a tasty 6.4%. The stock has a forward price to earnings multiple of 9.3 and a price to book ratio of 1.06.

BNS is Canada’s third-largest bank with a market of $68 billion. It has increased dividends in 43 of the last 45 years, making it one of the top dividend growth stocks on the TSX. However, given the macro-economic uncertainty and the spike in Canada’s unemployment rates, investors are worried about the mortgage and corporate defaults, driving BNS stock lower.

BNS stock’s average dividend yield in the last five years stood at 4.45%, so it’s clear that investors can take advantage of the recent weakness and secure an outsized yield. Further, the company’s low payout ratio of 58.7% makes a dividend cut unlikely.

Given the stock’s dividend growth history, BNS should be on the radar of most investors. In 2015, BNS paid  quarterly dividends of $0.68 per share and its current payout has risen to $0.90, an annual growth rate of 5.8%.

If you invest $10,000 in BNS stock right now, you can generate $643 in annual dividend payments. If we keep its dividend growth rate of 5.8% as a constant, these payments will reach close to $1,900 annually over the course of 20 years.

BNS stock remains a top stock given its low valuation, attractive dividend yield, and huge market presence.

The 10 Best Stocks to Buy This Month

Click here to learn more!

An integrated energy player

Suncor Energy (TSX:SU)(NYSE:SU) is another stock that’s trading at an attractive valuation. Suncor stock has fallen close to 50% from its 52-week high due to weakness in the energy sector.

However, investors should note that Warren Buffett has a stake in Canada’s energy giant. Berkshire Hathaway holds 14.9 million Suncor shares worth $256 million indicating a 1% stake in the firm.

Despite its massive pullback, Suncor remains a quality company that can take advantage of rising oil prices by drilling more or by leveraging its downstream operations when prices move lower.

Suncor slashed its dividends by 55% and reduced capital expenditure by 33% to boost short-term liquidity. However, these factors are already priced in, and investors can expect the stock to gain momentum if oil prices recover.

Suncor stock is trading at a price to sales ratio of 1 and a price to book ratio of 0.96. This Canadian heavyweight has enough liquidity to survive the current downturn and its downstream operations should compensate the underperformance in the upstream business.

Suncor also owns and operates 1,500 retail and wholesale fuel outlets in North America, making it a diversified energy stock with a dividend yield of 3.7%.

Speaking of Canadian stocks to buy right now....

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.