Value investing refers to choosing and investing in stocks that are trading at lower prices than their discounted future earnings suggest they should be worth. Of course, this sounds good to most investors. However, the market is forward looking, and finding such opportunities isn’t easy.
Much of this is due to the fact that there has been a remarkable rotation in capital markets. Investors are increasingly rotating out of growth stocks into value stocks. Accordingly, those stocks many have deemed as great value just a few months back may look less attractive now.
That said, there are certainly still some great opportunities in the market. Here are two of my top picks among value stocks trading on the TSX.
Top value stocks: Alimentation Couche-Tard
Top Canadian convenience store chain Alimentation Couche-Tard (TSX:ATD) is one of my favourite value stocks right now. There are a number of reasons for this.
Let’s start with the company’s valuation. Currently, Couche-Tard trades at around 17 times earnings. Notably, this multiple has increased of late due to strong earnings. However, this multiple is still cheap compared to the company’s long-term growth prospects.
Couche-Tard has been a notable winner for investors over the long run. This is mainly due to the company’s winning growth strategy tied to well-timed and prudent merger and acquisition (M&A) deals. Couche-Tard has utilized a world-class M&A team to propel its growth forward.
Of late, the company has picked up its deal flow once again, suggesting to investors that growth is once again on the horizon. Couche-Tard inked two deals last year that will further boost its growth. Circle K, which is one of the company’s core banners, entered a partnership to acquire both Go! Stores and Wilsons Gas Stops in Canada. This deal will close in the first half of 2022. In addition, the company made a deal to acquire 35 sites from Porter brands.
Couche-Tard has excellent financials, a strong balance sheet and is well positioned for growth assuming moderate increases in economic activity over the long term. Accordingly, this is a defensive option for investors looking to put fresh capital to work in this environment.
SmartCentres REIT
Perhaps a slightly more aggressive pick for value investors is SmartCentres REIT (TSX:SRU.UN). I say slightly more aggressive in the context of this REIT’s business model. As a retail-focused REIT, SmartCentres does have exposure to both rising interest rates and economic strength (we all need to keep shopping).
That said, SmartCentres is certainly attractive from a valuation standpoint. At only six times earnings, it’s clear that investors have priced in many of these concerns into this trust’s current valuation.
SmartCentres REIT is a leading integrated REIT with a massive portfolio of properties. In total, the trust boasts 174 locations in Canada. SmartCentres owns around 34.1 million square feet of retail and office space, with an occupancy rate of 97.6%. That’s impressive in this environment.
This REIT focuses on developing mixed-use communities with the aim to enhance and improve the lives of Canadians. Its ambitious Project 512 will include condos, rental apartments, hotels, residences, and more.
SmartCentres recently announced a distribution for March 2022, which stands at $0.15417 for each trust unit. This translates into a dividend of $1.85 per unit on an annualized basis.
Overall, from a valuation and defensive standpoint, I think both these stocks are great picks. Like I said, value is hard to come by in this market. However, Couche-Tard and SmartCentres both have attractive qualities relative to their valuations right now.
