This summer, there aren’t really a lot of value stocks out there. The post-COVID market rally took stocks to all-time highs, and they’re still fairly expensive now. Over the last two months, the markets have gone kind of sideways, but they haven’t really “fallen,” so multiples are still pretty high across the board. Nevertheless, there is value to be found if you know where to look for it. In sectors like banking, energy, and REITs, you can still find some genuine value stocks with low multiples and high yields. In this article, I’ll explore three dirt-cheap value stocks for summer 2021.
Enbridge (TSX:ENB)(NYSE:ENB) is an energy stock with a price-to-earnings (P/E) ratio of 21 and a price-to-book (P/B) ratio of 1.84. This isn’t the cheapest stock on earth, but it’s fairly inexpensive for a large-cap TSX stock in 2021. The stock also has a dividend yield of 6.8%, so you get $6,800 in annual cash back on a $100,000 position.
In the first quarter, Enbridge delivered solid financial results, including
- $1.9 billion in net income, up from a $1.4 billion loss;
- $2.6 billion in cash from operating activities; and
- $2.8 billion in distributable cash flow — more than enough to cover the dividend.
When you take all these factors together, you can easily see that Enbridge is a high-yielding stock that can more than pay its remarkably fat dividend. The fact that the stock is relatively cheap doesn’t hurt either.
Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a true value stock, with an 11.2 P/E ratio and a 3.63% yield. TD stock has been rallying this year, but it’s still a pretty good value today. It’s not as cheap as it was last year, but it’s cheaper than the average TSX stock.
TD Bank’s most recent quarter was widely taken as a win, with earnings up 144% year over year. To an extent, strong earnings growth was a given, because the prior year quarter was right in the middle of the first wave of COVID-19. This caused all banks, including TD, to suffer a pronounced decline in earnings. Mostly an “on paper” decline due to PCL rather than a real cash decline. However, TD’s second quarter also delivered better results than the most recent quarter before COVID-19 hit, so we can see that the bank is growing its earnings — not only year over year, but also compared to before the pandemic.
Royal Bank of Canada
Royal Bank of Canada (TSX:RY)(NYSE:RY) is another cheap bank stock like TD Bank. With a 12.9 P/E ratio, a 3.4 price/sales ratio, and a 2.09 P/B ratio, it’s among the cheaper Canadian stocks you’ll find out there today.
The case for investing in Royal Bank of Canada is similar to the case for investing in the Toronto-Dominion Bank. It’s a Canadian bank stock that got hit hard in the pandemic and is now starting to recover. Like TD, RY’s stock has been rallying this year. Also like TD, it generated a huge increase in earnings in its most recent quarter. Of course, this was in no small part due to the damage taken a year before. But RY is still a great, reliable Canadian bank stock with low multiples and a high yield.
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 Andrew Button owns shares in TD Bank and Royal Bank of Canada. The Motley Fool owns shares of and recommends Enbridge.