The Motley Fool

Got $1,000? 3 Undervalued TSX Stocks to Buy in March

Image source: Getty Images

Despite the stellar run-up in Canadian equities, not every TSX-listed stock is looking expensive. A few stocks are trading at a good discount and offer great value at the current levels. Let’s focus on three TSX stocks that are undervalued and have room for strong growth in the future. 

Capital Power

Capital Power (TSX:CPX) stock looks attractive at the current price levels. Shares of the power producer are trading at an NTM (next 12-month) EV/EBITDA multiple of 8.0, which is about 34% lower than its peer group average of 12.1. In comparison, shares of Algonquin Power & Utilities and TransAlta Renewables trade at a forward EV/EBITDA multiple of 13.2 and 13.4, respectively. Meanwhile, Capital Power stock is also trading lower than Canadian Utilities and Fortis stock on the valuation front.

Capital Power’s attractive valuation and low-risk business strengthen my bullish view on its stock. Its high-quality asset base, long-term power-purchase agreements, and growing renewables portfolio position it well to deliver healthy returns in the coming years. Capital Power is also likely to boost its investors’ returns through higher dividend payments, thanks to its predictable and growing cash flows. 

It has consistently raised its dividends in the last seven years. Moreover, it projects its annual dividend to increase by 7% and 5% in 2021 and 2022, respectively. Capital Power currently offers a high yield of over 5.9%. 

Bank of Montreal 

Bank of Montreal (TSX:BMO)(NYSE:BMO) started FY21 on a strong note and delivered stellar Q1 performance on the back of loans and deposit growth, expense management, and lower provisions. I believe the ongoing vaccination and economic expansion will drive strong consumer demand and support Bank of Montreal’s financial performance.

Further, its stock is trading cheap compared to peers, which provides an excellent entry point for investors. Shares of Bank of Montreal are trading at a price to book value multiple of 1.2, which is nearly 27% lower than its peer group average. Toronto-Dominion Bank and Royal Bank of Canada stocks are trading at a price to book value multiple of 1.6 and 1.9, respectively. 

Bank of Montreal’s loans and deposit volumes are likely to increase in the coming quarters, driving its net interest income higher. Meanwhile, a sharp decline in credit loss provisions and tight expense management are expected to drive its earnings, in turn, its dividends and share buybacks.  

Apart from trading at a lower valuation, Bank of Montreal also offers a decent dividend yield of 4.0%. The banking giant has paid dividends for about 192 years and remains on track to continue to boost its shareholders’ returns through higher dividends. 

Kinross Gold

Kinross Gold (TSX:K)(NYSE:KGC) is too cheap to ignore at the current price levels. As the economy shows signs of revival, investors shunned gold, which led to a steady decline in Kinross Gold stock. However, it provides an opportunity to load on the fundamentally strong gold stock for the long term. 

Shares of Kinross Gold trade at an NTM EV/EBITDA multiple of 3.6, about 27% below the peer group average of 4.9. Further, its stock is trading about 41% lower when compared to Barrick Gold’s NTM EV/EBITDA multiple of 6.1. 

I believe higher production volumes and lower production costs are likely to support Kinross margins, in turn, its dividend payments. The gold mining company restarted to pay quarterly dividends and offers a dividend yield of 1.9%. 

Speaking of undervalued stocks, take a look at this free report now for top value bets trading below $50…

Just Released! 5 Stocks Under $49 (FREE REPORT)

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.

Claim your FREE 5-stock report 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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.

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.