Economic growth, increasing consumer demand, and recovery in corporate earnings suggest that value stocks will likely outperform the broader markets and deliver superior returns. While several TSX stocks are trading cheap, here are four top picks.
Financials to outperform
Economic expansion, the expected increase in interest rates, an uptick in credit demand, and lower provisions suggest that financials will likely deliver superior returns in 2022 and beyond.
Within financials, I am bullish on goeasy (TSX:GSY). This subprime lender has been growing rapidly and has been delivering stellar revenue and earnings growth. I believe economic growth, higher loan origination, and strong payments volumes will likely drive its financials and, in turn, its stock price.
Further, acquisitions, new product launches, higher loan ticket size, and omnichannel offerings will accelerate its growth. Meanwhile, leverage from higher sales is expected to boost its earnings.
It’s worth noting that the recent selling in stocks has led to its multiple compression, making it attractive on the valuation front. Its forward price-to-earnings multiple of 14.4 has declined from 19.1, representing a solid opportunity to buy this high-growth Canadian stock.
Besides offering value and high growth, goeasy’s high-quality earnings base positions it well to boost its shareholders’ returns through increased dividend payments.
Scotiabank (TSX:BNS)(NYSE:BNS) is another stock in the financial sector that remains well positioned to capitalize on the expected increase in loan volumes. Its diversified revenue base and exposure to high-growth banking markets will drive its top line. Furthermore, lower provisions and operating leverage will cushion its earnings.
While Scotiabank stock recovered from the pandemic lows, it’s still trading cheap compared to peers and offers good value.
Scotiabank’s price-to-book value multiple of 1.6 is lower than the peer group average of 1.9. Meanwhile, its price-to-earnings multiple of 11.1 also compares favorably to peers. Scotiabank is known for paying and growing its dividend and currently offers a solid yield of 4.3%.
Rely on this airline stock
The easing of lockdown mandates and recovery in air travel demand make Air Canada (TSX:AC) stock attractive. Its stock has corrected significantly, providing an excellent buying opportunity. Air Canada’s challenges are temporary, and I expect its revenues to get a massive boost from higher bookings and capacity expansion.
Furthermore, the strength in its air cargo business and revenue diversification initiatives augur well for future growth. It’s worth noting that higher revenues and tight cost-control measures will likely cushion its bottom line and, in turn, its stock price.
A top utility stock
The recent pullback in Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) stock provides a good buying opportunity for investors seeking value, income, and growth. Its high-quality utility assets, rate base, growth, growing renewable capacity, and strategic acquisitions will likely drive its financials and, in turn, its stock price.
Further, long-term contracts and regulated utility assets generate predictable cash flows, which drive its dividend. Algonquin Power has consistently returned a significant amount of capital to its shareholders. Meanwhile, its dividend yield of 4.9% remains high.
