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4 Value Stocks That Could Deliver Superior Returns

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The Canadian equity markets have bounced back strongly from the lows of March 2020 amid an improvement in economic activities and expansionary fiscal and monetary policies. The strong rally has also raised the valuation of many Canadian stocks. However, few Canadian companies are still trading at an attractive valuation and provide excellent buying opportunities. In this article, we will look at four such companies.

Suncor Energy

Despite rising over 8% this year, Suncor Energy (TSX:SU)(NYSE:SU) still trades close to 45% lower from its January 2020 levels. The correction has also dragged its valuation down, with its forward price-to-sales and forward price-to-earnings standing at 0.8 and seven, respectively. Given its attractive valuation and improving oil demand amid the easing of travel restrictions, I am bullish on Suncor Energy.

Suncor Energy has planned to invest around $5 billion over the next five years, expanding its base business and optimizing its operations. Earlier this week, it had announced plans to increase its stake in White Rose and Terra Nova assets. These investments and improving energy demand could drive the company’s financials in the coming quarters. Additionally, it also pays quarterly dividends, with its forward yield currently at 3.63%.

Algonquin Power & Utilities

Second on my list is Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN). Amid its solid fundamental performance, the company has delivered impressive returns of over 85.4% in the last six years at a CAGR of 19.1%. During this period, the company’s adjusted EPS has grown in double digits. However, the company is under pressure this year, with its stock price correcting over 5%. Amid this pullback, the company currently trades at a healthy forward price-to-earnings multiple of 19.4.

Meanwhile, Algonquin Power & Utilities has committed to a five-year capital-investment plan of $9.4 billion, with $6.3 billion on utility assets and $3.1 billion on renewable assets. The concerns over rising pollution levels have hastened the transition towards clean energy, benefiting Algonquin Power & Utilities. Further, the investments in utility assets can provide stability to its financials. So, given its strong fundamentals, healthy growth prospects, and attractive valuation, Algonquin Power & Utilities could deliver superior returns over the next two years.

Absolute Software

Absolute Software (TSX:ABST)(NASDAQ:ABST) has witnessed a steep correction over the last few months and currently trades at over a 40% discount from its February highs. The company had posted a mixed second-quarter performance last month due to a global shortage of semiconductors and supply-chain disruptions due to the pandemic-infused restrictions, which dragged its stock price down. Amid the selloff, its valuation has fallen to attractive levels, with its forward price-to-earnings ratio standing at 24.1.

Meanwhile, Absolute Software’s outlook looks healthy amid the rising spending on cybersecurity due to rising remote working and learning. The company’s acquisition of NetMotion Software and launching of new products could also aid in raising its market share in the expanding cybersecurity market. So, Absolute Software could be an excellent buy despite the near-term volatility.


My final pick is Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), which has returned around 40% over the last 12 months. Despite the substantial increase in its stock price, its forward price-to-earnings ratio stands at 10.1, which is cheaper than most peers. Meanwhile, the economic growth amid the easing of restrictions and expansionary policies could drive credit growth, boosting the company’s financials in the coming quarters.

Also, the company has substantial exposure to commodity-driven markets, which could see strong growth in the near term. Its growing non-interest income, digital adoption, and improving operational efficiencies could also drive its earnings, thus allowing the company to pay dividends at a healthier yield. Its forward yield currently stands at a healthy 4.61%.

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.

The Motley Fool recommends Absolute Software Corporation and BANK OF NOVA SCOTIA. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.

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