Some TSX stocks have been trading weak recently, dominated by the pandemic’s dreadful second wave. However, favourable developments on the vaccine front suggest a forceful recovery for them, probably in the second half of 2021.
Here are two such TSX stocks that are trading at a considerable discount but could skyrocket next year. So, if you are sitting on some cash, consider these undervalued stocks for massive long-term gains.
BRP
Shares of the powersports vehicle manufacturer BRP (TSX: DOO)(NASDAQ:DOOO) has been on a downtrend trend recently. While the market has been soaring to new heights on the vaccine news, BRP stock has fallen 17% so far in November.
The $6 billion company BRP works in more than 120 countries and is a leader in all-terrain vehicles, snowmobiles, and personal watercraft segments.
I think the stock is oversold and could reach new peaks when it reports quarterly earnings next week. Even though the company posts flattish growth, as the consensus estimates suggest, upbeat management commentary could drive the stock notably higher.
BRP saw a remarkable improvement in demand in the earlier quarter, which could have further taken a hit by the second wave recently. However, things can progress as consumer discretionary spending normalizes in the post-pandemic environment. Interestingly, a sooner vaccine launch could substantially accelerate its recovery in 2021.
BRP stock has more than tripled since its pandemic lows in March. Currently, the stock is facing crucial resistance at $75 levels. It has fallen thrice after touching those levels in the last 12 months.
However, its attractive valuation and upbeat management commentary in the upcoming quarterly release could beat those levels in the next few weeks.
Bank of Nova Scotia
The vaccine news boosted Canadian bank stocks in the last few weeks. But Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) soared almost 20% this month, notably outperforming peers. The outperformance is quite justified, as the vaccine could accelerate Scotiabank’s recovery.
It has a large exposure to Latin American countries — some of the pandemic’s worst-affected areas. BNS stock has lost 16% so far this year.
Interestingly, Scotiabank is among the cheapest of bank stocks from the valuation standpoint, despite its recent rally. The discounted valuation makes it an apt bet for contrarian investors in the current market scenario.
Also, it yields almost 6%, higher than average Canadian bank stocks. Bank of Nova Scotia has paid dividends for the last 187 consecutive years.
The bank will release its fiscal fourth-quarter results early next month. Its upcoming earnings might not significantly decline, as it has already set aside a large chunk in provisions for credit losses.
Scotiabank stock might trade muted in the next few quarters. Investors can enjoy handsome dividends till then. Many analysts see Scotiabank’s Latin American exposure as a risky play.
However, I think the same will act as a growth engine for the bank post-pandemic. Also, its diversified earnings base and strong credit quality should fuel compelling recovery in the long term.
