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2 Undervalued TSX Stocks That Are Starting to Heat Up!

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Loblaw (TSX:L) and Enbridge (TSX:ENB)(NYSE:ENB) seem to be driving through the intersection between value and momentum going into August. Year to date, each name is up 35% and 21%, respectively. Not a bad return for two 2020 laggards. As we move into late summer, I’d look for both names to continue adding to their gains.

Loblaw

It’s been an incredible run in 2021 for Loblaw. The boring grocery store company caught almost everybody off-guard when it blasted off over 40% off its late February low. Undoubtedly, management has been doing a lot of things right to propel shares to new all-time highs. But after a parabolic move, could an equally steep pullback be on the horizon? Or is the stock still a great value amid its latest upside surge?

In a prior piece, I doubted Loblaw’s rally. I stated that the valuation was a tad stretched, and the firm would be faced with a more challenging environment as the rate of inflation rose. I was wrong.

“Although [Loblaw’s] digitization efforts are encouraging, I can’t say I’m enthused about paying a growth multiple for a firm that’s likely to enjoy modest growth over the next few years,” I stated in a prior piece.

Loblaw stock is powering higher, and management has proven that shares are very much worth the premium multiple. Indeed, it’s been a long time coming for the grocery giant. But digitization efforts and food inflation resilience may very well act as rally fuel for a name that’s been stuck in the doghouse for far too long.

While the valuation leaves a lot to be desired, I certainly wouldn’t bet against the name now that it’s breaking out. I wouldn’t overweight a position here, but if you’re looking to play defence and receive a juicy 1.7% dividend yield for doing so, by all means, consider initiating a starter position right here.

Enbridge

Enbridge is another dog that’s making up for lost time in a huge way. Although shares have surged nearly 40% off their late-2020 lows, the stock still sports a handsome 6.8% dividend yield. As usual, the dividend hikes keep on coming for the midstream powerhouse. Only this time, shares are moving in a positive direction — something I expect to continue going into year’s end.

At the time of writing, the stock trades at just 16.5 times trailing earnings. That’s really cheap for a firm that’s gushing with cash flows. Sure, investing in a pipeline stock isn’t everybody’s cup of tea, especially for younger investors who really care about ESG-friendly practices.

It’s important to understand, however, that Enbridge is taking steps to establish itself as an energy company that cares about the environment. The company’s green energy push may not be a meaningful mover of the stock today.

But with ambitious goals in place, count me as unsurprised if the firm can offset emissions and win over the investment dollars of skeptical young investors who seek to do help do their part to save the world while making a bit of money in the process.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

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