Are you looking to make the most of the new $6,000 contribution room you have in your Tax-Free Savings Account (TFSA) this year? Then you’ll want to be careful given how expensive many stocks are in the markets right now. It can be a dangerous time to invest, as finding good investments that you aren’t paying a fortune for isn’t easy.
You’ll want to pay close attention to a stock’s ratios, including price-to-earnings (P/E), to ensure you aren’t paying too much. However, focusing too much on a trailing P/E ratio can be misleading, especially since the coronavirus pandemic has negatively impacted many companies over the past year. That’s where using a forward P/E multiple can be much more helpful as that factors in analyst expectations for next year. And when looking at that, you can uncover some great deals. The two stocks listed below look particularly attractive right now:
Kinross
When valuations are high in the stock market, gold can be a great area to invest in. Mining company Kinross Gold (TSX: K)(NYSE: KGC) hasn’t been a terribly hot buy of late given that investors are optimistic about an economic recovery now that COVID-19 vaccinations are taking place and there’s hope the pandemic may soon be over. However, that doesn’t mean that the markets still won’t come crumbling down as the fallout of the pandemic will still be felt long after it’s gone. That includes the end of things like the Canada Recovery Benefit and stimulus benefits in the U.S., which could put people in North America in much worse financial positions.
The price of gold could rise in troubled times, which is why if things go downhill, Kinross could post even stronger profit numbers. In the trailing 12 months, Kinross netted more than US$1 billion in net income. In all of 2019, its bottom line was US$719 million, and it’s also incurred a loss in three of its last five fiscal years. But a stronger price of gold could bring a lot more consistency to the stock.
Today, Kinross stock is trading at a forward P/E of less than nine, which is a bargain considering value investors like Warren Buffett typically target an earnings multiple of 15 or lower.
Open Text
Open Text (TSX: OTEX)(NASDAQ: OTEX) is another cheap stock that could prove to be an underrated buy right now. At a forward P/E of 14, it’s a bit more expensive than Kinross, but it’s still a good deal. Consider that Shopify giant still isn’t posting consistent profits, and Open Text can be a great alternative for tech investors who aren’t keen on paying for a stock with a sky-high valuation.
Shares of Open Text are relatively unchanged from where they were a year ago. But the company’s focus on cloud-based solutions, analytics, and automation make it an attractive buy, as businesses continue to shift and do more of their work digitally. That can lead to IT upgrades in the future, which could help generate some strong growth numbers for Open Text in the quarters and years ahead.
Another great feature of Open Text is that unlike many tech stocks, it pays a dividend that today yields 1.8%.
