As an investor, it pays to be reasonably prudent. But if you play it too safe, you might only experience minimal growth. Being reasonable, however, can work wonders. For example, if you are a value investor and you come upon some securities that are tastefully undervalued but you’re unsure about their future prospects, it’s a good idea to keep putting them on your watch list.
If you see a recovery or growth trend developing, you should buy. While the value might not be as good as before, the growth potential would be better. And if you see the opposite trend, remove them from the watch list.
There are three stocks that should be on your watch list right now.
A mining company
Lundin Mining (TSX:LUN) is a Toronto-based mining company with operations in five countries and three continents. It focuses on four metals: copper, zinc, gold, and nickel. Thanks to this diversified focus, the company, while technically a gold miner as well, is not exposed to a similar negative correlation with the stock market as typical gold companies do.
The stock hit its post-pandemic peak in April and has fallen a long way since that peak (over 43%). As for the valuation, it’s currently trading at a price-to-earnings ratio of 8.7 and a price-to-book of 1.3 times. This downturn has also resulted in a yield spike, and it’s almost 4% right now.
The payout ratio is quite stable, and the company has grown its quarterly dividends three times in the last three years. Coincidently, the growth is also three “times,” from 0.03 per share to 0.09 per share.
An insurance company
Quite a few insurance companies saw a downturn about a year after the pandemic, but iA Financial Group (TSX:IAG) isn’t one of them. The stock has grown about 94% and quite consistently after the pandemic-driven market crash of 2020. And despite this growth, the valuation is quite attractive. The yield, however, has dropped to 2.7%, which is still decent enough.
The long-term growth prospects of the insurance company look fine as well. The 10-year compound annual growth rate (CAGR) is about 11.7%, which is enough to grow your initial investment to a decent-sized nest egg if you keep holding on to the company for long enough. The company recently saw major c-suite changes and has yet to see how this will affect the stock.
An undervalued REIT
Summit Industrial Income REIT (TSX:SMU.UN) is one of the best growth stocks in the real estate sector, or at least it has been for the past five years. Its five-year CAGR of 35% rivals the top growth stocks on the TSX, but it’s probably one of the cheapest of the bunch. It has a price-to-earnings of just 3.9 and a price-to-book of 1.4, making it one of the best-valued stocks in the sector.
And the low valuation might indicate that the company has a lot of room to grow. And the cherry on top is the 2.6% dividend yield. Another reason to consider this REIT would be the asset class it owns and operates. It has a portfolio of light industrial properties and stands to make a decent profit with the e-commerce boom. It recently bought a logistics centre in Calgary for about $126 million.
All three undervalued deals are at different stages right now. Summit looks like a good buy right away, Lundin mining should be watched as it continues to slip, and iA might be due for a correction in the coming months.
Keeping track of all three (whether you do it the old school way or use presets), can help you pounce on the assets at exactly the right time.