Market ratios and projected cash flows can give investors some idea of whether or not a stock is potentially undervalued. Growth investing could be on the cusp of giving way to value investing in the new year as the market’s defining characteristic. With this in mind, let’s look at a handful of names that have been identified as possible contenders for a place in a value investor’s portfolio of recovery stocks.
Going long on undervalued stocks
Distressed value investing could make a comeback in the new year. Investors don’t need to wait, though. Name such as Tourmaline and Parex Resources have been on sale throughout much of the year. Tasty dividends are on offer in the hydrocarbon space, such as Tourmaline’s 3.3% yield. Parex has big comeback potential, meanwhile. A high price target of $30 a share would add significant upside to this $18 stock.
You’ll notice that many names on undervalued lists at the moment are commodities. This stands to reason given the state of the global economy. However, some commodities, such as gold, have had a red-letter year. That said, though, standout names such as Kinross Gold and Dundee Precious Metals are still selling at attractive valuations. Paying 1.6% and 1.3% yields, respectively, these names satisfy a safe-haven dividend thesis.
Takeover targets and under-the-radar tech stocks
Cogeco emerged as a takeover target this year. Though this year’s now infamous bid failed to come to fruition, Cogeco has been left looking all the more desirable because of it. 2020 saw Cogeco thrust into the headlines — and its stats look good. This name is a buy for investors seeking exposure outside the Big Three hegemony of Canadian telecom outfits. A dividend of 2.3% is on offer from this reasonably priced name.
Photon Control (TSX:PHO) has been on value investors’ radars for some time. While its book value is three times lower than its actual price, other indicators suggest that steep capital gains could be on the way. For instance, Photon Control sells at a discount of 30% off future cash flow valuation. This name also boasts a P/E of 15, undercutting the average for the electronics industry.
Tech stock growth has been one of the defining characteristics of the past year. But semiconductor names could have further to run. Investors seeking ground-floor opportunities could have a strong buy in Photon Control. Its access to probe and sensor markets also offer niche growth with wide-moat potential.
Printing and packaging might not have been on everybody’s pandemic wish list. However, as it turns out, packaging is an essential component of the supply chain management industry. This makes Transcontinental an off-the-radar pick for infrastructure and logistics exposure. Overall, Transcontinental is a health stock selling with attractive market ratios. A decent dividend and geographical diversification round out a buy signal.
By mixing prospective price targets, reliable dividend yields, and overall returns indicators, investors can better position themselves for a potential value market. Investing in 2020 has been largely about growth from sudden societal changes. Conversely, 2021 will likely make use of the pandemic’s aftermath.
Still looking for top TSX value stocks? Read the following report before it's gone...
Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.
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.
Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool recommends Photon Control Inc. and TRANSCONTINENTAL INC A.