3 Top Value Stocks to Buy for October 2020

If you are looking for stocks with significant upside potential, investing in Bank of Nova Scotia (TSX:BNS) is a good option.

Value for money

Image source: Getty Images

The equity markets have made a stellar comeback since March. However, this also means stocks are arguably trading at expensive valuations. A sluggish economic environment coupled with tepid consumer demand would indicate that stocks are, in fact, more expensive than what they were before the COVID-19 sell-off.

But if you look closely, the market rebound has been primarily driven by technology stocks that have largely been immune to the virus. So, there are several options for value investors to buy quality stocks at a lower valuation. Let’s take a look at three such stocks on the TSX to buy for October 2020 and beyond.

A small-cap REIT

The first stock on the list is Dream Hard Asset Alternatives Trust (TSX:DRA.UN), an income-producing real estate investment trust. The company is managed by Dream Asset Management, which is a subsidiary of Dream Unlimited, one of Canada’s largest real estate companies.

The REIT is trading at $4.88, which is 40% below its 52-week high. The sell-off in early 2020 has meant the stock has a forward yield of a tasty 8.2%. Dream Hard Asset Alternatives Trust pays unitholders a monthly dividend of $0.03333 per share.

The REIT invests in real estate development as well as lending, providing investors with an alternative to traditional instruments such as stocks and bonds. The trust’s properties consist of wholly owned and co-owned office properties and we can see what drove the decline in DRA’s stock price in 2020.

As lockdown restrictions were imposed, offices were shut, which sent the stock lower in the first half of 2020. As the restrictions start to ease and normalcy resumes, occupancy rates will move higher, making this dividend-paying stock a good value bet right now.

A banking giant

When it comes to value stocks, it is difficult to overlook the Bank of Nova Scotia (TSX:BNS)(NYSE:BNS). BNS stock is trading at $55.4, which is 28% below its 52-week high, indicating a forward dividend yield of 6.5%.

Investors continue to be wary of investing in banking companies due to high unemployment numbers and low interest rates. This might result in an uptick in loan default rates and falling profit margins.

However, investors should note that BNS has survived multiple recessions over the years and is one of the top Canadian companies given its huge market presence and strong fundamentals.

BNS stock is trading at a price-to-book multiple of 1.04 and a forward price-to-earnings multiple of 9.1. Analysts tracking the company have a 12-month average target price of $61, which is 9% above the current trading price. After accounting for its dividend yield annual returns can grow to 15%.

A utility heavyweight

Another value stock for investors is Canadian Utilities (TSX:CU). This company is trading at a forward price-to-book multiple of 1.7 and a price-to-earnings multiple of 15. Compare this with its expected earnings growth of 9.3% in 2021 and its forward yield of 5.3% and we can see that CU stock has significant upside potential.

Analysts tracking Canadian Utilities have a 12-month average trading price of $38, which is 19% above its current price.

Utility companies are safe bets during recessions, as they provide essential services that ensure a steady stream of cash flows. CU has $20 billion in assets, and its rate-regulated business helps it increase dividend payouts — something it has done for 48 consecutive years.

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.

The Motley Fool recommends BANK OF NOVA SCOTIA, DREAM HARD ASSET ALTERNATIVES TRUST, and DREAM Unlimited. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »