Canada Housing: Should You Buy These TSX Stocks on the Dip?

All eyes are on the Canada housing market, which should spur investors to consider TSX stocks like Home Capital Group Inc. (TSX:HCG).

Ambrose O'Callaghan

Ambrose O'Callaghan graduated with a BA in Political Science from McMaster University. After that, he jumped into the banking world. He worked from the front line to an investment associate role. After that, he found a way to marry his experience and knowledge in the world of banking and finance to his love and passion for writing. Ambrose is a passionate believer in Warren Buffett's value investing model.

Published April 4, 2022 12:00 pm EDT

The S&P/TSX Composite Index rose 62 points to close out the previous week on April 1. Canadian stocks have broadly bounced back since suffering a dip in late February and early March. However, some TSX stocks linked to the Canada housing market are still in shaky territory. Today, I want to discuss whether these equities are worth buying on the dip.

Here’s why the Canadian housing market is inspiring anxiety right now

When the seriousness of the COVID-19 pandemic became apparent, some experts and analysts predicted that this could be the catalyst that would prick the “bubble” in the Canadian housing market. Instead, real estate prices have soared even higher on the back of historically low interest rates and sky-high demand. In March, the Bank of Canada (BoC) moved to hike the benchmark interest rate by 50 basis points. Last month, I’d discussed why this tightening cycle may lead to the long-awaited correction in Canada housing.

However, the market could still thrive on the back of strong fundamentals. This should inspire investors to keep an eye on TSX stocks with exposure to this space.

Should you snag this housing-focused TSX stock on the dip?

Home Capital Group (TSX: HCG) is a Toronto-based company that provides residential and non-residential mortgage lending and other credit services in Canada. This TSX stock has dropped 4.2% in 2022 as of close on April 1. Its shares are still up 20% in the year-over-year period.

The company released its fourth-quarter and full-year 2021 results on February 17, 2022. It delivered net income of $244 million, or $4.78 per diluted share — up from $175 million, or $3.33 per diluted share, in 2020. Meanwhile, mortgage originations climbed to $8.86 billion by the end of the fiscal year, which was up from $6.95 billion. This reflected the record activity we witnessed in the Canadian housing market over the past year.

Shares of this TSX stock currently possess a very attractive price-to-earnings (P/E) ratio of 7.9. The Canadian housing market is about to enter a challenging period, but Home Capital still looks like a solid addition right now.

One more TSX stock to watch in this market

Equitable Group (TSX: EQB) is another Toronto-based company that provides alternative lending services to a wide customer base. Shares of this TSX stock have been largely static in the year-to-date period. The stock has increased 14% from the same time in 2021.

Investors got to see Equitable Group’s final batch of 2021 earnings on February 7. Total assets under management (AUM) climbed 17% from the previous year to $42.0 billion. Meanwhile, annual earnings were reported at $292 million or $8.36 per share — up 31% and 29%, respectively, from the prior year. Single family alternative loans jumped 30% year over year to $14.4 billion.

This TSX stock also boasts a favourable P/E ratio of 8.6. It currently offers a quarterly dividend of $0.28 per share. That represents a modest 1.5% yield. The Canada housing sector has proven robust over the course of the past decade. Investors who still have faith in this strong space may want to snatch up this discounted TSX stocks today.