Finding undervalued stocks is the goal of most investors. Indeed, in any market, picking stocks holding great value is the recipe for success. Whether you’re after Warren Buffett-like returns or simply seeking to build a decently performing portfolio that lasts, value is an important attribute to consider.
In this article, I’m going to highlight two stocks I think hold tremendous value today. These undervalued stocks have the potential to provide great long-term returns. For Foolish investors, what’s not to like about that?
Kirkland Lake Gold
As far as top value picks go, Kirkland Lake Gold (TSX:KL)(NYSE:KL) remains atop my list right now. Indeed, this is a stock that has remained cheap throughout the various cycles of late. Regardless of where the price of gold has gone, Kirkland Lake has remained at a discount.
In fact, the company’s current valuation multiple of only 15 times earnings is incredible, given where gold prices have found support at of late. At these prices, I expect forward price to earnings to be even more attractive. After all, Kirkland Lake is in the process of increasing production and will realize higher average prices at least for this past quarter on a year-over-year basis.
Moving forward, the question for many investors in gold miners like Kirkland Lake is where the price of gold will go. As a commodity-focused business, gold miners’ profitability hinges on this large variable. While I remain bullish on gold, the inflation outlook has weakened, and the U.S. dollar has strengthened in recent weeks. Indeed, these are not positive catalysts for gold prices.
That said, over the long term, Kirkland Lake’s attractiveness as a value hedge can’t be disputed. This company is simply one of the best of its peers and is likely to continue to grow its cash flow meaningfully over time.
The company’s relatively high dividend yield of 1.9% is the cherry on top. Kirkland Lake is now amassing so much cash, it’s deciding what to do with it. Besides investing in increasing its production, the company also plans on delivering more value to shareholders. That’s a win-win for long-term investors.
Indeed, the value this utilities company provides is derived from the company’s defensive business model. As a regulated utility, Fortis’s cash flows are about as stable as they come. These cash flows provide for a relatively stable growth trajectory, both on the capital appreciation front as well as with dividend hikes.
In fact, Fortis has been historically one of the best dividend growth stocks on the market. The company’s track record of dividend increases is unmatched, making the company’s 3.7% yield attractive today.
Further, the company’s geographic diversity is impressive. Fortis has operations in Canada, the Caribbean, and the United States, make it one of the largest utilities in the Western hemisphere. Indeed, the company will continue to generate cash flow as long as Canadians and Americans keep their lights and heat on. That’s a proposition most long-term investors can get behind.
Those seeking defensive value can’t go wrong with Fortis right now. Indeed, both picks provide such portfolio safety at a reasonable price right now. Adding either or both of these stocks to one’s portfolio is a great way to ensure long-term gains at a time when the markets are generally overvalued.
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 Chris MacDonald has no position in any stocks mentioned in this article. The Motley Fool recommends FORTIS INC.